Visualizing how much being married saves (or costs) you in federal income tax

[maizefolk]

Note: Text has been edited and the figures replaced to incorporate the effects of the earned income tax credit.

Depending on the examples one chooses to use, the US tax code can easily come off as absurdly biased towards people who are married or the deck can seem stacked ridiculously against married couples. As a data driven guy, I figured why mess around with examples, this isn't THAT complex a situation. The only two variables we have to consider are total income for a couple, and how evenly or unevenly that income is distributed between the two members of the couple. The first factor determines how much federal income tax the couple owes, and the first factor plus the second determines how much they'd owe if filing as two single people. Comparing those two values tells us how much better or worse off two people are from a tax perspective as a result of being married.

Without further preamble, let me present the MaizeMan single-chart model how much being married will cost and/or save you in federal income tax.*



Each point where the blue pinches together is caused by the end of a particular marginal tax bracket. The large white spaces are income breakdowns areas where there is no federal income tax benefit or penalty to being married. Edit: the red splotches in the middle at the bottom are the effects of the earned income tax credit phaseout.

Excluding the effects of the earned income tax credit $172,600/year (start of the married filing jointly 28% tax bracket + personal exemptions and standard deductions) is the lowest income where it's possible to increase your tax liability by marrying. Below that point the married tax brackets are 2x their single filer equivalents.

Now you could argue this method of visualizing the data is skewed towards folks with high incomes. Paying an extra $2,000 in taxes or saving an extra $2,000 in taxes has a much bigger impact on the budget of two people making earning $72,000 between the two of them(the approximate median for married-filling-jointly households) than a couple at the top of the graph bringing home $300k/year. I'd counter that debates about the marriage bonus/penalty have at least as much to do with feelings as dollars, just even so, here's another version of the exact same data with the bonus/penalty scaled as a percent of income rather than an absolute dollar figure:



As you can see when the data is displayed this way, proportionally the marriage bonus has a much larger impact on household budgets below $100k/year than either the marriage bonus or penalty has on higher incomes.

Now is this data going to convince anyone to get married or avoid marriage? I should certainly hope not. Is it going to settle debates about how the tax code should treat married people? Definitely not. But it was a fun analysis to put together, and I certainly hope it will be of interest to some of you.

*This data is based on the 2016 tax brackets for single and married-filing-jointly. It assumes each single person claims one personal exemption ($4050) and the standard deduction for single filers ($6,300) and that a married couple would claim two personal exemptions($8,100) and the standard deduction for married filers ($12,600) which are reasonable assumptions at low incomes and unreasonable ones at high incomes where home mortgage interest and state income/sales tax deductions are likely to be larger than the standard deduction. Aside from the effect of the earned income tax credit, it does not consider tax credits, deduction phase outs, alternative minimum tax, and doubtless plenty of other quirks of the tax code with which I am unfamiliar. Marriage bonus/penalty values were calculated using changes in total income of $1,000 per step and and changes in percent of income attributable to one spouse of 0.1% (which is radical overkill but made the graph look more aesthetically pleasing). As in real life, adding children makes everything more complicated.

Thanks to MDM for pointing out the earned income tax credit creates significant effects on the relative tax rates for married and unmarried people on the low end. I've now incorporated it into the model, significantly alternating the take away message of the overall figure.

[MDM]

Very nice!

Somewhat similar to http://taxfoundation.org/article/effects-marriage-tax-burden-vary-greatly-income-level-equality: the axes are flipped and the taxfoundation chart has only one "side" of the symmetry across the 50% earning line.

[maizefolk]

Very nice!

Somewhat similar to http://taxfoundation.org/article/effects-marriage-tax-burden-vary-greatly-income-level-equality: the axes are flipped and the taxfoundation chart has only one "side" of the symmetry across the 50% earning line.

Neat! They include the earned income tax credit in their model which I didn't have detailed enough data to include in mine* -- definitely a significant improvement. It looks like the worst case scenario for the EITC is a couple with around $18k/year with a 50/50 split in income. Two single people making $9,000/year would each get a ~$400 EITC but a married couple making a combined $18k would only get ~$130.

From the perspective of trying to nudge the scales one way or the other, they make a couple of design choices that emphasize the negative:

• In my graphic, equal levels of darkness mean equal percentage (or absolute dollar) bonus/penalties are represented by equally dark shades of blue and red. In theirs, they've scaled the colors to the maximum values observed (max bonus of 7.1%, max penalty of 4.2%) which uses more of the total available color scale, but means a smaller penalty will appear to a casual observer to be as significant as a larger bonus.
• By using a logarithmic axis, the area around the median married filed jointly income range -- where it's impossible to receive a marriage penalty -- is compressed and low incomes and high incomes -- where marriage penalties are possible -- are both relatively exaggerated.**

*Surely there's a more elegant want to calculate (or at least approximate) the EITC than reading in the seven pages of a table from the IRS describing what the credit is for every $50 increment of income for every filing status and number of children? (Plus footnotes!)

**16.7% of their total datapoints are from incomes between $500k and $1M/year, although married households with income in this range make up only 1.12% of all such households.

[MDM]

Surely there's a more elegant want to calculate (or at least approximate) the EITC than reading in the seven pages of a table from the IRS describing what the credit is for every $50 increment of income for every filing status and number of children? (Plus footnotes!)

Don't know about elegant but you are welcome to use as much from the tax calculations in the case study spreadsheet for this as you want.  It includes the EITC on the low end and Pease limits on the high end. 

It ignores the $50 increments for the EITC the same way it ignores the $50 increments in the 1040 tax tables: uses a line through the middle of them.  So it will be off by a few dollars for cases that land near one of those $50 breaks. ;)

[sol]

At first glance, this seems to reflect the common wisdom on this issue anymore.  There is a marriage penalty for high-income couples with more equal salaries.  There is generally a marriage benefit for couples where only one spouse works.  This chart also makes it clear that the second effect strongly overpowers the first.

From that perspective, it seems kind of unfair.  A tax return with 300k of income and one earner gets a huge benefit by marrying a worthless pauper, but the otherwise identical tax return with two hard-working partners who each earn 150k gets penalized instead of rewarded.  It's like the tax code despises gender equality.

[maizefolk]

And through the use of horrible spaghetti code that makes me cringe in shame, we now have EITC incorporated into the two graphs. The effect of that credit married for couples with roughly equal salaries at the very low end is quite striking, especially in percent of total income terms.

[Vilgan]

Really cool visualization. I wish we could just choose to file single even when married. Even if all deductions had to be 50/50 instead of choosing who could take the deductions, that would be a vast improvement over the existing marriage penalty.

[Elle 8]

This is very interesting.  It prompted me to pull out my 2014 tax return and recalculate as if I were married.  Here is my situation.  My SO and I are not married.  We've talked about it on and off in the past but really see no reason to get married (both older, kids (from other marriages) grown).  This chart seems to say that there would be a tax penalty if we did, but I'm not so sure.  He is already retired but not yet taking SS or any taxable distributions from retirement plans, so his income is zero and he doesn't file at all.  This will probably be the case for the next five years.  My adjusted gross income was about 66K in 2014.  After deducting the standard deduction and exemptions here is how it comes out:

Single:                      Taxable Income $55,850, Tax $9,813
Married filing jointly:  Taxable Income $45,700, Tax $5,951

According to the chart it looks like we'd be paying about $3000 more if we were to get married, but according to my numbers above, it looks like we would be paying $3862 less.

What am I missing?  The EIC shouldn't factor in because as single he's not eligible since no earned income and as married we'd make too much.

[MDM]

This chart seems to say that there would be a tax penalty if we did, but I'm not so sure. 

My adjusted gross income was about 66K in 2014.

According to the chart it looks like we'd be paying about $3000 more if we were to get married, but according to my numbers above, it looks like we would be paying $3862 less.

What am I missing?

You might be looking in the wrong place.  For your situation, look at either the left or right edge (it's a symmetric picture: 0% from one person is the same as 100% from the other) about a third of the way up from the $50K toward the $100K.  There the chart shows some shade of blue.  Then find that same shade of blue in the bar to the right and note that blue means "money saved" while red means "extra paid".

Does that make sense?

[Elle 8]

This chart seems to say that there would be a tax penalty if we did, but I'm not so sure. 

My adjusted gross income was about 66K in 2014.

According to the chart it looks like we'd be paying about $3000 more if we were to get married, but according to my numbers above, it looks like we would be paying $3862 less.

What am I missing?

You might be looking in the wrong place.  For your situation, look at either the left or right edge (it's a symmetric picture: 0% from one person is the same as 100% from the other) about a third of the way up from the $50K toward the $100K.  There the chart shows some shade of blue.  Then find that same shade of blue in the bar to the right and note that blue means "money saved" while red means "extra paid".

Does that make sense?

That's what I did.  Way to the left or right edge… a little bit up from 50K… it's a medium blue color.  On the corresponding color strip next to the chart, it looks like it's in the range between $2500 and $5000.  That's where I came up with $3000 more.

EDIT:  Oh wait.  Blue is money saved?  I thought blue was extra taxes.  That might be where I went wrong.

[Sylly]

Great graphs!

From that perspective, it seems kind of unfair.  A tax return with 300k of income and one earner gets a huge benefit by marrying a worthless pauper, but the otherwise identical tax return with two hard-working partners who each earn 150k gets penalized instead of rewarded.  It's like the tax code despises gender equality.

I see it as completely unfair. And the gender inequality aspect also gets my goat. I understand it as a reflection of the past, where there's more single earner + SAHP (generally SAHM) households, but it just seems completely outdated for this day and age.

The effect of that credit married for couples with roughly equal salaries at the very low end is quite striking, especially in percent of total income terms.

I don't know much about the EITC, so I never knew there's a penalty at the lower income range, too. And I'm quite surprised by how relatively large this effect is there. And this, combined with the 'gender equality' aspect above, makes me very surprised why there's not very vocal criticism of the marriage penalty, and especially from the left (what little opposition to it seems to be coming from the right, which makes it easy for most people to brush aside as rich people whining).

[maizefolk]

Having neither qualified for the credit nor been married, I didn't have any idea about the issues with the EITC and marriage either until I started trying to put this graph together, although I've since found a bunch of websites pointing out the same issues (for example see MDM's link above) which reassures me not just a bug in my analysis. The maximum EITC for a married couple without children is only 50% of the maximum possible credit for two single people and two single people can earn up to a combined $29,180 before the credit completely disappears, while a married couple will completely lose the credit once they reach $20,020 of income. If you start adding kids into the mix it's easy to come up with scenarios where for people with quite low incomes getting married might increase their tax bill by thousands of dollars a year.

I haven't been able to figure out a tax system that would be able to satisfy more than two criteria from the following list:

A) A progressive tax code where people who earn more pay a higher rate than people who earn less
B) A tax code that only considers the total income from both members of a married couple to calculate their tax liability
C) A tax code what doesn't make marriage a better deal for one person earning X dollars and one person earning $0 than for two each earning .5X dollars.

Right now we have A & B which makes it impossible to achieve C. We could eliminate the "penalty" for married people with equal incomes easily enough, but it'd have the side effect of significantly increasing size of the "bonus" for married people with very unequal incomes so the same issues with penalizing gender equality would remain.

Personally my ideal tax code would have A & C (essentially this would be as simple as eliminating the married filing jointly option and increasing the tax brackets for married filing separately to equal to those for single filers).

[Sylly]

I haven't been able to figure out a tax system that would be able to satisfy more than two criteria from the following list:

A) A progressive tax code where people who earn more pay a higher rate than people who earn less
B) A tax code that only considers the total income from both members of a married couple to calculate their tax liability
C) A tax code what doesn't make marriage a better deal for one person earning X dollars and one person earning $0 than for two each earning .5X dollars.

Right now we have A & B which makes it impossible to achieve C. We could eliminate the "penalty" for married people with equal incomes easily enough, but it'd have the side effect of significantly increasing size of the "bonus" for married people with very unequal incomes so the same issues with penalizing gender equality would remain.

I don't understand how the fix you describe would still penalize fairly equal earner couples. I assume you're talking about making the married tax bracket be simply double the single tax brackets -- in which case, being married has no bearing, tax-wise, on the equal earning couples, but provides a benefit to the single earner couple. Just because the later gets a benefit doesn't mean the former is penalized.

So are you saying you'd rather not have the marriage bonus?

Honestly I haven't really thought too much about it, but I'm not sure how it's avoidable. If you count tax liability per-individual, would the unemployed or much-lower paid partner be eligible for whatever aid, credits, rebates, etc. that comes with the lower income too? I suppose it sort of makes sense to count tax liability by household, otherwise there'd be lots of games to play on who claims what credits, dependents, supplemental income, etc.

[maizefolk]

I haven't been able to figure out a tax system that would be able to satisfy more than two criteria from the following list:

A) A progressive tax code where people who earn more pay a higher rate than people who earn less
B) A tax code that only considers the total income from both members of a married couple to calculate their tax liability
C) A tax code what doesn't make marriage a better deal for one person earning X dollars and one person earning $0 than for two each earning .5X dollars.

Right now we have A & B which makes it impossible to achieve C. We could eliminate the "penalty" for married people with equal incomes easily enough, but it'd have the side effect of significantly increasing size of the "bonus" for married people with very unequal incomes so the same issues with penalizing gender equality would remain.

I don't understand how the fix you describe would still penalize fairly equal earner couples. I assume you're talking about making the married tax bracket be simply double the single tax brackets -- in which case, being married has no bearing, tax-wise, on the equal earning couples, but provides a benefit to the single earner couple. Just because the later gets a benefit doesn't mean the former is penalized.

So are you saying you'd rather not have the marriage bonus?

Honestly I haven't really thought too much about it, but I'm not sure how it's avoidable. If you count tax liability per-individual, would the unemployed or much-lower paid partner be eligible for whatever aid, credits, rebates, etc. that comes with the lower income too? I suppose it sort of makes sense to count tax liability by household, otherwise there'd be lots of games to play on who claims what credits, dependents, supplemental income, etc.

Well I think we're talking about two separate problems. The problem you describe is that that getting married is sometimes a net negative for tax purposes relative to being single. The problem I was describing in point C is that a person making $300k/year who marries someone with no income gets a much better deal relative to each of them filing a tax return as a single person than would two people who each make $150k/year who get married. Making the married filing jointly tax brackets 2x the single ones would solve the problem you describe, but not the one it seemed like people up thread were commenting on (equal earners do worse than concentrating earnings in one spouse).

There are lots of ways to ensure marriage is always a net positive for tax purposes, but since each one I can think of would have the effect of increasing the marriage bonus at the same time they eliminated the marriage penalty essentially what they'd be doing is shifting more of the total tax burden of running the country onto single people. So it's not that I'd rather not have a marriage bonus all things being equal, but that I think it'd more fair to try to eliminate the marriage penalty while trying to keep the total share of income tax paid by married people constant.