The Tax Advantage to Being Married
TL;DR: Most people, most of the time, will save on taxes when they get married. You can save over 7% of combined income in federal taxes by getting married. In general, you save more if there’s more income disparity within the couple. You save less (or potentially lose) if you’re very high income and the income is more evenly split between the partners.
If you ever look at the general federal tax brackets, you’ll notice that for most brackets, the “married” bracket is just twice as high as a “single” bracket, i.e. a single person making $15000 is in the same tax bracket as a couple making $30000. This means that for a couple, it means for tax reasons it doesn’t matter whether they’re married or single right?
Not exactly. This is (almost) true if both individuals in the relationship make the same amount. However, if one person makes significantly more than their spouse, by being married the high income partner can suddenly have their high marginal bracket dollars be placed in their spouse’s lower marginal tax bracket.
As an extreme example, consider a couple where one person makes all the money. Let’s say they make $100k a year – with the standard deduction filing as single their effective tax rate would be 10.77% (and obviously the other spouse pays 0 taxes), meaning they would pay $10,770 in taxes together. But if they file as if they’re married, their effective tax rate would be 6.29% (because with married tax brackets accommodate twice the income), meaning they would pay $6,290 in taxes together. That’s quite a difference!
As you can see in the plot above, the tax savings can go higher than 7% of the combined income if the income disparity in the couple is high enough, with certain incomes.
But wait, in the graph – what’s with the blank upper right corner, where being married is worse for your wallet?
There is one wrinkle I did not mention – the top married tax bracket is lower than 2x single bracket. For 2021, you only start paying the top 37% tax rate on dollars after $523,600, whereas if you’re married the number is $628,300. So this means that if you’re a high earning couple who has their income pretty evenly split, being married becomes worse!
For example, if both individuals make $500k, then filing as single would not put them in the top tax bracket, but filing as married would. Uh oh!
Does this affect whether you want to get married or not? Have fun discussing with your partner!
TheJKW
Disclaimer: This blog, TheJKW, does not provide tax, legal or accounting advice. This website has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.