The Marriage Penalty and Head of Household Filing under the Senate Tax Bill [Updated]

Victor Thuronyi

One of the issues that has received little attention is the repeal of the marriage penalty in the Senate bill. There were no hearings on this, and nothing in the Joint Committee explanation of the Senate bill to indicate why the change is being made.

The tax bill as passed by the Senate would make a significant change to the taxation of married persons vs. single persons.  In headline terms, single people will pay more than married people as a group. This issue involves several policy goals, not all of which can be fully accommodated (the goals include neutrality on getting married, and all married couples with the same combined income pay the same tax). Under current law, these have been accommodated by a compromise. When individuals get married, there might be a marriage penalty or a marriage bonus, but the rate schedules have been adjusted to make these relatively small. Nevertheless, they are there.

The Senate bill would change this by removing the marriage penalty completely. When a couple is married, the tax consequences might be neutral (where the members of the couple have equal incomes), but there would be a marriage bonus in all other cases. The largest bonus occurs in the “traditional” marriage where there is a stay-at-home parent.

If the marriage penalty is eliminated, one implication is that the share of the overall tax burden borne by married persons as opposed to single persons will decline. In other words, singe persons will pay more tax. This is relative. Many single persons will experience a tax decrease, which will occur primarily for those who do not itemize deductions, since their standard deduction will increase. The point is that the decrease would be even greater if the marriage penalty were not being eliminated, because in effect the elimination of the marriage bonus has to be made up for by single people. As an example, two single nonitemizers with gross income of $75,000 would pay $11,889 in tax currently, or $23,778 for both, if unmarried, but 24,790 if married, so there is a marriage penalty of $1,012, or in percentage terms the unmarried individuals pay 96% of what the married couple with identical incomes pays. Under the Senate bill, this ratio is 100% for this couple.

In addition to there not being any marriage penalty, the tax disincentives for labor force participation of the second-earner spouse would not be improved by the Senate bill. In other words, there is a high marginal tax rate on the second earner. Continue reading “The Marriage Penalty and Head of Household Filing under the Senate Tax Bill [Updated]”