Marriage Penalty

The marriage penalty in the United States refers to the higher taxes required from some married couples, where spouses are making approximately the same taxable income, filing one tax return ("married filing jointly") than for the same two people filing two separate tax returns if they were unmarried (i.e., filing as "single", not "married filing separately"). The percentage of couples affected has varied over the years, depending on shifts in tax rates.

The source of this increase in taxes has its roots in the progressive tax-rate structure in income-tax laws – that is, the earner of a higher income pays a higher rate of tax on the last dollar of income (the combination of the two incomes = higher tax bracket). It is mathematically impossible for an income tax system to have all three of these features simultaneously: joint filing for married couples; marginal tax rates that increase with income; and independence of a couple's tax bill from their marital status. With increasing marginal tax rates, income averaging is advantageous to the taxpayer.

For example, if a married couple, one making $80,000 and the other making $20,000, in a particular year, were allowed to file as if they had equal $50,000 incomes, they would pay a lower combined tax, compared to what they currently pay in taxes, for the combined $100,000 ($80,000 + $20,000).

The marriage penalty can be even worse in cases where one spouse is not a US person (e.g. not a citizen or a US resident). In this case that spouse cannot be required by US law to pay US taxes. However, since the US person is still required by law to file taxes on world wide income this leaves two choices. The US person can either file as married but filing separately, or they can try to voluntarily convince their spouse to pay US income taxes on their income. This can easily boost someone from e.g. a 28% tax bracket to a 33% tax bracket, thereby reducing their exemption and eliminating their ability to use some deductions and/or credits. The second choice is that the non-US spouse can voluntarily pay US taxes by filing a joint return on the US taxes, resulting in a lower tax bracket but larger taxable income.

In the United States before 1969, income averaging (the married filing jointly status) was advantageous to a married couple with different incomes. To compensate for that, starting in 1969 the U.S. adopted a higher set of tax brackets for the averaged income of a married couple.