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A marriage penalty is an increase in tax liability because of marriage. For example, when a couple marries and combines incomes, the tax liability may be more than it was when the spouses were single and filing required tax documents separately. The difference between the amount of money the single people paid and the amount they are liable for as a couple is often referred to as a marriage penalty. There is, however, no official penalization for being married, and some people may even benefit from filing taxes as a married couple.
The manner in which tax liability is handled may vary from jurisdiction to jurisdiction. In many places, however, people are required to pay a percentage of their income in the form of taxes. A person’s tax liability is often influenced by the income bracket in which he falls, and he may be allowed certain standard deductions and exemptions that serve to decrease the amount of taxes he owes. If an individual marries, however, the deductions and exemptions for which he qualifies may change. This change may be the reason he and his spouse have a higher combined tax liability.
To understand how the marriage penalty works, it may help to consider a fictional example in which a couple has just married and starts to file a joint tax return. Previously, each spouse may have qualified for a standard deduction of $5,000 US dollars (USD) and a personal exemption of $3,000 USD. This means each spouse’s tax liability would have been reduced by $8,000 USD. As a married couple filing jointly, however, the spouses may qualify for a standard deduction of $7,000 USD total and $3,000 USD in personal exemptions each, so $6,000 USD. Instead of having their tax liability reduced by $16,000 USD, as would be the case if they filed separately, their tax liability would be reduced by $13,000 USD — a $3,000 USD marriage penalty.
Sometimes getting married creates a tax benefit rather than a marriage penalty, however. This usually happens when one spouse earns most of the family’s income or is the sole wage earner. For example, if a person is liable for $10,000 USD in taxes as a single taxpayer and marries someone who does not work, the tax liability could be at least a few thousand dollars less than it would be if the couple had not married.
Additionally, some people pay more taxes after marriage because they have more income once it is combined. The combined income is more, so they may be pushed into a higher tax bracket. In some cases, they may also be eligible for fewer deductions because of their higher income.
Many people call the difference between the tax liability of a married couple and that of a single person a penalty. Some may also call decreased liability a marriage subsidy. It is, however, important to note that most governments do not penalize or subsidize marriage. These are simply terms used to describe changes in a couple's tax requirements.