The Status of the ‘Marriage Penalty’

marriage penalty - tax experts in pittsburgh

The US runs on a progressive income tax structure, which means that individuals who make higher salaries are taxed at increased rates with fewer exemptions than individuals who bring in a lower salary. Due to this type of tax structure, married couples filing jointly may end up with a higher joint federal income tax liability compared to what they would have incurred collectively if they remained single and filed as single individuals. This has long been called the "Marriage Penalty."

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Major tax legislation over the past 20 years have been enacted to help eliminate the "Marriage Penalty." The Taxpayer Relief Act of 1997, the Economic Growth and Tax Relief Reconciliation Act of 2001, the Jobs and Growth Tax Relief Reconciliation Act of 2003, the Working Families Tax Relief Act of 2004, the American Recovery and Reinvestment Tax Act of 2009, and the American Taxpayer Relief Act of 2012 only alleviated some of the liabilities with filing jointly - however, none have managed to eliminate it.

The Tax Cut & Jobs Act passed a little over a year ago has fulfill its aim to simplify parts of the tax code, and has reduced or eliminated the "Marriage Penalty" in some areas of the tax law. Under the old tax code, married couples with similar personal incomes would end up paying more in total tax cost than they would if they'd filed separately. Under the TCJA, Under the TCJA, personal income tax has been significantly simplified.

It's important to note that the new tax code does contain a bit of a penalty when it comes to itemized deductions. The TCJA limits personal itemized deductions for state and local taxes to a total of $10,000 per taxpayer per year. This is regardless of whether you're filing singly or jointly. The down side is, if you're married, you're giving up an extra $10,000 in possible deductions that you could have made if you'd kept things separated.

The TCJA does diminish the penalty in areas such as the income tax brackets, child tax credit, & alternative minimum tax exemption phaseouts. But, it hasn't eliminated how disproportionate the thresholds are for the single and married-filing-jointly filing statuses across many different areas.

If you are wondering whether the "Marriage Penalty" will affect you and your spouse, contact our North Hills area tax experts. We can help you prepare & file your tax returns to ensure the least amount of tax liability and the biggest return possible.