Getting married is likely one of the biggest life decisions you will make, and while it may seem like an easy one, it could just have gotten a little more complicated. In addition to the obvious selection and reflection of a life with a future spouse, and all the family, friends and other things that come with it, there may now be a new consideration to add to the mix: Uncle Sam. That’s because the so-called “marriage penalty” may have just gotten larger for high-earning dual-income households.
Under the recently released so-called “Green Book,” which contains the Department of Treasury’s tax-related proposal for the Biden administration, is a proposal to increase the top marginal income tax rate from the current 37% to 39.6%. This is similar to previous tax increase proposals by President Biden. Specifically, the Green Book provides that the increase, as applied to taxable year 2022, will impact those with taxable income over $509,300 for married individuals filing jointly and $452,700 for unmarried individuals. However, because of the way our tax system and tax brackets work, some married couples who each earn under $452,700 would be subject to a higher tax, as compared to their single counterparts earning the same amount. In this instance, being unmarried and single is better — for tax purposes anyway.
Married vs. Single: Do the Tax Math
The reason for this dichotomy is because we have different tax brackets for single filers and married filers. Assume you have a couple (not married) each making $452,699. These taxpayers would not have reached the highest bracket for an unmarried individual per the Green Book proposal. Each individual would be taxed at the 35% bracket, resulting in approximately $132,989 in federal income taxes using this year’s tax bracket for single filers (or a total of $265,978 combined for both individuals).
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
If instead this couple decides to marry, they will now have a combined income of $905,398, putting them in the highest tax bracket (39.6%) as married filing jointly. This translates to an estimated $284,412 in federal income tax, which is $18,434 more in taxes (or about 6.9%) than compared to a situation if they were single, according to a projected tax rate schedule we created based on the available federal income tax information.
There is another option for married couples: the filing status of “Married Filing Separately.” In this situation, the couple may file as “single” for tax purposes but must use the “Married Filing Separately” rate table, which for the vast majority of situations, when you do the math, does not yield a better result.
The Effect, Going Forward
If the changes, as currently proposed, pass, I am anticipating a lot of tax planning around filing status and income threshold management. Accountants will be very busy with detailed analyses and projections to evaluate the optimal filing status for married couples, and where certain deductions or planning opportunities would be more beneficial if applied to one spouse over the other.
In extreme cases, could this factor into one’s marital decision? While I certainly hope that we do not make life decisions around taxes, the reality is that taxes hit the bottom line, and that impact is real.
No one has a crystal ball as to what will happen, but let’s hope that in the end, this doesn’t become an unforeseen factor in the increasing divorce rate we have already seen since the start of the pandemic. Let’s hope for marital bliss, not marital dismiss.
As part of the Wilmington Trust and M&T Emerald Advisory Services® team, Alvina is responsible for wealth planning, strategic advice, and thought leadership development for Wilmington Trust’s Wealth Management division.
©2021 M&T Bank Corporation and its subsidiaries. All rights reserved.
Wilmington Trust is a registered service mark used in connection with various fiduciary and non-fiduciary services offered by certain subsidiaries of M&T Bank Corporation. M&T Emerald Advisory Services and Wilmington Trust Emerald Advisory Services are registered trademarks and refer to this service provided by Wilmington Trust, N.A., a member of the M&T family.
This article is for informational purposes only and is not intended as an offer or solicitation for the sale of any financial product or service. It is not designed or intended to provide financial, tax, legal, investment, accounting or other professional advice since such advice always requires consideration of individual circumstances. Note that tax, estate planning, investing and financial strategies require consideration for suitability of the individual, business or investor, and there is no assurance that any strategy will be successful.
-
Dow Climbs 559 Points to Hit a New High: Stock Market TodayThe rotation out of tech stocks resumed Tuesday, with buying seen in more defensive corners of the market.
-
Are You Saving Too Much for Retirement? Know These Surprising DownsidesYour money may be better served outside of a retirement account.
-
Fish and Chips? More Like Fish and a Side of Customer Confusion and AngerYou expect chips — French fries, actually — to come with your order of fish and chips? Think again. This restaurant could be violating the truth-in-menu laws.
-
What the 2026 Tax Landscape Means for Advisers, From a Financial PlannerThe OBBB's impacts on 2026 are taking shape, amplifying the need for financial advisers' expertise in transforming stability into strategy for their clients.
-
From Vision to Value: A Blueprint for Helping to Build Your Advisory PracticeAs a financial professional, you can draw lessons from Advisors Excel's journey to find ideas, strategies and inspiration for growing your own advisory business.
-
I'm an Investment Adviser: Here's Why You Should Resist a Zero-Down MortgageWhile it's certainly enticing, a zero-down mortgage comes with significant risks, especially if home values decline or you want to refinance.
-
I'm Embarrassed to Ask: What Is a Life Insurance Trust?Life insurance trusts, particularly irrevocable life insurance trusts (ILITs), can minimize estate taxes and protect your heir's inheritance.
-
Are Your Employees Quietly Cracking? How to Repair the Cracks Before Everything BreaksSome employees who are unable to change jobs due to economic conditions are doing only the bare minimum, leading to decreased work quality and team morale.
-
Headed for the Retirement Red Zone? This Eight-Step Game Plan Helps to Avoid FumblesThese strategies help safeguard your nest egg and ensure long-term financial success during the five years before retirement and the five years after.
-
I'm a Financial Planner: This Is How You Can Get Started With RMDsThe IRS will come knocking for its share of your tax-deferred retirement savings when you hit 73, but planning ahead for RMDs will ensure you're ready.
