Anachostic

My tagline, let me show you it.

Death and Taxes and Marriage

These are some things always dear to my heart.  Let’s see how the marriage penalty works out for 2010.  The marriage penalty is when you get bumped to a higher tax bracket because of your combined income, where if your income was not combined (i.e. single), you’d be in a lower tax bracket.  Obviously this is more for DINKs and working professionals.  There’s plenty of cases where one’s higher income can be strategically lowered by a non-working or low-earning spouse.

Just as a disclaimer, all of these values are taxable income (one step beyond adjusted gross income and two steps beyond earned income), even when I talk about how much someone makes a year.  As we know, there are many ways to reduce that number including 401k/IRA contributions, and other pre-tax deductions.

Back in 2008, it worked out like this, using the tax rates from that time:

2008 taxes

Filing Single Status

10% on income between $0 and $8,025
15% on the income between $8,025 and $32,550; plus $802.50
25% on the income between $32,550 and $78,850; plus $4,481.25
28% on the income between $78,850 and $164,550; plus $16,056.25
33% on the income between $164,550 and $357,700; plus $40,052.25
35% on the income over $357,700; plus $103,791.75

Married Filing Jointly or Qualifying Widow(er) Filing Status

10% on the income between $0 and $16,050
15% on the income between $16,050 and $65,100; plus $1,605.00
25% on the income between $65,100 and $131,450; plus $8,962.50
28% on the income between $131,450 and $200,300; plus $25,550.00
33% on the income between $200,300 and $357,700; plus $44,828.00
35% on the income over $357,700; plus $96,770.00

If a couple each make between $66k and $78k and they each file single, each are taxed at 25%. If they file jointly, they are bumped to 28% because their sum income is over $131k.   In this case, it makes financial sense to remain single.

This terrible loss of money occurs because of the quicker jump from 25% to 28% for married filers.  The 25% bracket ends $26,250 sooner when you are married.  Why?  Who knows.

So to figure out who gets screwed, you look at the 25% tax bracket upper bound for both single and married, because that’s where it becomes unequal.  Divide the married tax bracket value by 2 as if you were single.  That comes out to $65,725 (or $66k) and the single upper bound is $78,850 (or $78k, estimating is fine when dealing with these concepts).

How have things changed in two years?

2010 taxes

Filing Single Status

10% on income between $0 and $8,375
15% on the income between $8,025 and $34,000; plus $837.50
25% on the income between $34,000 and $82,400; plus $4,681.25
28% on the income between $82,400 and $171,850; plus $16,781.25
33% on the income between $171,850 and $373,650; plus $41,827.25
35% on the income over $373,650; plus $108,421.25

Married Filing Jointly or Qualifying Widow(er) Filing Status

10% on the income between $0 and $16,750
15% on the income between $16,750 and $68,000; plus $1,675.00
25% on the income between $68,000 and $137,300; plus $9,362.50
28% on the income between $137,300 and $209,250; plus $26,687.50
33% on the income between $209,250 and $373,650; plus $46,833.50
35% on the income over $373,650; plus $101,085.50

Well, for one, the gap has gone from $26,250 to $34,550, so many more people are going to be affected.  Great.

Using the simple formula explained above, a couple – each earning between $68k and $82k – will get bumped into the 28% tax bracket.  That’s a $14k range, compared to a $12k range back in 2008.

What does this mean in real dollars? If you make $68k and file single, your tax obligation is $13,188.  If a couple each earn $68k, combined to $136k, their married tax obligation is $30,389, or $15,194 each.  This is a loss of $4,000 just for being married.

Let’s look at the high end.  If a couple each earn $82k, filing single costs them each $16,688.  Filing jointly, their tax bill is $39,630, a loss of $6,200.

I’ll reiterate, these number are all taxable income numbers. If you’re resigned to being in the 28% bracket, don’t bother worrying.  But if you have the chance to increase your deductions to get yourself into the 25% bracket, don’t let yourself get pushed back up and lose thousands for the privilege of being married.

Advertisements

One response to “Death and Taxes and Marriage

  1. Pingback: Taxing Marital Bliss 2012 « Anachostic

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: