Not All Couples to Get Marriage-Penalty Relief
By Jamie Heller Wall Street Journal June 4, 2003
The marriage penalty is a feature of the tax code that, in some cases leaves two working spouses worse off taxwise than they would be as singles. The marriage penalty comes about because some features of the code- most importantly the basic tax rate- don't always double for married couples.
Q: So what marriage-penalty relief does the new tax law provide?
A: Two things. First, for 2003 and 2004, the law makes the standard deduction for marrieds filing jointly twice that of singles: $9,500 marrieds, $4,750 singles. The standard deduction previously was less per person for marrieds filing jointly than for singles: $7,950 for a married couple ($3,975 per person), compared with $4,750 for singles. So when two non-itemizers married they lost $1,550 in standard deductions.
Second, the new law expands the 15% bracket for marrieds filing jointly to double that of singles. For couples who make, say, $27,000 in each in taxable income, there is no penalty now, whereas there was nearly $800 penalty before the change based on the rate brackets alone. The expansion of the 15% bracket to eliminate potential marriage penalties benefits all joint filers with income over $47,450, though some marriage penalty kicks in again for dual-income couples starting above $114,650 in income, because that and all subsequent brackets aren't double the same rate.
After 2004, both the standard deduction, and the 15% rate bracket expansion provisions "sunset", meaning the rules revert to 2001 standards unless the changes are re-enacted.
Q: Who doesn't benefit?
A: The poor and the very wealthy get the least benefit. the poor don't benefit if they don't pay income taxes, of course. And there are still pretty steep marriage penalties in the Earned Income Tax Credit, the leading form of "workfare."
The very wealthy get less than the full benefit. For starters, they usually itemize deductions, so they don't profit from the bigger standard deduction. As I mentioned, the brackets over 15% aren't doubled, so a penalty recurs in the 25% bracket. In the highest bracket, joint filers and single filers both start paying a marginal rate of 35% above $311,950. So two singles making that amount would each pay a top rate of 33%, whereas a married couple where each earned that amount would see half their income taxed at 35%: an $18,668 marriage penalty. there are also a host of marriage penalties in such arcane areas as phaseouts, capitol-loss-offset provisions and so on.