Under the new tax law, most married couples will see some relief
from the marriage penalty. The penalty results when a married
couple pays more income taxes than they would if they remained
single and earned the same income. Primary candidates for the
penalty are working couples with similar incomes.
Under the new tax law, most married couples will see some relief from the marriage penalty. The penalty results when a married couple pays more income taxes than they would if they remained single and earned the same income. Primary candidates for the penalty are working couples with similar incomes.
To ease the problem, the new tax law has increased the upper end of the 15-percent tax bracket from $47,450 to $56,800 for married joint filers. This figure is exactly twice the amount of the 15 percent bracket for single filers. In addition, the standard deduction for married couples has increased from $7,950 to $9,500, which is twice the $4,750 standard deduction for single filers.
These tax changes will alleviate the tax burden for many married couples. However, the marriage penalty still exists. It affects married dual-income households in the 25-percent bracket, where the income bracket is still only 1.6 times as wide as the bracket for single filers (rather than double the singles bracket). The same is true for brackets above 25 percent.
Married couples are penalized in other ways besides the tax brackets. For instance, the limits on a couples adjusted gross income (AGI) for investing in Roth retirement accounts are unequal when compared to a single investor. For singles, the cutoff to qualify for a Roth is $110,000, so an unmarried couple could earn $220,000 and still invest in a Roth. A married couple cannot have a Roth IRA once income reaches $160,000.
Some of the other provisions where the marriage penalty can apply are the taxability of social security benefits, limitations on itemized deductions and personal exemptions, and the capital loss deduction.
Also keep in mind, the marriage penalty relief enacted in the 2003 tax law applies only in 2003 and 2004. In 2005, the less extensive relief provided in the Tax Relief Act of 2001 will take effect.
While there’s not much you can do to avoid the marriage penalty short of not being married, adjusting the timing of a wedding or divorce could save you tax dollars.
Bob Bianchi is a CPA and a partner with the accounting and business consulting firm of Bianchi, Lorincz & Company located in downtown Hollister.
