Wall Street Journal Tax Report, When It Comes to Taxes, Sometimes It Pays to Say ‘I Don’t’:
More than two million American couples will get married this year. Many of them will pay more in taxes because they tied the knot.
The Republican tax overhaul passed in 2017 lowered the cost of being married for many couples. Even so, being married is often more expensive than being two single filers come tax time. If a couple has children and both spouses earn income, they can owe Uncle Sam thousands of dollars every year just for being married.
These marriage penalties, as they’re called, prompt some committed couples to leave the knot untied. Some even have big weddings but don’t marry legally.
While most couples choose to keep this decision private, one famous (well, famous for economists) couple has been pretty open about the decision.
Betsey Stevenson and Justin Wolfers, economists with international reputations at the Gerald R. Ford School of Public Policy at the University of Michigan, have been together for years. They are the parents of two children. But they aren’t married and say one reason is taxes. ... By being public, the couple hopes to stimulate policy discussion. ...
Here’s how marriage bonuses and penalties work in practice, based on examples computed on the Tax Policy Center’s 2019 Marriage Calculator. It’s free and useful for what-if calculations. ...
The reasons for these disparities are complex, says Roberton Williams, a tax economist at the University of Maryland. He says that in a system that imposes higher rates as income rises, like America’s, it’s impossible to tax married couples based on their total income regardless of who earns it while also taxing married couples so they owe the same as two single people.
“The U.S. system creates marriage bonuses and penalties. Other countries avoid this by taxing married couples as two individuals,” Mr. Williams adds. Shifting to such a system could be difficult in the U.S., in part because of community-property laws in some states.
The tax code also has marriage penalties in specific provisions. ... The 2017 tax overhaul repealed some marriage penalties and broadened some tax brackets, helping many two-earner married couples. But it retained other marriage penalties and added more. ...
Yet another complication is that the U.S. tax code provides marriage bonuses, even to couples who owe marriage penalties. For example, a spouse who inherits a traditional IRA or 401(k) account has better options than a non-spouse heir.