You + Me = Us, I know my calculus! But do you know your taxes?
It's already March, which means April 15th -- Tax Day -- is right around the corner. Have you and your Mr. or Mrs. filed a return together before? Believe it or not, there actually may be a penalty in some cases for getting married and filing jointly with your spouse. I know, I know, you probably are thinking back to my last post and saying, but he said it's better to file married filing joint for most couples -- and that's true, for MOST couples, but the "penalty" kicks in when:
• Each spouse earns more than about $90,000
• Each spouse falls in the 25 percent or higher tax bracket
• The tax on the combined income of a married couple filing joint is more than twice the tax on the same income if earned by two single taxpayers
Okay, I get it, this is confusing, so let's break it down into a scenario so you can see how and why this may affect you.
Joe is a single person with a taxable income of $79,750 -- based on his $89,500 salary reduced by the standard deduction ($5,950 for 2012 returns) and one personal exemption ($3,800 for 2012 returns) -- this puts him in the 25 percent marginal tax bracket.
Suppose he then marries his co-worker Jane, who earns the same salary as he does, they now have a combined taxable income of $179,000. The standard deduction for a married couple is twice that of a single taxpayer ($11,900 for 2012 returns) and the number of personal exemptions is doubled ($7,600 for 2012 returns).
Here is how the calculations break out:
Standard deduction ($5,950)
Taxable income $79,750
Federal Tax $15,967.50
Marginal Tax Bracket 25%
Married & Filing Joint:
Salary ($89,500 x 2) $179,000
Standard deduction ($11,900)
Taxable income $159,500
Federal Tax $32,439
Marginal Tax Bracket 28%
Although the taxable income remains the same, the couple's tax ($32,439) is $504.00 more than double the tax of the single taxpayer ($15,967.5 x 2= $31,935). The combined income also puts the taxpayers in the 28 percent marginal tax bracket rather than the 25 percent tax bracket. With this higher tax bracket, Joe and Jane end up paying more in taxes. If Joe and Jane did not get married, they would have saved $504.00. But can you put a price on love?