A newlywed couple recently filed for a tax refund after
discovering they had to pay $5,000 more tax than if they had
remained single. The IRS denied their claim. In upholding the IRS
position, the district court ruled that the couple’s ignorance of
the marriage penalty was neither grounds for marriage nullification
nor a tax refund. Their situation is one many two-earner couples
find themselves in after the wedding – facing the marriage penalty
in our tax laws.
A newlywed couple recently filed for a tax refund after discovering they had to pay $5,000 more tax than if they had remained single. The IRS denied their claim. In upholding the IRS position, the district court ruled that the couple’s ignorance of the marriage penalty was neither grounds for marriage nullification nor a tax refund. Their situation is one many two-earner couples find themselves in after the wedding – facing the marriage penalty in our tax laws.
The marriage penalty essentially causes a married couple to pay more tax than an unmarried couple with similar income. Seen as a tax on marriage, the marriage penalty debate became the centerpiece of the 2003 tax cut. Congress granted partial relief from the marriage penalty by doubling the singles’ standard deduction for married couples and doubling their income threshold for the 15 percent tax bracket.
Although such relief is welcome, the marriage penalty itself still lives on in many aspects of the tax code. The tax brackets above 15 percent were not expanded to account for the discrepancy between married and single individuals, so higher-income couples benefit less from the change in the tax code. In addition, many of the phase-out and limitation thresholds that affect higher-income couples have not been adjusted to account for the marriage penalty. Middle-income couples are most likely to benefit from marriage penalty relief, but such benefits are likely to be short-lived since the current provisions expire at the end of 2004 unless Congress elects to extend them.
If you’re getting married this year, be sure to include some tax planning in your pre-wedding activities so that the marriage penalty doesn’t take you by surprise.
Bob Bianchi is a partner with the accounting and business consulting firm of Bianchi, Lorincz & Company in Hollister.
