How to Avoid the Marriage Tax

Many young professional couples get hit with an unexpected tax bill.

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It's the wedding present nobody wants: a high tax bill, post-nuptials. Many unsuspecting couples—particularly those who earn similar and relatively high incomes—find that they owe more money together than they ever did separately. And because they didn't bother to update their deductions to withhold more money from their paychecks after getting married, they suddenly owe Uncle Sam a big hunk of cash on April 15.

Jim Wang, founder of the website www.bargaineering.com, found himself paying the so-called marriage penalty after marrying his wife, Martha, who worked in biomedical engineering at the time. Wang, who earns around $10,000 a month from his site, says part of the couple's income got bumped into a higher tax bracket—so instead of paying a 28 percent rate, they were suddenly paying 33 percent.

[See The Cost of Getting Married.]

According to Mark Luscombe, tax analyst for the firm CCH, that's a common scenario for high-earning, married couples. While Congress eliminated the marriage penalty in the bottom two tax brackets—that's for couples with taxable income lower than $67,900 in 2009—it still exists for couples earning more than that, which means they could pay more than they would if they were single, earning the same amount. "The more equal the two incomes are, the greater chance of a marriage penalty," explains Luscombe.

Take a couple who each bring home taxable income of $80,000. Before they get married, they will each pay a 25 percent tax rate on their last dollar earned. But post-wedding, their combined $160,000 income will bump them into the 28 percent tax bracket, and they'll pay that higher rate on a portion of their income. (For couples earning equal incomes, the marriage penalty begins when they each earn $68,650 in taxable income. That amount pushes them from a 25 percent maximum tax bracket as unmarried workers to a 28 percent bracket as a married couple.)

"It was designed to be a marriage bonus," says Luscombe, back when it was more common for families to have one breadwinner. If one person earns $200,000 in taxable income as a single person, for example, he will pay a 33 percent tax rate on his last dollar earned. But if he marries someone who earns no income, then they will max out at a 28 percent rate. Today, married couples with a single earner are in the minority. According to the Labor Department, 57 percent of married couples are dual earners.

[See True or False? Married People Are Richer.]

Couples who find themselves in this situation have some options. Kathryn Dickerson, a partner at Smolen Plevy, a Vienna, Va., law firm, recommends reviewing and possibly changing withholdings after getting married to avoid a surprise tax bill in April. Tax professionals can estimate how much couples are likely to owe so they can pay small amounts throughout the year, instead of a lot at once. Other strategies, from retirement planning to homeownership, can also help reduce couples' taxes.

Luscombe warns that some people find themselves inadvertently lowering their tax deductions after getting married by changing their W-4 form to reflect their newlywed status, which means they are hit with an extra-large bill at the end of the year because they haven't paid enough through their paychecks. (As a double whammy, those who change their name after getting married without alerting the Social Security Administration can trigger the IRS to review their return and potentially disallow some deductions and credits that they claimed, warns Luscombe.) The W-4 form contains a work sheet to help calculate whether married couples should have additional income withheld each pay period.

The other option? "Some people talk about getting divorced," jokes Luscombe. He also says couples can lobby Congress, which has been talking about eliminating the marriage penalty for some time.

As for Wang and his wife, they are now poised to benefit from the way the tax structure treats married people. Martha Wang recently headed back to school to get her Ph.D., which means her diminished income makes them a more traditional couple, with one main breadwinner. As a result, their tax rate will drop and they'll face no marriage penalty.