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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You are choosing dollar amounts because of the fact that they are right on the edge of single filer's tax brackets. If everyone made exactly $83,600 or $379,150 after deductions and exemptions, like in your examples, there might be merit in this, but that's not the case. Also, while you state that the "second" person's income would be taxed at a higher tax rate, you neglect to say that more total income is taxed at lower tax brackets for that "first" single person. The couple's income should not be viewed as "first" and "second". It's the total that matters.
As for the itemized deduction %s that you quote (7.5% for medical, 2% for misc.), of course the threshold increases with extra income. Again, though, you are basing your rebuttal off of the one person's income, instead of the total. Two people are generally expected to have twice as much cost in such areas. If each of your single people making $83,600 AGI has $6,270 or less in medical costs, it doesn't really matter anyways, as they are not going to be able to deduct it. It's not like the taxpayer could legally claim the other's medical costs as their own. I'm also suprized that you didn't jump on the upcoming raised threshold amounts for medical expenses and the higher Medicare tax rate for higher income taxpayers while you were at it.
As you state so clearly at the end of the post, "[t]here are, of course, other tax benefits to being married." You have to look at the whole picture in each scenario.
Yet another reason to live in sin ... I know of a couple deeply in love. However, the man was disabled in an accident (he's now a quadriplegic) and relies 100% on disability and state MedicAid. Getting married would wipe out his benefits. Hence, they must live in sin as the woman doesn't earn nearly enough to meet all of his specialized medical needs and provide for in-home care whle she is at work.
since when is marriage only a "church" institution? Marriage in the U.S. is primarily a legal binding. You don't NEED an ordained minister to get married legally, but you do need a license.
The marriage comments aside, this article is fluff.. Your witholdings are increased if you estimate your taxes based off of being single, and there is a reason for it - usually being married means less taxes. Also, the author is basing his arguments on AGI.. but it seems to me that the adjustments you get are very much dependent on your marital status. I don't recall the current rates, but two single people with largely different incomes supporting children and living in the same house probably have a substantially different deduction than if they were married. While AGI might paint one picture, if there is a difference of $5-10k in deductions for married vs single, then the other arguments tend to go out the window. I am sure there is an accountant here that can do the math. And last, if you are going to write an article about something of this nature, don't use incomes that are not averages.. if the median income is $40k per person, don't write an article for everyone and use $300k incomes, or even $100k incomes.
As for those complaining the article is misleading or doesn't give every detail, the tax law is forever long. You couldn't cover every detail in one article. The point is if you both make $83,600, you will have a penalty of $836. If you both make $379,150, you will have a penalty of $15,244. If you both make some other amount between those numbers, the penalty will be between those numbers. If you both make more, it will be even more. No matter how you look at it and no matter how many details you provide, it is just wrong.
If Obama has his way, it is just going to get worse. $200,000 for a single person is rich but $250,000 for a married couple is also rich? How does that work out? I've already told my wife that if we both are successful in our careers that we are going to get a divorce and be roommates. I'm not going to be taxed at $250,000 what we could be taxed at $400,000 if we were just roommates. A marriage license is just a stupid piece of paper anyway. All that really matters is the love and relationship which can be just as strong with or without the government collecting a $50 marriage license fee and then giving me a certificate to prove it.
Brotherjon- people who make more pay more taxes and if there are tax breaks they are entitled to they should take advantage of it. Like you in the 30,000-40,000 a year entitles you to paying less taxes and to sign up for welfare assistance unless you are single. With all the welfare subsidies that can be a nice salary adjustment. Like I said, not happy with your salary range-go back to school but don't lash out on information available to help people who pay their taxes and pay their own way through life to support their family and childrens college without a handout.
Please read my posts. Apparently you didn't see the first two times I stated that I DON"T THINK THE SYSTEM IS RIGHT!
The author clearly states:
This "marriage penalty" is the result of our progressive tax system.
This system has been around a long time and I believe Obama wanted to change that to a form of flat tax so don't bring him in to this.
You are missing a major point of the progressive tax system. Someone making $34,000 per year will not pay an Effective Tax Rate of 25%. In fact, they are not even in that bracket for 2011...the 25% bracket starts at $34,501. Now, without any deductions, someone making 34k will pay...10% of the first $8375, then 15% of the rest, for an Effective Tax of $4681.25. This leaves out the Standard deduction, etc. In fact, few people making 34k will pay much in federal tax at all. According to the TurboTax online calculator, for a single person with no other deductions, the federal tax would be $2883.
Please educate yourself on the tax brackets before posting.
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