Return of the Tax Penalty?

Unless Congress avoids the Fiscal Cliff, we will have a return of the so-called Marriage Penalty, resulting in higher taxes for many couples 2013.

Prior to the Bush tax cuts, there was a indeed a “penalty” against married couples under the tax code, as their standard deduction and income tax brackets were less than twice those of singles.  In essence, married couples were paying higher taxes than their non-married counterparts.

When Congress passed the Bush tax cuts, however, they corrected the imbalance by, among others, giving married couples a standard deduction that’s exactly twice that of individuals. They also established income ranges for the 10% and 15% tax brackets to be exactly double that given to individual taxpayers.

Unless Congress avoids the fiscal cliff, the imbalance will return.  For instance, while the standard deduction for single filers would rise to $6,100, married couples would receive a deduction of only $10,150, instead of exact double of $12,200.

Married couples would also be moved into higher tax brackets more quickly – individual taxpayers would be in the 15% tax bracket until they hit $36,250 in taxable income, but married filers could be pushed above it after only $60,550 in
income, as opposed to $72,500.

New York Tax Attorney Shamsey Oloko notes that, fiscal cliff or not, the imbalance continues for tax brackets above 15%.  The 25% bracket would end at $87,850 for singles, but only at $146,400 for joint filers. And the highest bracket starts at the same income level regardless of whether the filer is a married couple or a single person.

Also, added a member of the Thorgood Law Firm, New York Tax Lawyers, married couples benefiting from the Earned Income Tax Cut would also get hit if the fiscal cliff is not addressed.  But then, there’s so much uncertainty anyway with applicable tax rates and their ramifications, regardless of what Congress does.  You should consult with a New York Tax Attorney who’s well versed in tax laws.

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