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The Math of Marriage

March 27, 2009 on 9:44 pm | In Politics, Q & A, Random Stuff |

There was a question on the straight dope message board today that was way too interesting for me to pass up. But it took a long time to crunch the numbers for it, so this post is late!

Someone named Richard Parker wants to know whether he should get married… using math. He writes:

As most of you are likely aware, our federal income tax system imposes a marriage penalty on some couples. If both individuals are making similar income at certain levels, then the combined income will put them in a higher joint bracket (or married filing separately bracket) than if they filed a single taxpayers.

What I want to do is evaluate what potential incomes result in what penalties.

Well, after doing a bit of research on this, I’ve discovered that there are a bunch of other reasons to either get or not get married, both financial and personal, and I’m telling you now that I’m putting those aside.

All I’m looking at is the following: given a certain amount of federally-taxable income for two people, what governs whether, for income tax purposes, they should be married or single? Now, I’m not an economist, but I’m scientifically trained, I’m excellent with numbers and statistics, and I’ve got some interesting findings for you.

First off, there are only two factors that matter for how much you pay in taxes, given two people and a certain amount of taxable income.

1.) How much total income there is. More income = more taxes, and once you pass certain thresholds, the tax rate you pay continues to climb.

2.) How the income is split between the two people. If one person earns 95% of the household income and the other earns 5%, vs. if one earns 45% and the other earns 55%, you may come to two very different conclusions.

So let’s see what happens for low joint incomes, and just go up, and see what we can learn about marriage and federal taxes.

$20,000 joint income: if one person makes significantly more than the other, you should definitely get married, as you wind up in a lower tax bracket. If you make roughly even amounts, it doesn’t matter either way. What if you’re doing a little better than 20k a year?

$40,000 joint income: the disparity has to be pretty large. If one person is pulling in about 80% or more of the household income, then you save money by being married. But if not, there’s not really any difference.

$60,000 joint income: this is really the start of what I’ll call the “sweet spot” for people to get married. Again, if you have identical taxable incomes, there’s no difference between being married and single. But if there’s even a 60/40 disparity, it’s better to be married. Remember this for tax purposes: if one person works and the other doesn’t, it’s always better to be married!

$80,000 joint income: This is still part of the sweet spot for marriage. No marriage penalty, big bonuses for being married if there’s an income disparity. And this continues, but really the $60-80k range of taxable income is where it’s usually significantly better (for tax purposes) to be married.

$100,000 joint income: well, it’s much better to be married if there’s a big income disparity, as you can save thousands of dollars over being single. But unless one of you is out-earning the other by better than 2 to 1, there isn’t going to be any difference that you’ll see.

$125,000 joint income: and at $125,000 in joint income, it’s pretty much the same deal. So, so far, and in fact all the way up to a joint income of $137,050, it is never worse to be married for tax purposes. And if there’s a big income discrepancy between partners, it’s far better to be married than it is to be single. But above $137,050, you start to see something called the marriage penalty.

$150,000 joint income: pretty much the same deal, unless you and your partner bring in roughly the same income! Suddenly, if I make $75k and my partner makes $75k, we’d save $500 on our federal taxes every year by not being married! And the marriage penalty gets more significant at higher incomes:

$200,000 joint income: around $1,000 at this income level.

$250,000 joint income: around $3,000 at this level. By this point, it’s only going to get worse. The marriage penalty has been getting worse, to be sure, but have you also noticed that at large income disparities, like 95%/5% splits, you can save around $5,000 by being married? This number has also been going up, significantly, in all of our charts. Let’s go further:

$300,000 joint income: the marriage penalty starts to get more and more people, now. Unless there’s an 85/15 or more split in income (which means one of you out-earns the other by at least 6 to 1), you are looking at a penalty, just for being married, of over $5,000! But, on the other hand, if one of you doesn’t work at all, you can save over $7,000 just for being married!

$400,000 joint income: this crosses over into the highest tax bracket. Whether you’re married or single, the highest tax rate comes for those earning over $372,950. The marriage penalty is close to $10,000 here, and doesn’t go away unless one out-earns the other by 10 to 1!

$500,000 joint income: notice how the differences are pretty much the same as before. About $10,000 in “marriage penalty” for making the same incomes, but about $7,000 in savings for a one-income marriage.

$750,000 joint income: here you can see that, while the savings never gets better for one-income marriages, the marriage penalty continues to get worse for very large incomes, both in terms of who has to pay it and in terms of how much it is.

$1,000,000 joint income: and finally, the marriage penalty bottoms out here. The marriage penalty is, maximally, about $15,000 a year for the wealthiest Americans. Which is, honestly, enough reason for many people not to marry someone with similar earning power to themselves.

So the overall conclusion? If you’re making under $137,050 of joint taxable income this year, it won’t hurt you at all to be married, and it may save you money if one of you is making more than the other. But, if you’re making more than that, being married will hurt you if you have roughly the same incomes, but will help you immensely if one of you makes virtually no money compared to the other. So feel free to use the charts all you like — and do whatever it is that respects marriage, money, and everything else that makes you happy — but now you can do it with this information in hand!

And the other obvious conclusion? I need to start making enough money so that I can start complaining about the marriage penalty!


36 Comments »

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  1. So I wonder if anyone has gotten a divorce for tax purposes? Given that a divorce costs around $3000, and combined two people earned ~150k split 50/50, thats about 6 years of taxes to break even. Maybe more interestingly, why do millionaires get married?

    Comment by Richard — March 28, 2009 #

  2. If one makes a million a year and still complains about paying an extra 15k in taxes, one is in need of a good public flogging.

    And I didn’t think tigers could get married anyway, so what does RP care.

    Comment by Sili — March 28, 2009 #

  3. I agree with Sili. At $1M in annual income, the non-financial benefits of marriage outweigh the (relatively) meager $15k in additional taxes.

    Of course, my wife doesn’t currently work, which did make it an easier decision, as the graphs show! :P

    Comment by benhead — March 30, 2009 #

  4. Went and forgot what I initially wanted to say….

    Yeah, for all the talk about “marriage bonus” and “marriage penalty”, very few people actually understand it (and don’t get me started on “tax brackets”!!) I’ve always known generally how this worked (making a lot, roughly evenly split), but it is interesting to see the detailed numbers, so thanks, Ethan! Considering how much people seem to care about our tax code, there’s not nearly enough understanding of it, in my opinion, so the more information like this is out there, the better.

    Comment by benhead — March 30, 2009 #

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