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Tax Season: Mixed Messages of the Marriage Penalty
25 02 06  19  15
-------- It is More Than Tax Brackets
“Uncle Sam's so-called "marriage penalty" impacts over 40% of married couples, boosting annual taxes for these couples. The penalty can be steep, especially for two-income couples where both incomes are fairly equal. When both incomes are combined, many couples are pushed into the next tax bracket, triggering higher taxes on April 15th.” (Save Whealth)
However...
“… more couples get a bonus when they marry than suffer a penalty.” (Liz Puliman Weston for MSN Money)
Marriage penalty affects mostly double income earners who have Adjusted Gross Incomes of more than $100,000. For starters it is unfair. However, nobody said the fairness of any tax system can be claimed without contest. Majority usually wins their argument whenever it is fair for the minority or not -- that is how democracy is defined. What I think is really wrong is that on one side society is telling people: "Study, prepare yourself, have a nice career, work hard, and marry someone like yourself.", and on the other side (the tax side) is telling people: "If you marry and both of you decide to contribute to our economy, you will pay more taxes, so you better don't marry."
What is more, taxes drive behavior -- that is one of the reasons many people buy houses, for example. Things that help people grow in life like real estate investments, Roth IRAs, Educational IRAs get affected by the marriage penalty. The government tells people to save and invest and then tells them, don't do it if you get married.
Marriage penalty items often overlooked by the press:
- Less favorable tax brackets for married high income earners than for single high income earners. After a couple enters the 25% tax bracket ($59,400 taxable income or more), they start paying more taxes than singles with half the salary.
- ”Reduced passive activity loss deduction for active rental real estate owner: A married couple who actively participate in renting out real property can deduct up to $25,000 of loss from the activity if their modified adjusted gross income is $100,000 or less.” (Fool.com) $100,000 for a couple is easy to reach if both work.
- Less capital loss deductions: A single payer can deduct $3,000, two single payers can deduct up to $6,000 when filing independently. But a married couple can only deduct $6,000 in capital losses.
- Roth IRAs and Educational IRAs: Married couples with an adjusted gross income of more than $160,000 can’t use these benefits. We advocate people to take advantage of them, but we can’t use them!
- Roth Ira Conversion: If you want to take advantage of it, you better earn less than $100,000 in Adjusted Gross Income.
- Personal exceptions get reduced or eliminated after Adjusted Gross Income reaches $218,950 vs $145,950 each if they file as single. (2005, adjusted for inflation) This threshold is very easy to reach by a married couple.
- Loss of some itemized deductions when they earn around $140,000 or more. If they had been single, they could earn the same married amount, independently.
If you are as outraged and/or affected as we are in my family, I recommend you write to your congressman. After all, they should represent our interests. |
