The Difference in California Income Tax for a Single Person vs a Dual-Income Married Couple?
For many years, people have complained about the “marriage penalty” that is inherent in many income tax calculations, but what does the term actually mean, and does it really exist?
The “marriage penalty” refers to the fact that under some income tax regulations, a married couple will pay more in income taxes than would two single people making the same amount of money. Many times this situation arises when the standard deduction and exemption amounts for a married couple are not exactly twice the amount of the deductions and exemptions for a single person.
In regards to the state of California and its income tax regulations, however, the marriage penalty does not exist, because those deductions and exemptions are what they should be.
For example, in the 2011 tax year, a single person who made under $166,565 is entitled to take a $102 exemption and a $3,769 standard deduction. A married couple making under $333,134 gets a $204 exemption and a $7,538 standard deduction, exactly twice the single person’s figures.
The phase-out thresholds for the married couple’s deductions and exemptions are exactly twice the thresholds for the single person. So there is no reason for the income tax of a married couple to be more than that of two singles.
Moreover, in some situations, it is actually far more beneficial to be married than to be two singles filing separately. This situation generally arises when both partners earn an income, but one partner’s income far exceeds the other.
Take, for example, a married couple that makes $50,000 annually each. When calculating their income tax due, using standard deductions and no other form of income or deductions, it is exactly the same for them as a married couple ($3,925.24) as it would be if they were 2 single people filing separately ($1,962.62 x 2).
However, if that married couple had one high-income earner ($75,000) amd one low-income earner ($25,000), filing together is far better than two singles filing separately.
Under the married scenario, the couple would again claim $100,000 in gross income, $92,258 in taxable income, and $3,925.24 in taxes owed.
As two singles, however, the high-earner would claim $75,000 in gross income, $71,129 in taxable income, and $4,262.92 in taxes owed.
The low-earner would claim $25,000 in gross income, $21,129 in taxable income, and $425.08 in tax owed.
The combined partners would owe $4,688 in taxes, which is nearly 20% in additional taxes owed.
The reason for this discrepancy is that the high-earner’s single income is taxed at a far higher rate than the income of the married couple. The high-earner is paying 5.7% overall on his total income, whereas the married couple is paying 3.9%. Even averaging in the low rate of 1.7% on the low-earner’s income, the two singles are together paying a rate of 4.7% on their $100,000 combined income.
Therefore, California income tax implications should not be a factor when deciding whether or not to get married. And as demonstrated, marriage can actually improve your tax situation in many cases.
If you’re looking for tailored tax concealing, please look into our tax consulting services.