Magazine article The CPA Journal

The Marriage Tax: Current Effects and Future Changes

Magazine article The CPA Journal

The Marriage Tax: Current Effects and Future Changes

Article excerpt

THE MARRIAGE TAX WOULD BE ELIMINATED

if the income tax system were a flat tax rather than a progressive tax.

In 1948, Congress enacted an income tax rate structure for married taxpayers filing joint returns. Congress intended the new rules to favor married taxpayers, but in some cases, taxpayers would be assessed less income tax if they were unmarried and filed separate tax returns. The additional amount of income tax a joint tax return can produce is often referred to as the "marriage tax," and usually occurs when both spouses have large taxable incomes.

A marriage tax exists if a married couple filing jointly would owe more tax than both filing separately. The opposite, a marriage subsidy, exists if a married couple filing jointly would owe more tax than both filing separately. The marriage tax has the greatest impact when the taxable incomes of each spouse are similar. The taxable incomes of husbands and wives are normally closer for middleand lower-income couples than for wealthy couples.

The Choice

Married couples may file either a joint tax return or separate returns. When married individuals elect to file separate returns, each spouse reports only their own income, exceptions, deductions, and credits. Each spouse must use the Tax Rate Schedule applicable to married taxpayers filing separately. Certain aspects of filing separately are disadvantageous; for example, child care credits are not available.

While it is generally more beneficial for married taxpayers to file a joint return when both spouses have taxable income, they should calculate their income tax both ways, jointly and separately, and choose the filing status that yields the lower income tax.

Setting the wedding date can be a fiction of income levels. When one spouseto-be has significantly less income than the other, a December wedding would be more tax-advantageous than January. In this case, filing Jointly will generally result in less tax on the same amount of income than filing two single tax returns.

If both spouses-to-be have similar levels of income, they should choose January instead of December as the wedding date. If filing jointly, a December wedding triggers the marriage tax a year earlier.

Possible Solutions

The marriage tax would obviously be eliminated if the income tax system were a flat tax rather than a progressive tax. The pooling of spousal incomes would then not have an effect on the tax rate, regardless of relative income. A few years ago, Representative Dick Armey floated the idea of a flat income tax of 17%, but the proposal did not receive sup port in Congress.

Another way to eliminate the marriage tax would be to simply tax the income of spouses as single individuals. Under this method, married couples would continue to file a joint return, but would be taxed on their individual earnings and their common income from other sources. Separate taxation of the spousal income in this manner accomplishes marriage tax-neutrality without a complicated system of tax exemptions and credits.

What the Numbers Reveal

The following analysis reveals the impact of the current marriage penalty tax on four single taxpayers. …

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