Delay Marriage Penalty Tax By Putting Off Year-End Wedding
Congress made a lot of noise during 1999 about alleviating the so-called marriage penalty tax, but the noise turned out to be all bluster'For some reason, the folks in Washington, D.C., seem to think that there is something fair about forcing people who get married to pay more tax than their single counterparts.
Take, for example, the situation of Jack and Jane'(Of course, you know right away that this is a fictitious example, because no one is named Jack or Jane anymore'Just look at the names used in examples in any school textbook if you don't believe me.) Jack and Jane decide they want to spend the rest of their lives together in wedded bliss, sharing a home, building a family, and paying lots of taxes.
If Jack earns $50,000 in 1999, takes a standard deduction of $4,300, and claims himself as a personal exemption for another deduction of $2,750, his taxable income will be $42,950'Tax on that amount, for a single taxpayer, is $8,678'If Jane earns the same amount, her tax will also be $8,678, so together they will pay $17,356 on their combined incomes of $100,000.
Now assume Jack and Jane plan a New Year's Eve wedding as part of their millennium celebration'If they say 'I do,'before the clock strikes midnight, they are considered married for all of 1999 in the eyes of the IRS, and just look what happens to their taxes.
Jack and Jane combine their income and report $100,000 on their joint tax return'They are each entitled to a personal exemption of $2,750, same as if they were still single'Now here's where the fun begins'Instead of two standard deductions of $4,300, which would total $8,600, the couple gets a special married people standard deduction of $7,200'What happened to the difference between $8,600 and $7,200? Where did that $1,400 go? That part of the deduction just melted away.
So now, they're looking at taxable income of $100,000, less the two exemptions and the special reduced standard deduction, or $87,300, which is $1,400 more income that gets to be taxed because they are married'But that's only the beginning.
As single taxpayers, Jack and Jane pay tax at a rate of 15% on the first $25,750 of their taxable income, and 28% on the amount over $25,750'So together, as single taxpayers, they would pay 15% tax on $51,500, and 28% tax on $34,400, for a total tax of $17,356.
And just look what they get to pay if they get married'The tax for married taxpayers filing a joint return is 15% on the first $43,050, and 28% on the remaining taxable income, which in the case of Jack and Jane would be $44,250'That adds up to $18,848 in tax'So it costs Jack and Jane $1,492 to get married before midnight on 12/31/99'And things only get worse as their incomes increase'Even though all of their income over $50,000 would be taxed at 28%, whether they are married or stay single, other bad things start to happen when taxpayers cross that $100,000 income threshold.
At $126,600 of income, taxpayers can no longer take the full amount of their itemized deductions'This amount is the same, whether the taxpayer is married or single 'why isn't the married amount double that of the single amount?
When income exceeds $160,000, married taxpayers may not make a contribution to a Roth IRA plan'For single taxpayers, income can go up to $110,000 before the Roth contribution is eliminated'So why isn't the threshold amount $220,000 for married taxpayers?
And at income of $189,950, personal exemptions start to lose their value for married people'For single people personal exemptions are decreased when income exceeds $126,600'Why isn't this single person amount just doubled for married people?
These rules make no sense, and everyone knows it'The tax laws actually encourage working couples to live together in unmarried bliss 'what kind of message is that sending to our society?
Of course, there's always the possibility that if Jack and Jane wait until 1/1/00 to get married, and if we can rely on the IRS computers not to comprehend that 1/1/00 is really 1/1/2000, Jack and Jane may be off the hook entirely'The income tax didn't exist in 1900.,
copyright © 2000 Gail Perry - Fun with Taxes