Thursday, February 14, 2013

Happy St. Valentine's Day - Part II

Are you planning to get engaged or married over St. Valentine's Day?

If so, there is a tool that let's you know whether you'll end up with a marriage tax bonus or a marriage tax penalty.  But, first you'll need to get your hands on your intended's tax return as the tool needs some serious data to give you an accurate result.

A marriage tax penalty is when:

  • a wife and husband pay more income tax filing jointly as a couple than they would if they had remained single and filed as individuals.

A marriage bonus occurs when:

  • a couple pays less tax filing jointly than they would if they were not married and filed singly.

Marriage penalties only hit couples where both spouses work.  And, under the 2013 Fiscal Cliff work compromise, it appears that the marriage tax penalty has gotten worse for those at the upper end of the income range. I'm still trying to sort out all the tax changes from the Fiscal Cliff compromise, but this article from Bloomberg provides some guidance on the various thresholds for when higher taxes and higher tax rates kick in.

I try not to get into politics here at Adventures of Sam, so I don't want to get into a Republican/Democratic Party debate on taxes.  But I'll state for the record that I'm actually in favor of higher taxes and I'm in favor of a progressive tax system.

But, I'm not in favor of a system that provides for a marriage tax penalty on $150,000 in income.  Higher tax rates kick in at $400,000 for an individual and $450,000 for a married couple.  Sure, if a couple is making more than $450,000 a year its hard to have any sympathy for them. But, think about a hard working professional couple in which both spouses are putting in 12+ hour days, they may have significant student loans that paid for those professional degrees, a mortgage, expenses related to kids and our government is penalizing (with higher taxes) either the wife (more often its the wife) or the husband for having a professional career.  I'd like to see the marriage penalty reduced even at the higher income levels, if higher tax rates kick in at $400,000 for an individual than maybe the higher tax rates for couples should kick in at $600,000 or something like that.

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