Author Topic: Payroll Taxes - Married vs Single - Any difference other than Medicare Surtax?  (Read 475 times)

MustacheAnxiety

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I was doing a little research on marriage tax penalties and benefits after the 2018 tax changes and came across this article: https://taxfoundation.org/tax-cuts-and-jobs-act-marriage-penalty-marriage-bonus/

It includes one scenario where a married couple pays significantly lower Payroll taxes (social security and Medicare withholding) than if the same couple was unmarried.  The article gives no explanation for the difference and it is driving me bananas.

My understanding has always been that the standard 6.2% up to a cap for social security and unlimited 1.45% for medicare is not affected by filing status (the .9% Medicare Surtax can hit a married couple earlier - but that is a seperate line item in the article).

It is Table 2 of the article, roughly reproduced below

Table 2. High-Income Taxpayers Can Face Large Marriage Penalties
Tax Bill of Married and Unmarried Couple with No Children
                           Person 1       Person 2       Unmarried Couple      Married Couple
Income                 $500,000.00   $500,000.00   $1,000,000.00       $1,000,000.00
Taxable Income     $488,000.00   $488,000.00   $976,000.00       $976,000.00
Income Tax           $146,489.50   $146,489.50   $292,979.00       $300,499.00
Payroll Tax            $15,229.40    $15,229.40    $30,458.80     $22,479.40
Medicare Surtax    $2,700.00     $2,700.00        $5,400.00               $6,750.00
Total Tax              $164,418.90   $164,418.90   $328,837.80       $329,728.40
    
Penalty   $890.60

The 30,458.80 seems correct for 2 500K W2 incomes. I do not understand how the married couple's payroll taxes drop to $22,479.40. 

Thanks.

MustacheAnxiety

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In an effort to explain our interest and make this less of a super boring questions: we have been dating 11 years and have avoided marriage through 2017 in large part due to the sizable marriage tax penalty on people with similar professional incomes.  If we missed something in the 2018 tax changes that lets a married couple who would individually max out SS withholding save 8K or so, we want in.  I know, we are hopeless romantics.

If you are pretty sure this is an error and FICA withholding is unchanged by marital status, I would appreciate that info too. 

MDM

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Appears the assumption for the married couple is that one earner earns the $1 million.

The article has some small errors in the SS tax, because SSA lowered the 2018 Social Security taxable wage base to $128,400, down from $128,700.

See the case study spreadsheet if you want to run the numbers yourself.