The government is sexist. Let me prove it to you.
Out of curiosity, I surveyed five of my married friends to answer two questions: 1) Did you pay more or less in taxes after you got married, and 2) How much more or less did you pay? The answers I got were concerning. They all responded they paid more and by a magnitude of $3,000 to $25,000!
It's just not true that the “marriage penalty tax” no longer exists. The IRS just renamed it the “love me long time tax.”
I'm by no means a personal income tax expert. All I'm doing is highlighting facts from people around me, and proposing the likely reasons as to why their taxes went up. Our income tax system is so darn confusing, hopefully someone can shed some light on the situation!
TWO QUESTIONS TO THINK ABOUT AND UNDERSTAND
1) Why Don't Tax Bracket Levels Double When People Marry?
The reason is because the government believes men and women are NOT equal, hence why the tax brackets for married filers do not double. To prove my point, let's say Johnny made $500,000 a year (35% tax bracket) and marries Susie who also makes $500,000 a year.
As a single filer with no deductions, Johnny pays an effective Federal Tax rate of 29% or $148,000 in taxes (gulp). As a married filer, their effective tax rate jumps to over 32%, thereby paying roughly $20,000 more in taxes. How is that fair?
Solution: Double the 35% tax threshold from $380,000 for individuals to $760,000 for couples. That's equality!
2) Why Can't Both Individuals Have A Deductible Mortgage?
Furthermore, let's say Johnny has a $1,000,000 mortgage on his condo in San Francisco, while Susie also has a $1,000,000 mortgage on her house in Palo Alto. They both have a 6% mortgage interest rate and pay $60,000 a year in mortgage interest, saving them $25,000 in taxes ($60,000 X their marginal tax rate of 35% = $25K not taking into account phase outs).
Both Susie and Johnny save a combined $50,000 in taxes if they were single because of their mortgage interest deductions, yet if they marry, they lose $25,000! How so you ask? The current limit for mortgage indebtedness for single and married filers is $1,000,000. When Susie and Johnny get married, they have a combined $2 million mortgage, but they can only write off interest on half!
Solution: Raise the amount of mortgage indebedtness for interest deduction to $2,000,000 from $1,000,000 for married couples. Equality! I told you the government is sexist.
Fighting A Sexist Government
The government is essentially telling Susie and Johnny that one of them doesn't deserve to make the money they do. Have your own place with a mortgage? Forget about it. The government thinks one partner will give up his or her job and house, so that the other partner will provide for everything!
The government is targeting independent women because when politicians drew up their archaic tax laws they assumed men would be the primary breadwinners.
What if the man wants to be the homemaker? The government is telling women and men to not marry, for if we do, one should stop working or work less to take care of the kids. Who's to say we're going to have kids anyway? It would be nice to one day “love you long time” and not have to pay extra for anything!
Related: The Marriage Penalty Tax Has Finally Been Abolished!
Readers, is the reason why more people aren't up in arms with government sexism because not many people make enough to get negatively effected? If so, does that make government sexism right?
Why doesn't the government recognize there are successful, highly paid women who also want to get married as well?
What is your experience with your tax liability after marriage? Have you ever considered not getting married due to an increased tax liability?
Regards,
Sam @ Financial Samurai – “Slicing Through Money's Mysteries”
Updated for 2020 and beyond. .
In my home country, income taxes are proportional to what you earn, and it doesn’t matter if you’re married, single, etc. If a household has only one breadwinner, s/he can declare the other family members as dependents and get tax deductions. Otherwise, each breadwinner pays for their taxes, as independent individuals. This seems way more fair and less confusing to me.
Context: my husband and I are NOT high earners, and we got married a little over a year ago.
Our first year filing taxes, we did pay slightly more in taxes than we had previously paid individually, but we’re talking just a few hundred dollars. (The two biggest sources were that he lost his health insurance deduction as an independent contractor when he married me and became “eligible” for my work’s insurance even though he never went on my insurance, and we had to both itemize when previously he had benefited from the standard).
This year, we are going to end up paying way less than either of us did previously simply because marriage in our case has meant dramatically reduced per-person expenses, which means dramatically increased per-person retirement savings, which means lower taxes. It’s actually kind of crazy: I have never felt this rich, but I have also never paid such a low percentage of my actual income in taxes–not even when I was in grad school living on a 15K stipend. All that to say, I think this is why tax rates for married people look bad on paper: there is a real financial benefit to marriage that they are trying to reflect in the policy. I have no complaints about my taxes as a married person.
Congrats! Check out this post for more on the marriage penalty tax and credit:
https://www.financialsamurai.com/at-what-income-level-does-the-marriage-penalty-tax-kick-in/
this is sick that is very sexsit towards people.
I am a high income earner with a medium for California mortgage. I am single. When I think about getting married, I have two options: (1) marrying a guy with a small income so I get more deductions (which really isn’t all that attractive to me because I would effectively be making less money) and (2) marrying a guy with an income equal to or greater than mine (which results in higher taxes and phaseouts of deductions (I’ve conducted my own independent research on this which corroborates yours). I’ve thought about the possibility of instead of getting married, entering into a partnership agreement that effectively functions like a prenup, spells out child raising duties, and determines how assets are to be divided upon dissolution. California law does not provide for common law marriage so this could be an effective solution to the problem. I, for one, won’t take that BLEEP from our government.
No, I don’t think the government is sexist, if anything it goes out of its way to promote the “equality” gender-less philosophy that is the order of the day.
However, it certainly is not pro-marriage, since it considers any relationship to be of equal merit – which I don’t agree with. But then, that is all part of the aforementioned equality philosophy that it is so enamoured of.
Isn’t the government racist as well? I believe in Canada that incomes are split so marriage or common-law is an advantage, but as I haven’t been in that situation myself I’m not sure.
Get rid of the mortgage subsidy, btw, and you’ll end that problem. ;)
I realize the government is made up of people that may be like you and me, but I think it is a huge leap that there is any thought behind the income tax legislation other than generating income for the government. Too many lobbyists and other vested interests have made legislation illogical at best. My approach is seeking the best tax advice and do what I can to reduce the tax bite.
I think the government is more desperate than sexist…..at least by a little. There are fewer and fewer people contributing and at the same time less and less traditional “nuclear” families. Meanwhile debt keeps expanding. I read the other day on CNN that 1 in 7 Americans collects food stamps. Looks like its time to revamp a lot of different things in the U.S.
Really interesting topic, I enjoyed reading it and everyone’s topics.
Maybe, but I think old habits die hard. The government is CLEARLY sexist in this case! I’m amazed more women don’t stand up and fight. Man or woman for that matter.
very interesting discussion. as a CPA that charitably does tax returns for all tom, dicks and harry’s in my family, i agree that the intent is to benefit the average married couple. average is the key word here – so think average household income in the USA. moreover, the conventional thinking that one individual works as the breadwinner while the other takes care of raising kids and cleaning the bathrooms at home has carried over in modern day tax law. for higher earning families, the tax code certainly works the other way around and provides no incentive to grow financially. the same goes for a single unmarried individual.
Why does there have to ONE breadwinner is my question? That is an outdated way of thinking by us and the government who implement these tax policies.
Why can’t there be two equally successful, career oriented men and women? That’s equality.
There totally can be FS, and the tax burden also moves in direct correlation with that. The code does carry over with it older wisdom, and the justification seems to be to tax entities based on total income generated much like companies. Consider a family business where the husband, wife and 3 kids all work at the family restaurant. All generate money as one entity and live under the same roof. Because of our tax laws, each pays the proportion of tax levied to them, whether they file individually or as a joint family / business.
Going back to the original discussion – yes, the Government taxes a married couple more (assuming they are both working and making good money), just like it would tax an individual or an entity on a progressive basis. Because there are synergies/savings derived from certain activities (i.e. living under one roof, cooking on one stove vs two), the tax effect is not directly proportional. The analysis really should be to compare the savings a married couple is able to keep vs. the incremental tax burden. This, compared to what would have been the case had the couple not married will yield more concrete and objective results. One will find that the results vary greatly depending on specific individual situations, and therefore it is difficult to make a general claim one way or another regarding how the tax code impacts individuals and families.
All I know is that if two successful people who make much more than $250,000 a year get married, they are punished by the government b/c the government considers only one can be the main breadwinner. That’s not right and yet more people aren’t up in arms about this simply b/c not many people make $250K+.
Which also means many people don’t shoot for the stars.
If my wife had a $500k annual income, then I wouldn’t bother working…
We waited until the marriage penalty went away before getting married on Sep 11, 2001. (the date was set in advance and I’m not going to let any selfish terrorists screw up a good thing!). Normal people (rather than the upper 2% of income earners) do not need to be hit with the marriage penalty.
I’m contemplating a strategic divorce should the marriage penalty be reinstated for us normal people. The marriage penalty just doesn’t foster a family atmosphere.
George, but let me ask you, should married people, no matter what the income be treated THE SAME as any other married couple?
You have to ask yourself WHY the government isn’t making 1+1 = 2, and instead 1+1=1 as in the case with the mortgage deduction. It’s important for people to be aware of the government’s action to discriminate against women and men.
Yes, this marriage penalty for high-income earners really pisses me off and is the reason why I didn’t formally get married. We already pay a disproportional amount of the nation’s taxes. The government needs to fix this, but won’t.
Let’s hope that the government does. We need to find a better way!
Nice information, this really useful for me. There is nothing to argue about.
Keep posting stuff like this i really like it. Thanks.
I agree with Kevin above.
The tax law penalizes two high earners who are married. There is no sexism here, if the woman makes big bucks and the man stays at home then it’s the same result as the man making big bucks and the wife staying at home.
I make $260K a year and the wife doesn’t work, filing married jointly is a great deal for us!
I tell my wife that with the effort required making $260K a year, I need her support to help me back at home- it’s a good deal all around and I’d gladly switch places when she lands a similar job.
If you can’t change the system, learn to work around it!
-Mike
@Kevin@OutOfYourRut
Maybe not a new one, but keeping an old one around is pretty easy. It’s not like a lot of people are going to be subject to it in a disadvantageous way, so its largely ignored.
I can’t imagine us seeing this law disappear…
1. You each have to earn 68k or so before this comes into effect. (or one person earns 100 and another earns the rest. Whatever).
What % of the population earns more than 134k per household?… maybe 10%? 15?
https://en.wikipedia.org/wiki/Household_income_in_the_United_States
2. You have to be married in the eyes of the federal govt (I live in Washington :) no state tax)
Thus Same Sex couples aren’t subject to it, so another 10% of the population escapes
3. You have to earn roughly equal amounts. If one person outearns another by a LOT there’s still an advantage to getting married. Likewise households with 1 earner. How many 2-CEO households are out there?
No idea on % here.. maybe half?
So 90% of 10%, and then perhaps half of that.
I don’t see this law disappearing !
Money Reasons–I totally agree, it’s all about revenue, and that largely comes from high earners, married or single.
Also, I don’t think the gov’t has the guts to risk the feminine backlash on a blatantly sexist policy slanted against women. If it’s anything, it’s far more likely to be an anti-married policy, since marrieds aren’t considered a protected class. Married couples just pay and keep on plugging.
.-= Kevin@OutOfYourRut´s last blog ..Good Retirement Planning Should Include a Low Cost/Debt Free Lifestyle =-.
@ david M
I do agree with your general point that I lot of people don’t really understand what goes into the numbers they see on their tax forms. I’ve had multiple discussions with people on forums and blogs who swore up-and-down that the 2008 stimulus tax credit, or the 2009 stimulus tax credit, was ‘taxable’ or being ‘taken back’ because their taxes ended up higher that year then previous years.
In reality, neither of those things are in the slightest bit true. And once they actually looked at their taxes closer, they realized either that they’d had some more investment income, of they got a bigger bonus at work that they forgot about, they had typed something in wrong, or lost a dependent who graduated from college, etc.
So it is true that a lot of people don’t really look close enough to really understand the differences from year to year. It wouldn’t surprise me at all if some people got married, ended up owing more and figured it was from the marriage when in reality it was because they sold a home, or changed jobs and got a vacation-time payout when leaving, or one of a variety of other factors.
However, since these are Samurai’s friends, I wouldn’t be particularly surprised if they did know what they were talking about either.
@ david M
The real reason that the current tax structure exists as it does, is because if they did make it fair, they would lose to much tax revenue!
Exactly. And in order to make it fair and also be revenue-neutral, they’d have to eliminate other tax breaks or raise marginal tax rates. And that always goes over like a lead balloon.
I’ve enjoyed reading the this discussion!
The real reason that the current tax structure exists as it does, is because if they did make it fair, they would lose to much tax revenue!
Afterall, doesn’t the top 1% in wealth pay something like 33 to 40% of in the federal income taxes (thanks Bill Gates and Warren Buffett, I love my newly paved road!)
This is just and example of a stupid tax code change they did at some point in time and now the undesirable effects of promoting non-married lifestyles over married lifestyles. Nice job government! People take about fairness, well I think children are raised better with 2 parents instead of 1…
Hmmm kind of reminds me of some of the bailout and mortgage re-engineering that’s going one…
And people wonder why “Strategic Defaults” are happening… ;)
@Financial Samurai
I just realized an oversite in my thinking – did your friends happen to sell houses after they got married?
If yes, this may be the reason their taxes went up. Say they sold a house that had $16,000 in interest deductions and $4,000 in property taxes, if they are in the 25% tax bracket there taxes would go up by $5,000.
To me, this is not due to the “Sexist Government” and I think they should be happy to have paid $5,000 extra in taxes. Why, because they have $15,000 extra even after paying $5,000 more in taxes.
I’m sure MANY people will think my logic is CRAZY – that’s okay I already realize that!
David M – You bring up valid points. If their finances are not completely apples to apples, with no changes of deductions, it is hard to compare. However, I don’t think anything changed for the most part with these 5 friends. None sold their house, and lost their deductions on their income.
The term “marriage penalty tax” exists for a reason. And the reason is that the government is against the union of marriage, and is against two successful working spouses.
.-= admin´s last blog ..The Best Super Bowl Commercials for 2010 =-.
@ admin
Absolutely I do NOT think they lied. I just think they were mistaken.
I doubt they actually took the time to look the time to compare and see that there tax liability was $3,000 to $25,000 higher.
Of course I could be wrong – I do not know your friends.
“You think all 5 of my friends lied to me?”
Lied? No.
Representative sample? Perhaps not.
If the couples had similar incomes, they’ll hit the marriage penalty. If they have very different incomes – regardless of who makes more – they’ll get the marriage bonus, as the high earner gets dragged down to a lower bracket.
.-= Kosmo @ The Casual Observer´s last blog ..What’s Going On? =-.
@david M
You think all 5 of my friends lied to me? What incentive do they have to lie and say they paid more tax and by 3-25K more? Adding up their tax liability before they were married, and the year after they are married with the same income is very easy to compare.
@LeanLifeCoach
Forgot about the stat that some 40% of Americans don’t pay tax. Good point. Congrats on being highlighted in Wise Bread’s round up!
.-= admin´s last blog ..The Best Super Bowl Commercials for 2010 =-.
I wonder if this is why more and more celebrity couples are staying together long term but not actually getting married. Tax laws bite
Great thread of comments! OK, so the tax regulations are archaic, we have consensus. The government being sexist? No doubt when the rules were written we had sexists running the country but the regs probably made a lot more sense back when successful women were not the norm. Today we might still have sexists leaders but they are simply incapable to getting anything of significance done unless it is spending more.
Why aren’t more people up in arms… hmmm, Could it be that something like half the country pays little or no taxes. They don’t care if the wealthy pay but would certainly be vocal of the wealthy were up for a reduction in their tax liability?
.-= LeanLifeCoach´s last blog ..Combat The Closing Techniques – The Puppy Dog Close =-.
@ FinEngr
Possibly kids would make it worth it, though I haven’t looked into that as they’re not on my list of interests or hobbies in the next few years. But I think the deduction per kid is the same whichever way you file. So ideally, the higher earning partner could deduct the kids in a non-married situation.
However if me or my fella were in the hospital, or owned a lot of things together, or had other such things to worry about, we’d need a “guaranteed relative” which is what marriage provides, per SameSex-Marriage argument above that @ fredct already responded to. Luckily his parents are still alive and could sign over a lot of responsibility and visiting rights if necessary.*
@ admin
BTW “successfuly highly paid men” was snark. The social conditioning is so deep that we don’t even realize sometimes though :)
*Could become moot as he’s seriously considering his own business and we’d need to get married for health benefits, etc, similar to other posters here.
@ admin
To Admin,
I’m happy you responded and this was from the heart.
However, I wonder if you friends are correct – that is, did they really pay more in tax on their combined income than they would have had they filed separately? And if yes, were the numbers really $3 to $25 thousand?
I believe the answer to my questions is most likely, No and No.
What people believe regarding taxes and REALITY are often VERY different.
For example, I heard a recent poll and the results were that almost everyone thought their taxes went up under President Obama. However, the truth is almost EVERYONE’s taxes went down.