Conventional wisdom says that when you get married, you will save lots of money but in some cases that is not true. in this time we are gonna be talking about the marriage tax penalty and how because of the way the tax code is structured. married people can actually end up paying more in taxes.
today we are talking about just federal taxes and the marriage penalty. there people pay taxes in a lot of different ways. state taxes, local taxes, real estate sales tax sometimes their taxes built into things you find. you don’t even know your bank but today just federal taxes, because that’s usually the biggest one or at least one of the biggest ones all right. so let’s talk about how federal income taxes work. federal income taxes are a what’s known as a progressive tax that means the more money. you make the more money you end up paying in taxes. in theory we have marginal tax rates that means that a certain bracket of money, say from zero to ten thousand dollars you get taxed at say ten percent and then any dollar you make above ten thousand .is taxed at a higher rate so from $10,001 all the way up to say twenty thousand dollars you might get taxed
at 15% lots of people think, that if you make more money that you’ll definitely pay more in taxes on everything because you’ll hit a higher tax bracket well it’s just on that additional dollar., so it’s bracket by bracket and don’t get confused that if you get into a higher tax bracket oh you’re gonna way more money .no it’s just on that additional dollar into that bracket this is a breakdown of the current tax and the different options for filing now. there is one more married filing separately but that’s exactly half the married rates we didn’t include that here. so what this chart shows you if you look across you’ll see let’s look at the 25% tax bracket you get into that tax bracket at 37,000 ,if you’re single 50,000 for a head of household and 75,000 for married.
so what that generally looks like is that you can make more money without being taxed at 25 percent if you’re married or head of head of household versus being single but now let’s look at how the married tax brackets compared to a single + single filer so two single people filing separately but living together or a head of household plus a single person filing so basically what these are are two unmarried couples what their taxes would look like and their tax burden would look like compared to a married couple this is the married bracket it’s exactly what we showed you in the chart before for a married couple this is the single plus single tax bracket so exactly two times the single bracket that we showed you before again this is a couple of two people but they are not married here so they’re filing as two single people even though they share a household so what you’ll see is if you look down at the 28% bracket that’s where single and single starts to beat married so a single plus single couple could make up to a hundred and eighty three thousand dollars and still stay in the twenty five percent tax bracket whereas the married couple would have bumped up into the twenty eight tax bracket at one hundred and fifty-three thousand
so practically that costs the married couple an extra nine hundred and twenty one dollars in taxes every single year not one year every single year so if they were married for I don’t know like 50 years that’d be almost like fifty thousand dollars which is just outrageous plus if you invest that money what yeah Lots that’s a hundred thousand easy yeah now let’s look at the head of household plus single and so just to clarify a head of household plus single would look like an unmarried couple who share a child and live together that’s head of household plus single you’ll notice right off the bat the single plus head of household brackets are higher than both the married or the single plus single at the fifteen percent tax bracket it starts at twenty two thousand six seventy five the twenty five percent bracket starts at eighty seven thousand nine hundred fifty the twenty eight percent bracket at two hundred twenty three thousand one hundred dollars thirty three percent bracket at four hundred thousand three dollars so if you were paying right at the top of the twenty eight percent bracket you would end up paying twenty one hundred less in taxes every year which means you will get twenty five hundred dollars of your money back I think that’s a really important distinction like people think you know don’t think of taxes as money that they have paid out of their income but that is exactly what they are what that is so when you lower your income tax liability you get to keep more of your money instead of passing it on okay and so it’s crazy that just not being married that is the only difference like not being legally married you would have twenty five hundred dollars more a year in your pocket every single year that you were married and this is just the beginning so this is just the beginning of the marriage penalty.
let’s start looking at some of the other ways that married people are penalized in our current tax structure the first thing is health savings accounts so health savings accounts are pre-tax accounts that you can contribute money to to help pay your medical expenses with pre-tax money and the IRS sets contribution limits to those HSAs every year the other benefit to the HSA is that once you reach age 65 you can withdraw that money penalty-free without having any medical expenses so it’s kind of like a backdoor retirement account so it’s a great way to save extra money in addition to you like a 401k well right it’ll work exactly like a regular IRA where the month everything you can invest the money it’ll grow tax-deferred and then you pay taxes on it it went after your sixty-five when you withdraw it for any reason so let’s look at the contribution limits because obviously the more you can contribute to these things the more you shelter your income from taxes today and the more that money can grow tax-free right so if you are single the limit for an HSA contribution is three thousand four hundred and fifty if you are a family so you have family medical coverage the limit is six thousand nine hundred dollars so if you have single coverage and family coverage because one person in the household has has his or her own single coverage and then the other person covers themselves and the children then you can have up to a combination of the two single plus family which is ten thousand three hundred and fifty but now say you’re a household of four two adults with two children each adult has family coverage you can have two HSAs with family coverage totaling thirteen thousand eight hundred dollars so the value of that intact savings is seventeen hundred twenty-five dollars a year every single year if you max out your HSA and that’s at the twenty five percent tax that’s at twenty five percent so if you’re at twenty eight or 33 it goes up even more another is the dependent care flexible spending account now this is similarly deducted like an HSA normally your employer does this for you but every year you put more money into it now the difference is huge if you are married with two kids the maximum that you can contribute is six thousand dollars come by Yeah right between the two of you 6000 that’s it
now if you are unmarried that max is 10,000 because one of you claims one child and the other claims the other child until you while you both have two kids together you get to almost double what married couples can put in their flexible spending accounts ten thousand dollars that is a chunk of change that you will not pay taxes on so that saves you one thousand dollars a year for every year that you’re eligible to use a dependent care flexible expense account and that phases out when your child is on 13 so all of those thousands of dollars every year it really really adds up but the next way that income taxes or the marriage penalty affects how much money you end up paying in taxes is on anything that goes by a percentage of your income like for example medical expenses you can only deduct medical expenses in excess of ten percent of your adjusted gross income so if you’re a dual income couple making two hundred thousand dollars and so each of you makes one hundred thousand and you have twenty thousand dollars in medical expenses from a single person well ten percent of two hundred thousand is twenty thousand so you won’t be able to deduct that but if you file separately then you have the twenty thousand dollars of expenses with that person making one hundred thousand dollars so they can deduct anything above ten thousand dollars because ten thousand is ten percent of hundred thousand so that’s another was it 25 hundred dollars in savings right there if you happen to have a partner with high medical expenses and then and that could be huge now right now this isn’t as big a deal because lots more people are covered by insurance and their out-of-pocket maximums and so that adds some protection there but if you don’t have insurance or if you’re about to lose your insurance as the marketplace kind of rearranges or potentially rearranges well this could really come into play
so then the last way and this is not a comprehensive list we’re just kind of sharing some of the biggest heavy-hitting impact of the marriage penalty so the last thing is student loans because your student loan payment under the repayment income based repayment programs is based on your adjusted gross income if you’re married and if one of the only one of you has student loans well both of your incomes will be used to calculate that and it doesn’t help for revised pay-as-you-earn they will count your spouse’s income even if you file married filing separately so being married could cost you extra every single year on your student loans if you’re using income based repayment as you can see there are some major differences major penalties for filing married now we think that this is completely unfair we’ve talked about it before but this this is not everything that could possibly change but it’s just a few of the really big items that we wanted you to be aware of not to necessarily say oh well if you’re married you better go get divorced but just to just to know be aware of how important these different tax filing statuses can affect things
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