Recently, the world watched as Travis Kelce got down on one knee to propose to Taylor Swift, creating a moment that resonated with many. Fans around the globe celebrated their engagement, reminiscent of the classic fairy-tale narrative where the high school quarterback wins the heart of the homecoming queen. This enchanting event serves as a nostalgic reminder of a more innocent time, often thought to be lost in today’s divisive landscape. Like countless others, I extend my heartfelt wishes for their happiness, hoping for a family filled with joy and that they provide a shining example of modern relationships.
The U.S. Treasury is also taking note, as their marriage may trigger a yellow flag from the IRS, due to what is known as the marriage penalty.
The marriage penalty refers to a situation in which a married couple ends up paying more in income taxes than they would have if each spouse had filed as single individuals. This phenomenon generally impacts couples with higher incomes.
For the year 2025, the top federal tax rate remains at 37% for individual taxpayers earning over $626,350. However, for couples filing jointly, this threshold does not simply double to $1,252,700. Instead, the 37% rate begins at a much lower joint income of $751,600.
Similar rules apply to capital gains taxes. For single taxpayers, the highest long-term capital gains tax rate of 20% takes effect when income surpasses $518,901. In contrast, married couples filing jointly face the same rate once their combined income exceeds $583,751, rather than the doubled threshold of $1,037,802.
Another manifestation of the marriage penalty can be seen through lost deductions. For instance, the student loan interest deduction begins to phase out for individuals with incomes exceeding $85,000. A single filer earning $65,000 qualifies for the deduction. However, if they marry and their joint income exceeds $200,000, they may lose access to this beneficial deduction.
The state and local tax (SALT) deduction operates similarly. Although the One Big Beautiful Bill Act increased the deduction cap to $40,000 from $10,000, it did not double the cap for married couples filing jointly. If each spouse filed separately as single, they could each claim the full $40,000 deduction.
<pDespite these complexities, the marriage penalty is often not exceedingly burdensome. For example, consider a couple earning a combined income of $1.4 million, with each spouse making $700,000. If they filed separately as singles, each would owe $216,020 in federal income taxes, totaling $432,040. However, filing jointly would result in a tax bill of $442,062, illustrating a difference of $10,022, which represents a 2.3% increase in their tax liability.
The intricacies of tax law can make the actual penalty higher or lower than this simplified scenario suggests. As September arrives, couples may want to consider consulting a tax professional to evaluate whether they might face a marriage penalty before the year concludes.
For couples contemplating marriage, one strategy to circumvent the penalty is to register as domestic partners (RDPs) in states that permit it. The IRS mandates that RDPs file as single or head of household, although they must file as married (either jointly or separately) at the state level. This often leads to the necessity of filing two federal returns as singles while also managing one or two state returns, which complicates the process.
Others may opt to cohabitate without formal marriage, not solely for tax-related reasons. A prominent example is Kurt Russell and Goldie Hawn, who have shared a home since 1983 without marrying. While the IRS typically acknowledges filing status, it has occasionally scrutinized long-term non-marital arrangements.
A noteworthy case in this regard is Boyter v. Commissioner. A couple from Maryland sought quick foreign divorces in Haiti and the Dominican Republic at the end of the tax years 1975 and 1976, solely to file as unmarried individuals and reduce their tax burden. They remarried shortly thereafter. The IRS contested the validity of these divorces under Maryland law, asserting that they were sham transactions not to be recognized for federal tax purposes.
Is the elimination of the marriage penalty a possibility? Unlikely. Most individuals marry for love rather than tax incentives, and only a relatively small segment of taxpayers feels the impact.
The marriage penalty does not exclusively affect affluent couples. With careful financial planning, many couples can either avoid it or mitigate its effects—perhaps saving enough to afford a special anniversary gift.
Steven Chung is a tax attorney based in Los Angeles, California. He specializes in assisting individuals with fundamental tax planning and resolving tax disputes. He also empathizes with those burdened by substantial student loans. Reach out via email at <em>stevenchungatl@gmail.com</em>. Additionally, connect with him on Twitter (@stevenchung) and on LinkedIn<em>.</em>
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