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.
VIDEO ON MSN MONEY
I got penalized and lost $500 this year because i had to file married/separate and do the long form like my husband (soon to be ex). i did not have deductibles to claim like he did and it cost me. never again. I see no good reason for marriage anymore. it's got no place left in society for a slew of reasons, this being just one of them.
Obama is just a anti-American socialist.
Just say NO to B.O.
another..errr, "benefit" of living together vs. being married is, if u died in that living arrangement, you'd get to spend eternity in hell.
what a disgrace of an article,,,it reveals the sad state this nation is in.
"righteousness exalts a nation but SIN is a reproach to any people"
Oh please, what are you talking about? In the suburban Chicago area alone, there are a significant number of teachers and administrators making more than $89,000 per year. Also, the upper ranks of many police and fire departments make more than $89,000 per year. Starting salaries in most police departments in the Chicago area are over $40k per year. A lot of nurses in area hospitals receive longevity bonuses, which push their salaries close to $100k per year. So, please don't go spewing so-called global facts based only on your little world. I noticed those were all government jobs....just saying.
I know, this is too much for most little families when paid work loyalties take precedence over the little baby they worked so hard to concieve, gestate and birth, especially when paid work is forever and children come and go...
hea you smart people working,makeing the big money$(in gov.health care,good credit ect.ect.)SHUT UP,get to your said job tomorrow,AND pay me my ss check on time,ha,ha,ha,i worked hard labor for it,now its your turn,sadly most of you will never see ss you poor bastards,whats your credit score,the joke is on you,GET to WORK,its my time to party now,ha ha ha
What a great article for an already morally challenged world! The government continues to open doors and make it so easy for the Devil to make his mark upon this world! Christians let us pray for our county and our government official who seem to want to burn in hell!
Thanks for this, I needed a good laugh! Honestly though, what does choosing not to get married have to do with respecting yourself?
" wake up people you just got one life in this world the rewards or much better in heaven"
Yeah? I'll believe that crap when Jesus is shaking my hand and picking up my bar tab.
I'm PRO marriage, the only thing that is stopping me at this time is the lack of more money. I would love to marry this woman, but I don't want to build a house only to watch it fall. I do believe in marriage personally and not just because The Bible say so, to me as having a choice...it feels right to marry.
It makes sense because of that "at ease" feeling and I'll shoot for marriage when the time is right. Luckly for me, there is The Bible that have alot of points I agree with althought alot of them, I do not follow on a daily basis because I'm a horny man.
Viagra gots nothin' on this!
Copyright © 2013 Microsoft. All rights reserved.
Quotes are real-time for NASDAQ, NYSE and AMEX. See delay times for other exchanges.
Fundamental company data and historical chart data provided by Thomson Reuters (click for restrictions). Real-time quotes provided by BATS Exchange. Real-time index quotes and delayed quotes supplied by Interactive Data Real-Time Services. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by SIX Financial Information.