Marriage Penalty: Will Cupid's Arrow Stick You With a Higher Tax Bill?

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Cupid taxesIt's hard to think of a less romantic topic than tax planning. But with Valentine's Day upon us, the Tax Policy Center wants you to take a brief break from flowers and chocolate to show you some of the financial consequences if you and your honey decide to tie the knot.

At the Tax Policy Center website, you can take the financial equivalent of a couples test to see whether you and your partner would be better off married or single -- at least from a tax perspective. All you have to do is enter your financial information, and the software takes care of all the calculations for you.

Marriage Penalty or Marriage Bonus?

In particular, the test is geared toward telling you whether you'll pay a marriage penalty or get a marriage bonus. Because married filers have different tax brackets than single filers, you can't assume that your tax liability after you marry will be the sum of the taxes from your individual returns. Some of the important factors involved include the following:
  • Couples where both spouses work are more likely to owe more in taxes than they would if they weren't married, because once you get above the 15 percent bracket, thresholds for higher tax rates on joint filers are less than double the rate thresholds for single filers.
  • Single-earner families, on the other hand, are more likely to get a marriage bonus, because the working spouse gets to take advantage of deductions and exemptions for the non-working spouse, and the family gets to enjoy lower tax rates on more overall income.
  • For high-income taxpayers, marriage can be especially costly because special provisions like exemption and deduction phaseouts and the Medicare surcharge tax start applying at levels that aren't much higher for couples than they are for singles. For instance, the Medicare surcharge applies to singles with incomes of more than $200,000 and couples earning $250,000.
Also, don't think you can beat the penalty by choosing the married-filing-separately option. Spouses who file separately get less favorable treatment than singles.

The Price of Love

Taxes certainly shouldn't be the main motivator for decisions about your romantic life, but it's still smart to know how marriage will affect your money. To learn more about the marriage penalty, check out this tax topic from the Tax Policy Center.

Motley Fool contributor Dan Caplinger was surprised to find he's paying a marriage penalty. You can follow him on Twitter @DanCaplinger.

For additional tax articles, visit the DailyFinance Tax Center

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