Marriage in the Tax Code, Part 12: Meet the Marriage Penalty

wedding-rings-150300_1280Of all the tax myths that exist, the one I encounter most is: married couples always save money on their taxes.

But since 1971, this has not been true.

As I’ve detailed in prior parts of this series, tax law regarding marriage has changed through the years. In the beginning, there were no filing statuses and only one tax bracket. Marriage conferred no benefits but also no penalties.

Married couples in community property states soon discovered that they could save money by employing community property laws to split income. This created an inequality between married couples in community property states and married couples in common-law states.

To fix this inequality, Congress created filing statuses with unique tax brackets in 1948. But in fixing this inequality, a new inequality was created, this time between married couples and unmarried couples.

Congress made fixes in 1969 (which took effect in 1971) to try and fix this inequality. Instead, the tax brackets created the “marriage penalty,” which historically has affected 50% of married couples.

Stated simply, the marriage penalty is when two people are better off filing as two single (unmarried) people rather than filing as a married couple.

In future parts, we’ll look at examples of the marriage penalty since 1971 and examine more closely the social and legal landscape that led to the marriage penalty phenomenon.