Why Do Tax Laws Still Punish 2-Income Families?

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When it comes to paying taxes, two-income married couples can be at a disadvantage.

According to National Public Radio, “secondary” wage earners are sometimes penalized by a tax code provision that dates back to the Ozzie and Harriet days — the so-called marriage penalty. It’s when a married couple pay more income tax together than they would as two single individuals.

Melissa Kearney, director of the Hamilton Project at the Brookings Institution, told NPR that the tax system was not designed to penalize working spouses, but it can, and it does.

In 1948, Congress enacted an income tax rate structure for married taxpayers in which spousal income was pooled. It worked well at the time, because most husbands were the primary breadwinners and wives typically stayed at home.

Times have changed. Kearney explained to NPR that a couple with a highly paid husband in the highest tax bracket would really feel the brunt of the marriage penalty.

“As soon as the wife goes to work, her first dollar of earnings is taxed at our highest marginal tax rate,” she says. “So some lawyers have referred to this as really the tax on women.”

It also affects low- and middle-income couples. Brad Wilcox, director of the National Marriage Project at the University of Virginia, said low-wage workers are often hesitant to tie the knot because of the financial repercussions. Wilcox told NPR that pooling spousal incomes means a family may no longer qualify for food stamps, the Earned Income Tax Credit or Medicaid.

“They’re hesitant to marry because they realize that they would experience a significant financial hit by doing so,” Wilcox said.

If you want to see how the marriage penalty affects you, check out the Tax Policy Center calculator here.

If you’re paying significantly more taxes by filing as a couple, you may want to consider filing separately rather than jointly. According to TurboTax, you need to keep in mind that filing separately may limit your ability to claim the following tax benefits: Child and Dependent Care Credit, Earned Income Credit, education credits, and tax-free exclusion of Social Security benefits, among others.

Legislation has recently been introduced to ease the marriage penalty. U.S. Sen. Patty Murray, D-Wash., has proposed allowing low- and middle-income couples to deduct 20 percent from the second earner’s income when filing taxes. You can read more about Murray’s proposed legislation here. NPR said Murray’s bill likely won’t pass a divided Congress.

What has your experience been like filing as a married couple? Do you file jointly or separately, and why? Share your comments below or on our Facebook page.

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Comments & discussion

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  • Julie Syracuse

    I say we reform the tax code and go a fixed percentage. Above and beyond the marriage penalty – it feels like single taxpayers are penalized for being single. Why should I pay higher tax rate?