What Do People Mean by the Marriage Penalty?

by Investing School on February 2, 2011

The term “Marriage Penalty” refers to the tax code in the United States, which in some cases resulted in the payment of higher taxes by married couples when compared to two single people filing separately. This was especially the case when marriage partners were earning roughly similar amounts of taxable income and filing their taxes as “married filing jointly.” The number of married couples affected by this situation fluctuates over the years with the shifts in tax rates.

This sort of increase in taxes tends to be the result of the progressive tax-rate foundation of US income-tax law. In general, a household with a higher income will tend to pay an increased rate of taxes. This often means that averaging the combined incomes can be a good thing for the taxpayers. For example, if a married couple makes $70,000 and $30,000 per year, respectively, they will pay a lower combined tax than if both persons had an income of $50,000 per year and filed their taxes as two separate, single persons. This is despite the combined incomes equaling $100,000 in both cases.

However, income averaging through the “married filing jointly” option has been mainly helpful for married couples in situations where the partners earn significantly differing incomes. To offset this possibility, the law placed a higher tax bracket for the averaged income of a married couple. This reality can, in some cases lead to a situation where a married couple pays a higher rate of tax than an unmarried couple with the same income. This occurs far less frequently under current tax laws.

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