Sunday , April 11 2021

The IRS "Marriage Penalty" is alive and well – but only for these beneficiaries – The Motley Fool

However, controversial, the Tax and Employment Reduction Act, or TCJA, has fulfilled its objective of simplifying parts of the tax code, including the infamous "marriage penalty," which left couples with similar incomes that paid more personal taxes than would have if they did not say "I do".

However, the new rules did not totally eliminate the connubial cost. In fact, the marriage penalty is alive and well in the newly published fiscal code, but it is only among the main revenues.

A young couple feels at the end of a dock that looks at sunset.

Image source: Getty Images.

How did the marriage penalty change and affect you?

Under the old tax code, married couples with similar personal income would eventually pay more in the total cost of the tax than they would have if they were filed separately. For example, if both people have earned $ 150,000 per year, each $ 41,616.25 is being presented separately or a total of $ 83,232.50. But when registering jointly, the total amount of the tax would rise to $ 87,039.00, a difference of 3,806.50 dollars.

Under TCJA, the personal income tax was significantly simplified. A look at The 2018 IRS tax brackets show that the amounts of taxable income for joint filers fit perfectly with the singles: each interval simply doubles. So, if you and your spouse made $ 150,000 this year, they will have the same marginal income tax rate of 24% that it would have been if it were alone.

Here you have a look at the media.

Price Revenue range, unmarried Range of income, joint subsidiaries
10% $ 0- $ 9,525 $ 0- $ 19,050
12% $ 9,526- $ 38,700 $ 19,051- $ 77,400
22% $ 38,701- $ 82,500 $ 77,401- $ 165,000
24% $ 82.501- $ 157,500 $ 165,001 – $ 315,000
32% $ 157,501- $ 200,000 $ 315,001 – $ 400,000
35% $ 200,000- $ 500,000 $ 400,001 – $ 600,000
37% Over 500,000 dollars Over 600,000 dollars

Data source: IRS.

These last two brackets are a little complicated. You will see that the income threshold for joint filers stops following the simple pattern of speed doubling established at the top of the table, which means that the unique filers have a little more space to earn more revenue and still pay taxes at the low rate of 35%.

Then, he won $ 500,000 this year and presented himself, the federal government owed $ 150,689.50 – that is $ 45,689.50 plus a 35% of the amount exceeding $ 200,000. If you and your non-committed partner get so much, you pay a $ 301,379 collective to Uncle Sam.

But if you and your spouse have earned $ 500,000 and have been registered together, their total taxable income would be $ 1 million, exceeding the $ 600,000 limit for the 37% rate. It should be $ 309,379, which means that marriage punishment would cost you more $ 8,000.

A Hiccup: Detailed Deductions

Most of us are not winning at these extraordinary levels, so we should not worry about the marriage penalty on income taxes. But the new code contains a plus hook for those who are deceived, even if they are a middle vendor.

TCJA limits detailed personal deductions for state and local taxes to a total of $ 10,000 per taxpayer per year, regardless of whether it is being presented individually or jointly. So, if you are married, you are giving up an extra $ 10,000 in possible discounts that you could have made if you keep things separate.

If the new penalty of marriage does Believe us, at least you can know that your money is helping the government to increase revenues and finance other tax deductions from TCJA. Of course, this may or may not cause you comfort when it's time to pay.

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