Special Reports: Tax Talk

The Reinstatement of the Marriage Penalty

Another tax increase that many Americans will see on their tax returns in 2011 if the 2001 and 2003 tax cuts are not extended is the reinstatement of the marriage penalty. This will be a double punch to married couples who will see both their tax rate increase and their standard deduction decrease.

For 2010, married couples who file jointly are taxed at the same tax rate as single individuals making exactly half their joint income. For example, in 2010 a single individual making $34,000 and a married couple jointly earning double that income, $68,000, are both taxed at the 15% level. However, beginning in 2011, the 15% tax bracket will only include married couples who have jointly earned up to $58,200, even though single individuals earning up to as much as $34,850 will still be included – meaning married couples will be taxed at a higher tax rate than if they were single.

But that's not the only problem. Currently, the standard deduction is $5700 for single individuals and $11,400 for married couples – twice the standard deduction. Under this current law, individuals are not penalized for being married with a lower standard deduction. However, beginning in 2011, that will change. The standard deduction for single individuals in 2011 will be $5800 and the standard deduction for married couples will be $9750 – $1850 less than double the deduction for a single individual. This will increase married couples' taxable incomes, making their overall tax liability higher than their single counterparts.

So let's put these abstract numbers into perspective by looking at the impact on real Oklahomans. According to the Oklahoma State Department of Education*, a teacher for the state of Oklahoma with a bachelor's degree and six years of experience will earn $33,900. If she were single, in 2011 her tax rate would remain at 15% and her standard deduction would be $5800. Assuming she has no other deductions, her taxable income would be $28,100 and her federal tax liability would be $4215. Now, if she married one of her fellow colleagues who had the same level of education and experience as she did, their joint income would be $67,800. The reinstatement of the marriage penalty would bump them into the next tax bracket that increased from 25% in 2010 to 28% in 2011 and would give them a joint standard deduction of $9750. Assuming they have no other deductions, their taxable income would be $58,050 and their federal tax liability would be $16,254 – almost quadruple what the two would have paid had they not gotten married. That's a dramatic tax increase that is impacting two hard working Oklahoma teachers – not the "super wealthy Americans" President Obama and his colleagues continue to claim will be the only ones affected by these massive tax increases.

Next week on "Tax Talk," I will discuss the reinstatement of the estate tax. Better known as the death tax, this tax on estates will dramatically increase in 2011, harming small businesses and farmers and ranchers in Oklahoma. If you would like to keep up with the special report, I encourage you to visit my website at www.house.gov/lucas and select "Special Report: Tax Talk."

*The complete list of salaries from the Oklahoma State Department of Education can be found at http://sde.state.ok.us/Teacher/Salary/default.html.

 

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