Image: Newlywed couple © Purestock, SuperStock

Related topics: marriage, financial planning, taxes, love and money, Liz Weston

If you believe the myth about the marriage penalty -- the one that says you pay more taxes when you're married than if you'd stayed single -- you might be baffled by the whole gay marriage thing.

Why are gays and lesbians trying so hard to get hitched, you might ask, if marriage is so hard on the wallet?

The reality is that marriage has plenty of legal and financial benefits, including tax benefits. Even before Congress changed tax rules in 2001 to deal with the so-called marriage penalty, more married couples got a tax bonus from being married than paid a tax penalty:

  • 51% of married couples paid less tax jointly than if they had not been married, according to a 1996 Congressional Budget Office analysis. The average amount these couples saved: $1,300.
  • 42% of married taxpayers paid more by filing jointly than they would have if they'd remained single, the office said. The average penalty: $1,380.

The people who got tax breaks by marrying were those with disparate incomes, where one spouse earned more than the other. The wider the gap between the paychecks of the husband and wife, the bigger the bonus.

Image: Liz Weston

Liz Weston

The people who tended to face a marriage penalty were those with similar incomes. Typically, the more they made, the bigger the penalty they paid.

Who's really penalized: The poor

The people who faced the most egregious penalties, as a portion of their income, were the working poor, according to tax expert Edward McCaffery, a law professor at the University of Southern California and the author of "Taxing Women." A husband and wife who each earned $10,000 could end up with a marriage penalty of more than $4,000.

Those low-income couples still face the potential for a tax penalty, said Mark Luscombe, a principal analyst for tax research firm CCH. That's because the earned-income credit, a tax break designed to keep the working poor out of poverty, can be less for a two-earner household than for singles.

But Congress effectively eliminated the penalty for the majority of couples with its 2001 legislation, which has since been extended (but not made permanent; more on that in a minute). The standard deduction for married couples is now twice that for singles, and, for the 2010 tax year, the 15% income tax bracket has been widened for marrieds to $68,000, twice the limit for singles.

There's still a potential for a marriage penalty once joint incomes reach the 25% bracket, but the widening of the 15% tax bracket means that even those who pay a penalty will pay a less significant one than in the past.

The legislation eliminating the penalty for most couples is set to expire in 2010. Congress will be under plenty of pressure to make the change permanent, but that doesn't mean it will happen. As of mid-November, it hadn't.

Still, even without income-tax breaks, there are plenty of financial benefits to marriage, regardless of their income-tax situation.

The benifits include:

  • Workplace health and pension benefits coverage. Though some companies offer health coverage to domestic partners, this benefit is typically taxable as income. When spouses are covered, the benefit is tax-free.
  • Social Security retirement and survivor benefits. A husband or wife is entitled to one-half of the spouse's Social Security benefits and to additional benefits in the event of death.
  • Lower insurance rates. Married people usually get a discount on auto insurance and may pay less for other types of insurance.
  • Automatic inheritance rights. Die without a will, and your spouse gets your stuff. In many states, the surviving spouse has a legal right to at least one-third to one-half of your estate.
  • Preferential estate-tax treatment. The richer you are, the better the deal this is. Essentially, estates worth more than a certain amount are subject to estate taxes -- if you don't die in 2010. After taking a year off, thanks to tussles in Washington, the estate tax returns in 2011 on inheritance above $1 million. But this exemption amount doesn't apply to married people: You can leave an unlimited amount to a spouse without generating a penny of estate tax. In certain states, this benefit is multiplied by special capital-gains-tax treatment for homes and other assets held by married couples as community property.

A penalty still on the books

One marriage penalty that remains has to do with Social Security taxes and working spouses, particularly women.

The Social Security Administration says 62% of the women over age 62 who receive benefits do so based on their husband's work records, rather than their own. A little more than half of these women didn't earn enough to qualify for payments based on their own work records. The rest opted to take half of their husbands' benefits because those checks were larger than the ones the spouses could qualify for based on their own earnings.

Now, in one very real sense, these women are better off married because they benefit from their husbands' larger Social Security checks.

In another sense, they're severely penalized because all the Social Security taxes they contributed over the years essentially yield no additional benefit. They'd get the same payments if they'd never worked and paid into Social Security.

Click here to become a fan of MSN Money on Facebook

This is no small potatoes. Social Security taxes now eat up 6.2% of every worker's paycheck, up to an annual maximum of $6,622 on earnings of $106,800 in 2010, while employers contribute an equal amount.

As more women work and earn better salaries, the proportion claiming benefits based on a spouse's record may decline somewhat. But because men still earn more on average than women, this phenomenon certainly won't disappear. Given the precarious state of Social Security and political realities, this is one marriage penalty that's likely to persist.

Liz Weston is the Web's most-read personal-finance writer. She is the author of several books, most recently "The 10 Commandments of Money: Survive and Thrive in the New Economy" (find it on Bing). Weston's award-winning columns appear every Monday and Thursday, exclusively on MSN Money. Join the conversation and send in your financial questions on Liz Weston's Facebook fan page.