The marriage penalty can happen when tax-bracket thresholds, deductions and credits are not double the amount allowed for single filers, and that can hurt both high- and low-income households. With a record 2.5 million weddings expected this year, newlyweds, especially those who earn similar amounts, may want to scrutinize how their married status will affect their tax situation. For marriages taking place at any point this year, spouses are required to file their 2022 tax returns as a married couple, either jointly or separately. Here’s what to know. The regular Medicare tax on wages, 3.8%, which is split between employer and employee, applies to earnings up to $200,000 for single taxpayers. Anything above that is subject to an additional Medicare tax of 0.9%. And for married couples, that extra tax kicks in at $250,000.
Likewise, there’s a 3.8% investment-income tax that applies to singles with modified adjusted gross income above $200,000. Married couples must pay the levy if their income exceeds $250,000.This tax applies to things such as interest, dividends, capital gains and rental or royalty income. Additionally, the limit on the deduction for state and local taxes, also known as SALT, is not doubled for married couples. The $10,000 cap applies to both single filers and married filers. Married couples filing separately get $5,000 each for the deduction. However, the write-off is available only to taxpayers who itemize. For couples with lower income, a marriage penalty can arise from the earned income tax credit. The credit is available to working taxpayers with children, as long as they meet income limits and other requirements. Some low earners with no children also are eligible for it. However, the income limits that come with the tax break are not doubled for married couples. Also be aware that the expanded version of the credit, in place for 2021, has not been extended for 2022.For example, a single taxpayer with three or more children can qualify for a maximum $6,935 with income up to $53,057 for 2022. For married couples, that cap isn’t much higher: $59,187.
Depending on where you live, there may be a marriage penalty built into your state’s marginal tax brackets. For example, Maryland’s top rate of 5.75% applies to income above $250,000 for single filers but above $300,000 for married couples. Some states allow married couples to file separately on the same return to avoid getting hit with a penalty and the loss of credits or exemptions, according to the Tax Foundation. Meanwhile, if you’re already receiving your Social Security retirement benefits, getting married can have tax implications. For single filers, if the total of your adjusted gross income, nontaxable interest and half of your Social Security benefits is under $25,000, you won’t owe taxes on those benefits. However, for married couples filing a joint return, the threshold is $32,000 instead of double the amount for individuals. Additionally, if you or your new spouse contribute to traditional or Roth individual retirement accounts, pay attention to how much you put in those IRAs. Keep in mind that there are specific limits that apply to deductions and contributions, and income from both spouses that feed the equation.