Some newlyweds would possibly face the next tax invoice as a consequence of a “marriage penalty.”
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If you got married in 2022, you can add “tax return” to the list of things you will share now.
For some newlyweds, this means a higher tax bill due to what is known as a “marriage tax penalty”. Tax bracket thresholds, deductions and credits may not double the amounts allowed for single parents – and it can hurt both high- and low-income households.
“The fine can be as high as 12% of a couple’s income,” said Garrett Watson, senior policy analyst at the Tax Foundation.
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For marriages that occurred at any point in the last year, spouses must file their 2022 tax return – due April 18 – as a married couple, either jointly or separately. (However, filing separate statements is only financially advantageous for spouses in certain situations.)
High earners can expect several of these penalties
A larger tax bill can come from a variety of sources for high earners.
For starters, for 2022 tax returns, the highest federal tax rate of 37% occurs on taxable income over $539,900 for individual filers. However, for married couples applying together, this rate applies to income of $647,851 or more. (For 2023, these thresholds are $578,125 and $693,750, respectively.)
For example, two individuals with incomes of $500,000 each would fall into the tax bracket with the second highest tax rate (35%) if they were filed as single taxpayers.
However, as a married couple with a combined income of $1 million in 2022, they would pay 37% of that to $352,149 (the difference between their income and the $647,851 threshold for the higher rate).
“If you both have an income of that magnitude, you’re going to see a penalty,” Watson said.
Medicare, capital gains taxes can also sting
There are also other parts of the tax code that can negatively impact higher earners when they marry.
For example, the regular Medicare payroll tax of 3.8%, split between employer and employee, applies to income up to $200,000 for single taxpayers. Anything above that is subject to an additional 0.9% Medicare tax. For married couples, this additional tax is $250,000.
Likewise, there is a 3.8% capital gains tax that applies to singles with modified adjusted gross income over $200,000. Married couples must pay the levy if that income measurement exceeds $250,000. (The tax applies to things like interest, dividends, capital gains, and rental or royalty income.)
Additionally, the state and local tax deductible limit — also known as SALT — is not doubled for married couples. The $10,000 cap applies to both single and married applicants. (Married couples filing separately will each receive $5,000 for the deduction). However, depreciation is only available to taxpayers who itemize their deductions, and most take the standard deduction instead.
Low-income households can also suffer
For newlyweds with lower incomes, a marriage penalty may result from the income tax credit.
“The credit [thresholds] are not twice that of single filers,” said Watson. “It is of particular importance for low-income households.”
For example, a single taxpayer with three or more children may qualify for a maximum credit of $6,935 with income up to $53,057 on their 2022 tax return. For married couples, that income cap isn’t much higher: $59,187.
This credit is available to working taxpayers with children, provided they meet income limits and other requirements. Some low-income earners without children are also eligible.
Some states also have the penalty in their tax laws
Additionally, depending on where you live, a marriage penalty may be built into your state’s marginal tax brackets. For example, Maryland’s top tax rate of 5.75% applies to incomes over $250,000 for singles but over $300,000 for married couples.
According to the Tax Foundation, some states allow married couples to file the same tax return separately to avoid being penalized and forfeiting credits or tax exemptions.
Meanwhile, marriage may have tax implications if you’re already receiving a Social Security pension.
If the sum of your adjusted gross income, nontaxable interest, and half of your Social Security benefits is less than $25,000, you don’t have to pay tax on those benefits for single parents. However, for married couples filing a joint statement, the threshold is $32,000 instead of double the amount for individuals.