Marriage and Taxes
Getting married is the greatest day for 50 percent of couples.
The other 50 percent get divorced. Perhaps the marriage tax
penalty has something to do with it.
Family Values - Hardly
For all the chatter from politicians about family values, it is
ironic that the tax code actually penalizes people for getting
married. At its heart, the tax code is designed to modify
behavior. Deductions and credits are given in areas the
politicians wish to promote and taken away in areas considered
less positive. Home ownership is viewed as a good thing, so
mortgage interest is deductible. Cigarettes are bad, so they are
taxed like no tomorrow. If you buy this argument, one must
wonder why married couples suffer under the tax code.
A recent study found that by getting married, couples are forced
to pay roughly $1,500 in additional taxes. Known as the marriage
penalty, one must wonder what the government is up to. Is it
trying to promote family values or not? The numbers would seem
to indicate not.
The marriage penalty is a nasty little development for
newlyweds. The penalty occurs because married couples must pool
their earnings when they report taxes. Typically, this means
their pooled earnings move them into a higher tax bracket and
they pay more taxes. For instance, assume husband makes $45,000
a year as does wife. As a married couple, their pooled income is
$90,000 with the accompanying tax consequences. For really
doomed couples, the combined income will actually kick in the
alternative minimum tax. The AMT more or less voids many major
deductions. In the tax industry, there is a nickname for this
situation - the divorce tax.
The marriage penalty has existed for years, yet the politicians
have failed to find a fix. They pay lip service to the idea, but
no major changes have been made to fix the problem. The best
they have come up with is doubling the standard deduction for
married couples, but this has had little impact since most
couples itemize their deductions.
It appears the marriage tax penalty is here to stay for the
foreseeable future. One has to wonder why our family values
President didn't include a fix in his tax cuts.