With Taxes, Sometimes Staying Single Can Result in Lower Taxes Than Getting Married
Being married is often more expensive than being two single filers come tax time. These marriage penalties, as they’re called, prompt some committed couples to leave the knot untied. Some even have big “weddings” but don’t marry legally.
So for example, if a couple has children and both spouses earn income, they can owe the IRS thousands of dollars every year just for being married. A common complaint about the current tax structure is a difference between couples that have similar incomes and couples in which one partner earns much more. Under the law, a couple whose incomes are far apart often pay less if they’re married, while couples whose earnings are more evenly split often pay the same as or more than two singles.
Say that two couples each have total income of $225,000 and no children or itemized deductions. In the first couple, one partner earns $210,000 and one earns $15,000. If they marry, they’ll save about $8,400 compared with filing as two singles.
In the second couple, one partner earns $145,000 and the other earns $80,000. Being married will save them about $300 compared with filing as two singles.
Things change if each couple has two young children and typical deductions for mortgage interest, state taxes and charity. The couple with one high and one low earner has a marriage bonus, although it drops to about $3,200.
The second couple now has a big marriage penalty. They owe about $4,000 more than they’d pay as two single filers—just for one year.
The reasons for these disparities are complex. In a system that imposes higher rates as income rises, like America’s, it’s impossible to tax married couples based on their total income regardless of who earns it while also taxing married couples so they owe the same as two single people.
The U.S. system creates marriage bonuses and penalties. Other countries avoid this by taxing married couples as two individuals. Shifting to such a system could be difficult in the U.S., in part because of community-property laws in some states.
The 2017 tax overhaul repealed some marriage penalties and broadened some tax brackets, helping many two-earner married couples. But it retained other marriage penalties and added more. One is the new $10,000 limit on deductions for state and local taxes, or SALT. This limit is per return, so married joint filers who list deductions on Schedule A get only a $10,000 write-off, while two single filers living together get a $20,000 write-off.
The new tax law dropped the maximum mortgage debt that’s eligible for an interest deduction on new purchases to $750,000 from about $1 million, and the limit is per return. So an unmarried couple can deduct interest on $1.5 million of mortgage debt filing separate tax returns filing as “single”, while the limit for a married couple is $750,000.
Considering the “married, filing separately” status? This choice doesn’t allow couples to file as two singles, and it usually raises taxes.
Already married but thinking about getting divorced to lower your taxes? Not so fast. The Internal Revenue Service for decades has had the power to disregard divorces that are solely for tax reasons. Plus asking your spouse to get a divorce to save taxes may not go over well on the home front.