ten year-end tax

The Tax Cuts and Jobs Act has essentially eliminated the so-called “marriage penalty.” However, the new law imposes a new “stealth” marriage penalty that will impact taxpayers in higher-tax states.

The marriage penalty is generally defined as charging more federal taxes on married couples with two incomes than could be charged on the same couple if they filed as individuals. For instance, under the old regime, two single filers making $50,000 would each have a 25% marginal tax rate. However, a married couple each earning $50,000 ($100,000 total household income), would be taxed at a 28% marginal rate.

So how has this changed? As you can see from the table, the tax brackets for “married filing jointly” are exactly two times as the size as the single filer bracket. The exception is for married taxpayers in the highest brackets when the marriage penalty comes back on.

So, an individual making $50,000 or a couple making $50,000 each ($100,000 total) will all have a 22% marginal tax rate. As the chart shows, if an individual made $350,000 they would fall in the 35% marginal bracket. However, if the individual got married to someone also earning $350,000, suddenly they must pay tax at a 2% higher rate (37%) for the combined income over $600,000. It may not a large difference, but there is clearly a penalty involved.

What about the stealth marriage penalty? The new tax law puts a $10,000 limit on the amount you could deduct for state and local taxes — including state sales or income taxes and property taxes. The same limit regardless if you file as an individual or married. Clearly, a stealth marriage penalty.

This obviously only applies to taxpayers that have large state and local taxes. Note that some states do not have state taxes so for taxpayers in those states it becomes even more unlikely there would be a marriage penalty (only if the taxpayer was very high income).

Tax RateMarried Filing JointSingle
10%$0 - $19,050$0 - $9,525
12%$19,050- $77,400$9,525 - $38,700
22%$77,400 - $165,000$38,700 - $82,500
24%$165,000 - $315,000$82,500 - $157,500
32%$315,000 - $400,000$157,500 - $200,000
35%$400,000 - $600,000$200,000 - $500,000
37%over $600,000over $500,000