They say that there are only two things in life that you cannot avoid. One is death and the other is paying your taxes! Things can get really complicated and messy while calculating your income tax.
What is Marriage Tax Penalty?
Is there a marriage tax penalty? Yes there is such a thing and it is part of the taxation laws which applies to all married US citizens. When it comes to any aspect of taxation, all things boil down to and are decided by one number which is your income. The penalty is dependent on the individual incomes of the couple filing jointly. In fact, it is the difference between what taxes are paid by a couple married filing jointly and what amount of tax they would have paid if they filed as singles. If both earn almost the same income, then they are taxed more. However, if the difference between the income of both was high, they get tax relief.
Prior to 1969, married couples had a considerable advantage when it came to paying taxes if they filed jointly, compared to singles. The penalty was introduced by law makers in the 1969 legislation which was aimed at making the tax system fair to married couples and singles alike. However, due to this legislation and the subsequent raise in taxation in 1993, many married couples who were earning almost similar incomes had to pay very high taxes as compared to couples who had only one high earning member. The tax cuts in 1997 didn't help them either. During 1996, almost 42% of married people in USA suffered from an average penalty of almost $1400. Men and women had to think about taxation issues, while deciding whether to marry or not, other than the usual commitment issues!
However, relief came in a legislation passed in 2001 and later, which doubled the standard deduction for married couples filing jointly compared to that for singles. Also the higher limit for 15% tax bracket was increased significantly. Both these changes and other temporary amendments provided relief to a lot of married couples who were filing jointly and fell in the lower tax bracket. As of now, the penalty is not applicable to married couples falling in the low tax brackets till the end of 2010. However, this penalty might return in 2011 if congress doesn't pass any legislation authorizing its continuation. The married couples falling in the higher taxation bracket are still subject to the penalty. A calculator, based on the existing taxation limits and income tax rates, can reveal the amount of additional tax you may have to pay for being married.
How Could You Avoid it
Currently the only way to best avoid a penalty is to stay single or earn less. Both are impractical options obviously. Unless you have enough clout in the senate to bring about a change in legislation, you must be prepared for paying up the extra penalty by cutting on extravagant expenses. If you as a couple fall in the low tax bracket, then you need not worry till the end of 2010.
Tax laws can be complicated and it helps if you have a good tax consultant who can handle the whole thing for you. In case you don't have one, you should consider buying a tax guide book that has updated information about filing taxes and has the latest information about changes in taxation laws. A visit to the Internal Revenue Service (IRS) website might reveal the current status regarding penalty laws. As I said before, many people have got a marriage tax penalty relief after recent legislation. However, the future of this penalty and its impact on tax payers in the coming years is uncertain. It is totally dependent on decisions made by the government in 2011.
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