The first figure shows marriage penalties and bonuses for couples without children. It shows that marriage penalties exist for low- and high-income couples with more equal incomes. As discussed, low-income marriage penalties are due to the phaseout of the EITC.
What Are the Marriage Penalty and Marriage Bonus?
High-income penalties are due to narrower tax brackets for greater combined incomes. Marriage bonuses occur mainly for taxpayers with disparate incomes. The next figure shows that the individual income tax becomes much less neutral with respect to marriage when a couple has a child. The EITC, which is a major driver of marriage penalties for low-income individuals, phases out much faster when the taxpayer has a child.
Marriage bonuses also become more pronounced for low-income couples with one child. This means a low-income, unmarried couple could decrease their total tax bill through marriage, which would add their incomes together and increase the size of their EITC and CTC. The distribution of marriage penalties and bonuses for couples with two children looks similar to the distribution for couples with one child, but the severity of penalties and bonuses is greater. With two children, the number of possible bonuses slightly increases for low-income couples but significantly declines for higher-income couples.
Tax filing status options
Marriage penalties and bonuses in the income tax code violate neutrality. An unmarried couple and a married couple with identical combined incomes may be treated differently. Conversely, a marriage bonus may induce a couple that is otherwise on the fence about marriage to tie the knot. However, most economic research has found that marriage penalties and bonuses have little to no effect on whether a couple will marry.
Secondly, marriage penalties or bonuses may affect how much each spouse works. When couples get married and combine their incomes, one or both partners could face higher or lower marginal tax rates on their next dollar of income, which could affect their incentives to work. Once married, the marginal rate would decrease to However, the second earner, who unmarried would have faced a 0 percent marginal tax rate as a single, now faces the Meanwhile, second earners in the household worked 7 percent less, due to the higher marginal tax rates they now face.
Overall, the CBO found that the earnings of couples who file jointly are between 0. The reason there are marriage penalties and bonuses is that the U.
Marriage tax penalties state-by-state - Don't Mess With Taxes
To completely eliminate marriage penalties or bonuses in the tax code, it would require giving up one of these goals. For example, if the United States created a perfectly flat individual income tax with no provisions such as the Child Tax Credit or Earned Income Tax Credit, marriage penalties and bonuses would be eliminated. Likewise, if the United States kept its current progressive individual income tax but eliminated the ability for married couples to file jointly, there would also no longer be a penalty or bonus for marriage.
Changes that would eliminate marriage penalties and bonuses would drastically impact the current distribution of taxes paid and would be politically difficult to accomplish. As a result, Congress has opted to incrementally reduce the effects of the marriage penalty rather than regulate complete neutrality. In , Congress passed a bill that widened the 15 percent tax bracket for married individuals. This temporary reform increased the level of income at which the EITC phased out for married couples and was made permanent in Marriage penalties and bonuses are a way that the income tax code violates the principle of neutrality.
It is possible to completely eliminate both marriage penalties and bonuses, but it would require a significant overhaul of the tax code that drastically changes the current distribution of income taxes paid. Short of a complete overhaul, it is possible to reduce marriage penalties in the tax code, such as a permanent extension of marriage penalty relief for the Earned Income Tax Credit and widening the income tax brackets for high-income taxpayers filing jointly.
Tax System: What are marriage penalties and bonuses? The Tax Foundation works hard to provide insightful tax policy analysis. Our work depends on support from members of the public like you. Would you consider contributing to our work? We work hard to make our analysis as useful as possible. Would you consider telling us more about how we can do better? After previously working at various software companies, Amir uses his passion for technology and statistics to support the role of evidence-based policy in tax reform. Most proposals that seek to reduce marriage penalties below their current level do not create a tax code unbiased toward marriage.
Instead, they introduce further inequities between single taxpayers and married couples or among married couples with different earnings patterns. The current tax system does not penalize marriage overall. Among all families filing joint tax returns, the Congressional Budget Office finds that 51 percent receive marriage bonuses and 42 percent experience marriage penalties. Moreover, this CBO estimate of marriage bonuses and penalties may undercount the extent to which the current tax system results in marriage bonuses.
In deriving this estimate, CBO assumed that prior to marriage, the first child of the couple was on the tax return of the higher-earning spouse, the next child was assigned to the lower-earning spouse, and all additional children were assigned to the higher-earning spouse. If marriage penalties and bonuses are calculated under an alternative CBO assumption that all children are claimed by the lower-earning spouse prior to marriage, 57 percent of families have marriage bonuses and 39 percent experience penalties.
A Congressional Research Service report points out that it may be more realistic to assume that children are claimed by the lower-earning spouse prior to marriage because 85 percent of children who live with one parent live with the mother. The Johnson and Johnson Proposal. The details of the Johnson and Johnson proposal are not available as of this writing.
Understanding the Marriage Penalty and Marriage Bonus
This report looks at various other marriage penalty reduction proposals that expand the standard deduction. As compared to more far-reaching marriage penalty reductions proposals such as "Weller I" and "Weller II," a standard deduction increase targets a greater proportion of benefits on middle-income taxpayers.
Most higher-income taxpayers have enough expenses to itemize their deductions and do not use the standard deduction. A downside of this approach is that increasing the standard deduction for married couples does not distinguish between couples that need marriage penalty relief and those that do not. As a result, it would substantially increase the size of current-law marriage bonuses for many couples currently receiving such bonuses under current law.
Moreover, a standard deduction increase does nothing to relieve the marriage penalties experienced by low- and moderate-income families that arise from the phase-out of the Earned Income Tax Credit. It is unclear at this time whether the Johnson and Johnson proposal includes such provisions. Some of the proposals to reduce marriage penalties would further increase the bonuses married couples receive under current law. Under current law, such a couple already receives a tax bonus if they marry. Such large discrepancies are likely to be viewed as unfair. If enacted into law, they could give rise to future demands for additional tax relief for single taxpayers.
The Weller I proposal, which provides couples the option of filing jointly or as two single individuals, would not lead to inequities between single people and married couples as Weller II does, but Weller I would create new inequities in the tax code's treatment of different types of married couples. Under current law, couples with the same income and circumstances always pay the same amount of tax.