Updated: 12/13/2011 11:22 AM ET|
7 tax reasons not to get married
If shacking up goes against your morals, you can blame Uncle Sam for tempting you to sin. Unmarried couples who live together often benefit under the tax code.
1. Bracket breakdown
Say two single individuals lived together in 2011, each with a taxable income of $83,600. They each would pay federal income tax of $17,025, for a total of $34,050. If they got married, their total taxable income would be $167,200, with a tax of $34,886, an increase of $836.
This "marriage penalty" is the result of our progressive tax system. As your income increases, additional dollars are taxed at increasingly higher rates. When two people get married and file jointly, the income of the second spouse is taxed at the highest rate of the first spouse. In the example above, the first dollar earned by the second spouse would be taxed at a marginal rate of 25%. The second spouse has no income taxed at the lower 10% and 15% rates.
The hit gets more painful as your income increases. Two single individuals, each with a taxable 2011 income of $379,150, would pay tax of $110,016.50 apiece, for a total of $220,033. If they married, the tax cost would become $235,277, a marriage penalty slam of $15,244 -- each year!
2. Medical meltdown
Your medical expense deduction must be reduced by 7.5% of your income (adjusted gross). If your potential spouse earns $100,000, filing jointly would cut your medical expense deduction by $7,500. In the 28% bracket, that would suck an additional $2,800 out of your pockets each year.
That's why it may be better in certain circumstances for even a married couple with large out-of-pocket medical bills to file as married individuals filing separate returns.
3. Miscellaneous madness
Your miscellaneous itemized deductions, such as employee business expenses, job search costs, investment expenses, and tax planning and preparation fees are also subject to a floor before they can be allowed. The total of your miscellaneous itemized deductions has to be reduced by 2% of your income (adjusted gross). If your potential spouse has $100,000 in income, that will slice $2,000 from your total deduction a year.
4. Social Security slam
As your income increases, more of your Social Security payments becomes subject to tax. Add a second income to the pot and as much as 85% of your Social Security receipts are potentially taxable. If you're getting $2,000 a month -- or $24,000 a year -- that's an additional $20,400 in taxable income. In a 28% marginal bracket, that's an additional tax of $5,712 gone missing from your bank account.
5. AMT terror
The alternative minimum tax is the result of an alternative procedure for computing your tax liability. The AMT is based on your income before deductions for personal exemptions, and adds back certain deductions allowed under the normal tax computation but not under the AMT, such as taxes and miscellaneous itemized deductions. Your income plus these "preference items" is reduced by an exemption amount, and the net result is subject to a flat 26% or 28% rate. You pay the higher of your regular tax or the AMT.
Here's where marriage hurts: First, the 2011 AMT exclusion for two unmarried individuals is $48,450 each, for a total of $96,900. A married couple gets an exemption of only $74,450, a $22,450 difference. At the lower 26% AMT rate, that's a potential $5,837 increase in tax. At 28%, that's a $6,286 hit.
6. Bush benefits
Before 2010, and scheduled to return in 2013, we had reductions in deductions for both a) total itemized deductions and b) personal exemptions, as your total adjusted gross income increases. Marry an individual with substantial income and potentially all of your personal exemptions disappear. In addition, as much as 3% of your income (over a floor amount that changes annually) comes off your total itemized deductions.
Lose two 2011 personal exemptions of $3,700 each and your taxable income is up by $7,400. With a marginal tax rate of 28%, that's an additional $2,072 in tax to be paid.
7. Social Security slam II
This tax benefit keeps a whole lot of seniors living in sin. Depending on the numbers, in many cases two unmarried individuals receive more in Social Security benefits than they would if they were married. Don't look for logic and reason in governmental regulations. It's like finding an honest politician -- they're out there, but they usually don't last long.
Marriage doesn't always result in higher taxes, but it usually does when both spouses are working and earning substantial dollars. On the other hand, if one spouse doesn't work, there will be a marriage bonus (lower taxes) instead of a marriage penalty.
There are, of course, other tax benefits to being married. For example, there's an unlimited marital deduction under the gift and estate tax for gifts and bequests to a spouse. When I told my wife, Barbara, that I was writing a column on the benefits of living in sin, she suggested that she personally was looking forward to enjoying her unlimited estate-tax deduction.
Jeff Schnepper is the author of the best-selling book "How to Pay Zero Taxes," which is in its 30th edition. He is a former professor of taxation, accounting and finance. Schnepper now has a full-time tax planning and legal practice in Cherry Hill, N.J. Click here to find Schnepper's most recent articles.
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Just one of the people earn almost twice as much as my wife and I's combined income. We made 49k gross, have 4 kids and do what we can to get by with every paycheck.... At 40 years old I know that I'll never own a new home, my kids will only go to college if they can get granst etc... I could only dream of ever having one of their incomes.... But we live happy, and it could be worse, I could be one of the millions of unemployed americans out there. So to all of you out there, here's to keeping our families fed, a roof over our heads, and doing all of our best to just get by.... Merry Christmas. :)
This article reminds me of all the creative ways citizens acquire our tax dollars. I am married with 3 minor children. I would easily qualify for the earned income tax credit if I divorced my husband. We could live exactly the same as we do now. We could share the same house and change nothing other than our marital status. The child support paid could go into our joint account. My college would be paid by the government and I would probably qualify for all kinds of other freebies such as food stamps, health care, a cell phone. No wonder young people are living with this sense of entitlement... There are more financial penalties for being married in this country than listed in this article!!!!!
Ignore the advice...Get Married...Check the box marked "Married filing separately"...
What a stupid headline
I have family that refuse to get married because of the tax penalties they would suffer. Have a couple of kids, claim single with a middle class income, and whamo hello tax return that is bigger than anything paid in. Not to mention all the other government funded programs that reward the multiplying process.....Gov't will pay for childcare, give you some food stamps with your middle class income, give you the earned income credit for each child, WIC and who knows what else. Put yourself in the exact same income bracket with a wedding band on your finger and suddenly you take a significant pay cut.
I don't hold anything against those that manipulate the system to maximize their income....maybe my husband and I are the "foolish" ones.
Yet, another reason for flat tax. No marriage penalty. That has been a long time Washington rap on married people. Everyone should pay 10% Rich and Poor. No loopholes. Lower and make a flat Corporate tax, no more lobbying for breaks from buds in Washington. In fact outlaw lobbying all together. Lower corporate tax, our jobs come back from overseas. Our corporate tax is the highest in the world, the loopholes favor friends of those in power. Take the political gain out of taxes in general and we would not be in the mess we are in. Washington should not have the ability to manipulate our personal lives with their tax code.
How about a national sales tax? Get rid of personal income tax alltogether. The rate would be high, but at least that way it would be fair. Earn less, spend less, less taxes. Earn more.....well, you get the idea.
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