When you get married, the tax system can be either friend or foe.
Many couples see their tax burden go down when they tie the knot. Yet some end up paying more than if they had remained unmarried and filed as single taxpayers.
“It’s more typical for people to have a marriage bonus, but there are tax provisions that are not adjusted for marriage,” said Kyle Pomerleau, director of the Center for Quantitative Analysis at the Tax Foundation, a nonprofit think tank.
In simple terms, the so-called “marriage penalty” comes into play when tax-bracket income thresholds or credit and deduction amounts for single filers are not doubled for married couples, whether at the federal or state level.
So depending on your income, where you live and the deductions or credits you use, a bigger tax bill could be part of your married future. And, it can affect both high and modest earners, young and older.
“Typically it occurs when two individuals with identical or similar incomes are married,” said Robert Westley, a CPA who serves on a credentialing committee for the American Institute of CPAs.
Before the Tax Cuts and Jobs Act, which took effect this year, a larger swath of taxpayers faced higher income tax bills after marriage. However, the legislation adjusted the tax brackets to eliminate the issue for all but the highest earners.
For single taxpayers, the top tax rate of 37 percent kicks in for income above $500,000. Yet for married couples, that rate gets applied to income over $600,000.
In other words, two individuals who each have income of $500,000 would pay the second-highest rate, 35 percent, on their income if they filed as a single taxpayer.
However, as a married couple with combined income of $1 million, they would pay 37 percent on $400,000 of that (the difference between their income and the $600,000 threshold for the highest rate). That would mean paying $8,000 more in income taxes.
There also are other parts of the tax code that can cost married couples more. For instance, while an individual can have up to $200,000 in income before the Medicare surtax of 0.9 percent kicks in, the limit for married couples is $250,000.
Additionally, the new limit on the deduction for state and local taxes — also known as SALT — is not doubled for married couples. The $10,000 cap applies to both single filers and married filers. (Married couples filing separately get $5,000 each for the deduction).
Of course, the deduction only is available to taxpayers who itemize, and fewer people are expected to do so on their 2018 returns due to the doubling of the standard deduction. Itemizers in higher-tax states — including New Jersey, California and New York — who marry could be more affected by it, Westley said.
For those with incomes at the other end of the earnings spectrum, a marriage penalty can come from the earned income tax credit.
The credit is generally available to working taxpayers with children, as long as they meet income limits and other requirements. Some low earners with no children also are eligible for it. Because it is refundable — meaning it could result in a refund even if your tax bill is zero — it is considered valuable to working parents with low or modest income.
However, the income limits associated the tax break are not doubled for married couples. So two people with income of $25,000 each and one child would pay $3,117 less in taxes if they remained unmarried, according to the Tax Policy Center, a nonprofit research group. The reason is that their $50,000 combined income exceeds the income limit for married couples with one child.
The Tax Policy Center has a marriage calculator that allows you to plug in the details of yours and your partner’s income to see how your taxes would shape up if you were to file as a married couple.
Some states also have a marriage penalty for taxpayers. However, the impact can be minimal in some places due to the highest tax bracket kicking in at a very low amount. For instance, in Missouri, the highest tax rate of 5.9 percent applies to income of $9,072 or more for both single and married couples filing jointly.
In other states, the marriage penalty can be more pronounced for some earners. For example, Maryland’s top rate of 5.75 applies to income above $250,000 for single filers and $300,000 for married couples.
Also, if you’re in retirement and on Social Security, be aware that tying the knot can come with additional tax implications. For single filers, if the total of your adjusted gross income, nontaxable interest and half of your Social Security benefits is under $25,000, you don’t owe taxes on those benefits. However, for married couples filing a joint return, the threshold is $32,000 instead of double the amount for individuals.