The Financial Benefits and Drawbacks of Marriage

There has been a lot of controversy about the right to marry recently, about the very definition of marriage. However, this talk has tended to be very theoretical, mired in the questions of morality and psychology. While these questions are valid, an important side of the issue tends to be ignored. What does “marriage” actually mean - not from a philosophical standpoint, but from the standpoint of the US tax code?

In 2001, US Congress enacted a change in the tax law because couples who got married ended up having to pay more in taxes than they would have if they were single. This so-called “marriage penalty” was problematic in situations where spouses earned approximately the same amount, and, especially, if both spouses earned little. For example, before 2001, two married people earning $10,000 a year each would have to pay a “marriage penalty” of up to $4,000 just for filing their taxes jointly.

Because the two married individuals wrote in their tax form that they were part of a two-income household with no children, they received much less earned-income credit than they would have individually, if they were filing as single people.

Before 2001, the effects of being married on the finances of a couple were split almost evenly. Congress gathered the data in 1996: 51% of couples actually saved on income tax payments by filing their taxes together, usually because one spouse brought in significantly more income than the other. A difference in income between the spouses yielded tax breaks. However, a parity in income yielded punishment: In 1996, 42% of couples lost an average of $1,380 in income tax payments by filing together, according to the same Congressional research.

Congress’ s 2001 changes to the tax law amended the problem. Now, standard tax deductions for married individuals are double that of single people. Moreover, nowadays, a married couple filing as a one two-income household has to be earning more than $65,100 together before it jumps above the 15% income tax bracket. This is double the amount for unmarried people. The problem is that Congress’s changes to the tax law are set to stop being in effect by 2010, unless Congress approves of additional legislation to make the changes last forever. Moreover, some married people - especially those in the 25% bracket - still pay a penalty, although it is lower than in the past.

However, for a thorough analysis of the financial meaning of marriage, it’s smart to weigh the threat of the “marriage penalty” against marriage’s other legal and financial benefits.

First, many employers’ insurance and benefits offerings extend to employees’ spouses. These benefits tend to be untaxed if the employee is actually legally married, rather than simply living with a domestic partner. Additionally, couples usually have to pay less for insurance. Moreover, in old age, a married person will receive one-half of the social security payments of his or her husband or wife, and even more if the husband or wife dies. Finally, rich married people don’t have to pay estate tax if they leave their estate to a spouse.

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