Just when you thought it was safe to get married, Uncle Sam decides to penalize you. With the Taxpayer Relief Act of 2012, Congress decided that it was a bad thing for Americans that are married or deciding to get hitched. The marriage penalty is the scenario where the Internal Revenue Service punishes you for tying the knot. The so-called “marriage penalty” is the situation where taxpayers that are married pay more in income taxes than they would as individuals. This unfortunate scenario was stopped with the Bush Tax Cuts, but was reinstated when Congress allowed some of those provisions to expire.
The penalty will be most felt by couples making $450,000.00 or more. A married couple’s income tax could raise as much as $30,000.00 according to the Tax Policy Institute. The biggest change occurs at the new 39.6 percent tax bracket that was instituted with the Taxpayer Relief Act of 2012; better known as the “fiscal cliff” bill. In addition to the higher taxes of the wealthy, the legislation will raise taxes on married taxpayers that make considerably less. The increase in tax comes from the phase-out requirements of personal exemptions and itemized deductions. These new “phase out” requirements will affect those taxpayers making $250,000.00 for individuals and $300,000.00 for couples.
For example, two individuals making $250,000.00 would able to take their full personal exemption, but if these individuals were to get married they would partially lose their exemptions increasing their tax bill by $1,500.00 or more. We haven’t discussed the phase out of itemized deductions yet which could increase a married couple’s tax bill by $2,300.00 or more. On top of these phase-outs, couples making $250,000.00 will have to contend with the new Hospital Investment Tax of an additional 0.9 percent on earnings, and the Net Investment Income Tax of 3.8 percent and we are talking about an increase of $5,700.00 for a couple making $200,000.00.
For many couples getting married will actually lower their tax bracket. For example in a marriage where one spouse makes considerably more than the other couple the higher income spouse would be put in a lower tax bracket by tying the knot.
Before you get married you should consult your tax advisor about different strategies that you can employ to save money on income taxes.
For more information visit www.smalleynco.com
If you have any questions you can email Craig W. Smalley E.A.
Author of the books: It Starts With an Idea – Tax Tips for Small Businesses available on Nook and Kindle, The Ultimate Real Estate Investor Tax Guide, available on Nook and Kindle, The Complete Guide to the New Tax Law – American Taxpayer Relief Act of 2012 available on Nook and Kindle, Everything You Wanted to Know about the IRS – Audits, Appeals and Collections available on Nook and Kindle, Tax Avoidance is Legal! The Complete Guide to Individual Income Tax available on Nook and Kindle, The Complete Guide to the Affordable Care Act’s Tax Provisions available on Nook and Kindle, The Complete Guide to Retirement Plans for Small Businesses available on Nook and Kindle, The Complete Guide to Estate, Gift and Trust Taxation, available on Nook and Kindle, and The Complete Guide to Hiring an Accountant, available on Nook and Kindle.