Taxes: Marriage Penalty

It's just about tax time, so once I had filed my personal taxes for the year of 2005, I decided to read up about the impact of getting married on my taxes. One of the first things I looked up was the marriage penalty. Sure I had heard of the phrase, but other than complete generalities, I had no idea what it means in any real terms. I mean, since graduating college, I have spent the past 10 years as a single bachelor girl who make my own money and pay my own taxes, checking the single filing option with no concept of that it means to check another box.

The first thing that occurred to me... Oops, should I delay getting married? Should I delay my marriage by a couple of month until 2007 and what kind of difference might that make?

Now why would I think of a thing like that? It's not cold feet, but the sudden realization through random research that there are real money implications on when you marry. After all, as far as the IRS is concerned, it doesn't matter when you get married in the calendar year. You can be married on 12/31/2005, you are considered to be married for a whole year. So what does this marriage penalty really mean and what is the real money cost to me?

Well, first of all, I learned about the status. This time, I looked at the other columns. Here's the infomration from Bankrate.com on 2005 federal personal income tax rates.

2005 federal personal income tax rates Ordinary taxable income for use in filing returns due April 15, 2006. Tax rate Single filers Married filing jointly or qualifying widow/widower Married filing separately Head of household 10% Up to $7,300 Up to $14,600 Up to $7,300 Up to $10,450 15% $7,301 - $29,700 $14,601 - $59,400 $7,301 - $29,700 $10,451 - $39,800 25% $29,701 - $71,950 $59,401 - $119,950 $29,701 - $59,975 $39,801 - $102,800 28% $71,951 - $150,150 $119,951 - $182,800 $59,976 - $91,400 $102,801 - 166,450 33% $150,151 - $326,450 $182,801 - $326,450 $91,401 - $163,225 $166,451 - $326,450 35% $326,451 or more $326,451 or more $163,226 or more $326,451 or more

-- Posted: Dec. 20, 2005

I happen to be on the lower end of the 28% income tax bracket, where as my husband to be is in the high end of the 25% income bracket. If I am to be married filing separately, based on my salary, I would still be paying 28%. Right? Well, not exactly. I live in California, which is a community property state. What that translates into is that 28% is not going to be based on my salary (gross taxable income). It is based on the sum of the married income (my taxable income + my husband's taxable income) divided by 2. Since I make $75,000 and the fiance makes $60,000, this means that I will still be taxed at 28% if I filed separately or filed jointly. For me, I make a high enough income and I am already in a higher tax bracket so it doesn't actually impact me. However, my fiance is going to be taxed at 28% instead of his previous 25%. The difference of 3% may not sound like a lot, but 3% of $60,000 is $1,800 that you made that don't have to be paid to the government for a year.

Of course, I do not have any expertise in taxes and these estimates are based on my research and calculations. I will probably want to consult a professional for very clear advice explained to me, but it occurred to me that I actually have less to lose getting married because of my higher income bracket and tax rate. The lower income half of the couple actually suffers in the deal. Even though there have been improvements to remove the marriage tax, it really still does not benefit the mid- to higher-income couples... Food for thought.