Back in 2014 and into 2015, I posted a multi-part series of posts about the history of marriage in the tax code. In 2016 I was asked to condense that series into a CPE presentation. Here are excerpts from that presentation. This series of posts will cover a lot of the same ground as was covered three years ago, but hopefully with a little bit fresher perspective.
Because these parts are being posted haphazardly over the course of many months, I will pull all parts together once the final part is posted, and provide links to all the parts in one place.
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The tax oddity that we now call the “marriage penalty” came about in 1971. Let’s look at some examples:
In 1971, John has taxable income of $14,000 and Jane has taxable income of $6,000, for combined taxable income on their married filing jointly tax return of $20,000. The tax on $20,000 is $4,380. (Filing separate returns at their income level results in tax of $4,850.)
Now assume that John and Jane are single and thinking about getting married. The tax for a single person with taxable income of $14,000 is $3,210; the tax for a single person with taxable income of $6,000 is $1,110. The total tax owed between the two of them is $4,320. John and Jane would pay an additional $60 in taxes by getting married ($170 in 1971 is equal to about $350 today).
Through the years, the marriage penalty would get worse.
Example:
In 1981, John has taxable income of $14,000 and Jane has taxable income of $6,000, for combined taxable income on their married filing jointly tax return of $20,000. The tax on $20,000 is $3,225.
If John and Jane were single, John’s tax would be $2,345. Jane’s tax would be $602. Total tax owed between the two of them is $2,633. John and Jane would pay an additional $288 in taxes by getting married in 1981. This is equivalent to more than $800 in today’s dollars.
John and Jane face a marriage penalty when their combined income is just $20,000 in 1981 dollars ($55,000 in today’s dollars).
The Tax Reform Act of 1986 eliminated the marriage penalty at the lower ends of the tax bracket, mainly by flattening the rates. Here’s what the new brackets looked like with TRA ’86 took effect in 1988:
| Single | Head of Household | ||
| $0 – $17,850 | 15.0% | $0 – $23,900 | 15.0% |
| $17,850 + | 28.0% | $23,900 + | 28.0% |
| Married Filing Jointly | Married Filing Separately | ||
| $0 – $29,750 | 15.0% | $0 – $14,875 | 15.0% |
| $29,750 + | 28.0% | $14,875 + | 28.0% |
Now let’s look at an example using the new brackets.
Example 11:
In 1988, John has taxable income of $25,000 and Jane has taxable income of $8,500, for combined taxable income of $33,500. Their total tax liability is $5,513.
If John and Jane were single, John’s tax liability would be $4,680, Jane’s tax liability would be $1,275, for a total tax liability of $5,955. There is no marriage penalty at their income level.
For reference, $33,500 of income in 1988 is equal to $70,000 today.
As the years passed from TRA ‘86, the marriage penalty started to appear again at lower income levels. We’ll discuss that in the next part.