It’s Valentine’s Day so the thoughts of lovers — young, old and in-between — naturally turn to taxes.
Oh wait, that’s just me and the ever-patient hubby. We did, after all, push our wedding day into 1982 because that tax year meant we could claim the dual earners’ above-the-line tax deduction. That’s part of the Form 1040 instructions on the new tax break shown below.
We (OK, me) did want to get our new life together off to a good tax-saving start.
That income adjustment law change was an effort to reduce the marriage tax penalty that many jointly filing couples faced back then.
As we’ve all become very aware, the marriage penalty shows up when the joint tax bill for a dual-income couple is larger than it would have been if the husband and wife had filed as single taxpayers and then added up the two amounts.
The 1982 “deduction for a married couple when both work” helped a bit, but it was only temporary. When the provisions of the historic Tax Reform Act of 1986 took effect in the 1987 tax year, the dual earners’ deduction was gone.
But the marriage tax penalty remained.
Reducing the marriage penalty again: It wasn’t until George W. Bush moved into the White House and his administration came up with tax law changes that more thoroughly addressed the marriage tax.
The Bush tax cuts substantially reduced marriage penalties by raising the standard deduction for couples to twice that for
single filers and by setting the income ranges of the 10 percent and 15 percent tax brackets for couples to twice that for individuals.
Of course, the 2001-2003 tax law changes that were made permanent earlier this year as part of the American Taxpayer Relief Act (ATRA) also increased marriage bonuses. This happens when there’s a big difference between a husband’s and wife’s incomes.
When the much-lower income is added to the much higher income, the total basically pulls at least some of the higher income into a lower joint tax bracket, providing tax savings.
Figuring your wedded bliss tax bill: So, what do you and your better half pay, a marriage tax penalty or bonus?
You can find out by entering your earnings and tax filing information in the Tax Policy Center’s marriage bonus and penalty tax calculator.
Tax experts at the Center, a joint venture of the Urban Institute and Brookings Institution, have updated their calculator. It now incorporates the ATRA changes so that lovebirds, especially those contemplating tying the knot, can see if their vows will deliver a marriage tax bonus or marriage tax penalty.
Of course, taxes aren’t the only reason to decide to or not to say “I do.” They are just part of the price of love.
If you’re already married, you can see whether your marriage tax penalty or bonus in 2013 will be more or less than it was in 2012.
And even if you do end up paying Uncle Sam a bit more on that joint 1040, isn’t your spouse worth it?
Filing jointly or separately: Most married couples file jointly even if it costs them some tax dollars.
But in some situations, it’s worth at least exploring whether you and your spouse should file separate 1040s.
As a special Valentine’s Day gift, Today’s Tax Tip examines those instances and the tax considerations of filing a joint vs. separate tax return.
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