Avoiding the "marriage penalty"
One unintended feature of the United States' income tax system is that the combined tax liability of a married couple may be higher than their combined tax burden if they had remained single. The TCJA offers little relief to married joint-filers if their salaries are not similar.
- Unequal salaries: If partners earn salaries that put them in different tax brackets, TCJA can possibly bump the lower earner up into a higher tax bracket. This is an old issue, and TCJA doesn't change it.
- Equal salaries: Generally, if both partners fall into the same tax bracket, they won't find themselves in a higher bracket if they file jointly. (One exception: earners in the top income bracket, which starts at $500,000 per year, may face a penalty if they file jointly.)
For example, the TCJA 24 percent federal tax bracket tops out at $84,200 for individuals and exactly doubles at $168,400 for married couples filing jointly. That means if each partner in the couple earns $84,000, they will each pay 22 percent when they file jointly. But, if one partner suddenly gets a raise or a bonus and earns $90,000, together they will be over the $168,400 and will both end up paying 24 percent, which is the next bracket, even though one person is still in the 22 percent bracket.
There are clear benefits and drawbacks of filing as a married couple, as a head of household, or as an individual. And when children and mortgage payments come into play, the details can get more complicated.