Understanding the Singles Tax Penalty
Tuesday, August 24, 1999
NEW YORK Single people, unite. You have nothing to lose but the "singles penalty" in the federal income tax.
You've probably never heard of it. Everyone shouts about the "marriage penalty." But singles pay more than marrieds do, on the same size income. Congress' $792 billion tax-cut proposal would make the disparity worse.
Under the famous marriage penalty, two working people might pay more in taxes as a couple than they would as two singles. But that applies only to a portion of married taxpayers.
The rest pay less as a couple than they would as two singles.
They get a bonus for walking down the aisle.
Alas, there's no bonus for the never-marrieds, divorced, widowers and widows. They're the Rodney Dangerfields of the tax code. They get no respect.
Here's how singles and marrieds compare, under the tax code today:
(1)One-earner couples get a bonus. For example, take a man with a taxable income of $50,000. As a single, he'd have paid $10,712 in federal tax last year. If he married and his wife didn't work, he'd have paid $8,502 a tax cut of 21 percent. Not bad, just for saying "I do."
(2)Two-earner couples get a bonus when one of them earns 70 percent or more of the family income.
For example, take two people with taxable incomes of $35,000 and $15,000. On their two single incomes, their tax would total $8,766. As a couple reporting $50,000 jointly, they'd pay $8,502. That's a saving of $264.
(3)The marriage penalty hits two-earner couples whose incomes are fairly close. They pay more as a couple than they would as two singles.
For this example, take two people with taxable incomes of $30,000 and $20,000. As singles, their tax would total $7,508. As a $50,000 couple, however, they'd pay $8,502 $994 more.
Why does that happen? Tax brackets are to blame. As a single person, the lower earner is taxed in the 15 percent bracket. But when those earnings are piled on top of a spouse's income, they're moved into the higher 28 percent bracket. So taxes rise.
(4)Singles generally pay taxes at a higher rate. On a $50,000 taxable income, their tax comes to $10,712 $2,210 more than married couples have to pay.
The tax bill proposed by Congress helps married couples in two ways.
First, for couples who use the standard deduction: Your deduction would rise to twice the amount that one single person gets. Today, it's only 67 percent more.
Second, for all couples: Part of your income would be taxed at a slightly lower rate. To understand this particular tax cut, you need to know how federal income taxes work.
Imagine that your taxable income is divided into layers, like those on a layer cake. The lowest layer of your income (up to $21,175 for marrieds last year) is currently taxed at 15 percent. The next layer (up to $51,150) is taxed at 28 percent, and so on up to the highest layer, which is taxed at 39.6 percent.
Congress would cut the tax on the lowest layer to 14 percent. It would also let couples pay that low rate on a larger slice of their income. Singles would get a similar but smaller break.
Result: The marriage penalty would be smaller and the marriage bonus larger, especially in the lower brackets. Singles would pay a little less, but relative to couples, they'd be worse off.
There's no fix for these disparities, says Daniel Feenberg, research associate at the National Bureau of Economic Research in Cambridge, Mass. That's because they arise automatically from two popular principles of taxation.
First, most of us think that people with higher incomes should pay a higher rate of tax. Second, we think that couples with the same taxable incomes should pay the same amount of tax, no matter which family member earned the money.
Mathematically, that means that your marital status will affect your tax.
Congress dictates the size of the disparities. Singles got tax breaks in 1969, when the boomers were largely single. Now, couples have the upper hand.
"We don't do tax policy in this country anymore, we do tax politics," says Christopher Bergin (cq), editor of Tax Notes, a tax policy journal based in Arlington, Va.
Maybe Congress should give singles a tax write-off for dates that lead to marriage. I can see the ads now. "Single female, seeking tax partner, for life."
Jane Bryant Quinn welcomes letters on money issues and problems
but cannot offer individual financial advice.
© Copyright 1999 Washington Post Writers Group