In some limited circumstances, the Tax Cuts and Jobs Act contains marriage penalties. Under this law, which went into effect in 2018, certain types of taxpayers who have the same income as each other will be required to pay more tax if they get married and file jointly than if they do not marry and file separate returns. The marriage penalty can arise from the tax rates imposed by the Tax Cuts and Jobs Act or from the restrictions that the law applies to deductions for state and local taxes.
You should be aware that you probably do not need to worry about these penalties unless you fall within the highest tax bracket under the new law. The penalty related to tax rates applies only to taxpayers in the highest tax bracket, while the penalty related to deductions for state and local taxes applies most significantly to taxpayers in the highest tax bracket, although it has a limited impact for other taxpayers.
Penalty Based on Tax Rate
Each tax bracket sets up certain income thresholds for single taxpayers and for married couples who are filing jointly. A marriage penalty occurs when the threshold for married couples who are filing jointly is less than twice the threshold for single taxpayers. Under the Tax Cuts and Jobs Act, the threshold for married couples is exactly twice the threshold for single taxpayers in six of the seven brackets. For the highest bracket, which has a tax rate of 37 percent, the income threshold for married couples is $600,000, while the income threshold for single taxpayers is $500,000. This means that single taxpayers can apply the 35 percent rate rather than the 37 percent rate for an extra $200,000 of their income for a year, compared to married couples.
This marriage penalty could amount to as much as $8,000 in extra taxes. Married couples might need to pay about 2.6 percent more than single taxpayers. While this rule may seem unfair, the Tax Cuts and Jobs Act offers other tax reductions to offset the penalty.
Penalty Based on Deductions for State and Local Taxes
One of the itemized deductions that a taxpayer can claim involves state and local taxes. These consist of any property taxes and income taxes paid at these levels, or sales taxes if those are greater than income taxes. Under the Tax Cuts and Jobs Act, this deduction amounts to a maximum of $10,000 for either a single taxpayer or a married couple filing jointly. Since unmarried partners file separate returns, they could deduct a total of $20,000 rather than $10,000. As a result, married taxpayers in the 37 percent bracket might need to pay an extra $3,700 in taxes. Married taxpayers in lower brackets would need to pay a lesser amount.