You'd have to be living under a rock right now not to know that we're all at risk of falling off the fiscal cliff. Even Starbucks is P.O.-ed about it and encouraging politicians to "come together" on the conflict. But, if they don't, a whole bevy of issues may surface, including the return of the so-called "marriage penalty!"
Sounds scary, right? Like the government might beat down your door and make you fork over more dough just for being hitched?! Well, not quite. Here's the 101 on the potential tax upset for wed couples ...
Because of the Bush tax cuts, married couples get a standard deduction that is twice that of individuals. The income ranges for the 10 percent and 15 percent tax brackets are also doubled. But before 2001, many married couples had paid a "penalty" because their standard deduction and income tax brackets were less than twice those of singles.
But if Congress can't address the fiscal cliff, married couples would get a standard deduction of only $10,150 (vs. $6,100 if they were to file as singles). To fully eliminate the so-called "penalty," the deduction for couples would have to be $12,200. In other words, you could end up having to pay roughly $2K more if you're filing as a married person than you would if you were filing as a single one.
Another issue: Married couples being bumped into a higher tax bracket more quickly than individual taxpayers. Say you're single -- you'll be in the 15 percent tax bracket until you hit a taxable income of $36,250. But if you're married, you'd be bumped up after only $60,550 in income, as opposed to $72,500. Bummer.
BUT -- it also bears noting that the "penalty" may not matter to couples who have enough mortgage interest, state and local taxes and other deductions to make itemizing worth their while. Also, couples with disparate income will still end up paying less tax than they would have if they filed separately.
If it sounds super-frustrating, that's because it is. But there could very well be a solution ... In most states, save sixteen, brackets for married couples are typically double that for singles. You can find out about your state on the Tax Foundation's "Does Your State Have a Marriage Penalty?" map. And you can also use this handy dandy Marriage Bonus and Marriage Penalty calcuator to figure out if you're been gouged or rewarded in various scenarios.
What are your thoughts on possible "marriage penalties" coming into play next year?
Image via Tax Credits/Flickr