About 40 percent of U.S. families will pay a "marriage tax" averaging $1,100 under the new federal tax law, and lower-income couples with children will be among the hardest hit, according to a new analysis of the law.
But most married couples will be subsidized, said economist Harvey S. Rosen of Princeton University. He estimated that 53 percent of married couples will be better off married than single and enjoy an average marriage subsidy of about $600.
In general, said Rosen, spouses who earn about the same will pay a marriage tax, while spouses with unequal incomes will get a subsidy.
That means that families where both partners work in relatively low-paying jobs to make ends meet will pay more tax than their single contemporaries, while "traditional" families where the wife stays home to care for children will receive a marriage subsidy, even at high income levels.
The comparison deals only with married couples versus unmarried couples and singles based for 1988. It does not compare total tax burden under the old and new tax laws, so even couples hit with a substantial marriage tax may be paying less under the new law than the old.
Rosen, in the study published by the National Bureau of Economic Research, said the effect of the marriage tax has received little attention in most discussions of the new tax code.
Many people apparently believed that the issue, once controversial, would become unimportant when Congress enacted the new law because its lower tax rates would make any marriage tax so small as to be irrelevant, Rosen said.
"To the contrary," he wrote, "the new law creates large taxes on being married for some couples, and large subsidies for others... . the new tax law appears to be quite 'antifamily' for low-income workers with children."
The "marriage tax" is the term used to describe the extra tax burden paid by a married couple when compared with the tax paid by two single people with the same total income.
Rosen said an analysis shows the marriage tax will be lower under the new tax law than under the old, and fewer people will pay it.
But the relatively modest $119 average marriage tax for all families can be deceptive, he said. Depending on the earnings of each partner and the presence of children, the tax can be substantial. And the burden does not fall only on the wealthy.
Rosen said, for example, that a family with two children where one partner earns $10,000 and the other earns $7,500 will pay a marriage tax of $1,500 under the new tax law, compared with less than $500 under the old tax law.
That is, their tax bill for $17,500 of income will be $1,500 higher than the combined tax bills of two single people with those incomes. The marriage tax works out to 9 percent of their gross income.
High-income couples, with both partners working, also pay a marriage tax, but not much more than the lower-income family and less than they would have paid under the old law, Rosen said.
A couple with two children, with husband and wife each earning $50,000, will pay about $1,800 in marriage tax on their $100,000 income, according to Rosen's figures, compared to about $3,500 under the old tax law.
But the two-child couple with one parent earning $50,000 and the other earning nothing will receive a subsidy of nearly $3,000, Rosen said. That is, their tax bill will be about $3,000 less than two single people with that income who live together with their two children. That is about the same as under the old law.
Rosen said the results come from three factors:
Rates. The new law continues the practice of having different rate schedules for married and single taxpayers. That carryover from the old tax law perpetuates the marriage tax, even with the lower tax rates.
Deduction. The new law allows two single people $3,000 each in standard deductions. For a joint return, the standard deduction is $5,000 for two, a $1,000 loss. For two heads of households, the loss of deductions for households is higher.
Earned income credit, which affects low-income families. Households with at least one child get a 14 percent tax credit on earnings under $5,714, meaning it is worth up to $800, and is refundable in cash if tax liability is less than $800.
But the earned income credit begins falling, at the rate of 10 cents per dollar of income, when income hits $9,000, and it disappears entirely at $17,000.
Thus, a single head of household earning only $5,714 will have an extra $800 tax credit, even if there is no tax liability. But if that same person marries someone earning $11,286 a year, they lose the earned income credit in addition to facing higher taxes