If you married in 2022, you may now add “tax return” to your list of items to share.
Some newlyweds may face a higher tax bill as a result of a so-called “marriage tax penalty.” It may occur when tax-bracket thresholds, deductions, and credits are not doubled for single filers, and it can harm both high- and low-income households.
“The penalty can be as high as 12% of a married couple’s income,” said Garrett Watson, a senior policy analyst at the Tax Foundation.
Spouses who married at any time last year must submit their 2022 tax returns as a married couple, either jointly or individually, by April 18. (However, filing separate returns is only financially advantageous for couples in certain circumstances.)
High earners may face several of these penalties.
Higher-income taxpayers may face a larger tax burden from a variety of sources.
To begin, for 2022 tax returns, the maximum federal rate of 37% applies to taxable income above $539,900 for single filers. However, that rate is applied to income of $647,851 or more for married couples filing jointly. (The criteria for 2023 are $578,125 and $693,750, respectively.)
For example, two people with $500,000 in income would be taxed at the second-highest rate (35%), if they filed as single taxpayers.
However, if a married couple earns $1 million in joint income in 2022, they will pay 37% on $352,149 of that (the difference between their income and the higher rate level of $647,851).
“If you both have income in that bracket, you’re going to see a penalty,” Watson said.
Medicare and investment income taxes can also sting.
Other provisions of the tax code can also have a detrimental impact on higher-income couples when they get married.
For example, for single taxpayers, the usual Medicare tax on wages—3.8% shared between employer and employee—aapplies to earnings up to $200,000 per year. Anything beyond that is subject to an extra 0.9% Medicare levy. The additional tax for married couples is $250,000.
Similarly, singles with modified adjusted gross income of more than $200,000 are subject to a 3.8% investment-income tax. Married couples must pay the levy if their combined income reaches $250,000. (Interest, dividends, capital gains, and rental or royalty income are all subject to the tax.)
Furthermore, the deduction for state and local taxes, popularly known as SALT, is not doubled for married couples. The $10,000 threshold applies to both single and married taxpayers. Married couples filing separately can deduct $5,000 apiecelarly known as SALT, is not doubled for married couples. The $10,000 threshold applies to both single and married taxpayers. Married couples filing separately can deduct $5,000 apiece. The write-off, however, is only available to taxpayers who itemise their deductions, and most take the standard deduction instead.
Lower-income households can also suffer.
The earned income tax credit may result in a marriage penalty for newlyweds with lower incomes.
“The credit [thresholds] are not double that of single filers,” Watson said. “It’s of particular concern for lower-income households.”
On their 2022 return, a single taxpayer with three or more children, for example, can claim a maximum credit of $6,935 with income up to $53,057. The income limit for married couples is not much higher: $59,187.
Working taxpayers with children who fulfil income limitations and other conditions are eligible for this credit. Some low-income people without children are also eligible.
Some states also have the penalty in their tax code.
Furthermore, depending on where you live, your state’s marginal tax rates may include a marriage penalty. Maryland’s maximum rate of 5.75%, for example, applies to income exceeding $250,000 for single filers but above $300,000 for married couples.
According to the Tax Foundation, several states enable married couples to file separately on the same return to avoid penalties and the loss of credits or exemptions.
Meanwhile, if you are already receiving Social Security retirement benefits, getting married may have tax consequences.
If your total adjusted gross income, nontaxable interest, and half of your Social Security benefits are less than $25,000, you will not owe taxes on those payments. However, the requirement for married couples filing a joint return is $32,000, rather than the double amount for individuals.