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Mrs. Cookie, Denver Age and Occupation: 25, Nonprofit Fundraiser/Theatre Designer Fiance's Age and Occupation: 27, Financial Analyst Engagement Date: September 2007 Wedding Date: September 2008 Blogging Since: May 8, 2008 Venue: Ten Mile Station About Me: With a degree in Theatre I never realized that planning a wedding was a lot like Theatre Management, until I started planning my own. I am a coffee addict, especially Starbucks' Grande Mochas, yummy! I love to cook (especially chocolate chip cookies for my honey), travel to exotic places, and be creative. As a couple, Mr. Cookie and I are extremely practical, down to earth, and children at heart. We live in a cozy abode with our adorable Pomeranian, and love to play board games and watch movies into the evening.
About Mrs. Cookie

Happy Tax Day!

April 15th, 2009 @ 9:20 am by Mrs. Cookie

For those readers in the U.S., Happy TAX DAY!

In my post titled, “What is Different about Marriage“, I briefly mentioned the “Marriage Penalty” and some readers asked if Mr. Cookie could do a guest blog about it. So, in honor of the day, I asked him to do just that. With an MBA in Finance and a job as a Financial Analyst, Mr. Cookie is the financial brain of the Cookie clan. Please note that Mr. Cookie is not a CPA, and you should consult a tax professional about your particular financial situation. Okay, without further ado, Mr. Cookie:

Hi, hive! Mrs. Cookie asked me to write-up a post about the “Marriage Penalty”. I hope this post will give you a glimpse into your taxes after you’re married.

Everybody loves marriage, especially the U.S. Government. Now, why does the government like marriage? The answer is simple: money. Wait a minute; isn’t marriage supposed to save you money? The answer is, in most cases, no.

Certainly living together saves you money. Less rent (or mortgage), less utilities, and less food are all great ways to save money when you combine your households. It may even come with less time spent on housework (at least for one of the lucky cohabiters ;)). But does marriage save you money? Let’s take a look at the tax structure, shall we?

Let’s say you are a low-income earner and make the maximum adjusted gross income (after exemptions and deductions) of the first 2008 tax year tier. You’d be making $8,025 per year and taxed on 10% of that income, which is $802.50. And say your potential spouse makes the same amount, thereby doubling your income to $16,050. How does this affect your taxes? Let’s take a look at the table. It just so happens that the top of the first tier for married couples is $16,050, the same as if you were to double the single tier, which means the same taxes. No problem right? Well, no problem if you both don’t have deductions, which we’ll talk about a little later.

Now let’s take a look at the next tier. The top of the second single tier is $32,550, and for married couples $65,100. Still double; so far, so good. Third tier: single - $78,850, married - $131,450. Wait a minute! If you double $78,850 it should give you $157,700, not $131,450. Where did that extra $26,250 of taxable income go? Well that, my friends, is where the marriage penalty begins. Instead of taxing you at the bargain rate of 25% on the entire third tier income for singles and doubling it, it decreases that spread by $26,250. Which means you’re paying the low, low rate of 28% on $26,250 ($7,350) instead of the 25% rate ($6,562.50), or 3% more ($787.50). If you had both earned identical amounts and stayed single, you’d be better off. And it gets worse the more you make. The fourth tier for single is $164,550, and for couples $200,300—a $35,750 spread—and so on, as you move up the ladder.

Not fair? You bet your sweet bippy it’s not fair. But hold on to your hats, we’re not done with this crazy ride yet. Remember when I spoke of deductions? Well, here’s the skinny on that.

Typically, you will get the larger of the standard deduction set by the government, or your itemized deductions. Generally, if you don’t have a mortgage or a business, you don’t need to worry about itemized deductions. However, if you do own a home: beware! In 2008, your itemized deduction per person is $5,450. Luckily, it stays the same if you’re married and each person gets their standard deduction and, when combined, equals $10,900. That’s $10,900 of non-taxable income we’re talking about here. So let’s say one of you lucky brides or grooms-to-be owns a residence. The mortgage interest, property taxes, and other deductible expenses would be used to offset your income. Let’s say the bride owns the home and has $15,000 in deductible expenses ($15,000 less income she’s taxed on). The groom-to-be, who is cohabiting with the bride-to-be, doesn’t own a residence and gets his standard deduction of $5,450. Added together ($15,000 plus $5,450), this gives you $20,450 of income that is not taxable. Sweet! But here comes the sour: when you get married, say goodbye to the groom’s $5,450 deduction. Flush… down the drain. As a married couple, because you hypothetically share resources, you also share your itemized deductions. Your deduction has now been reduced to the $15,000 plus the minor deductions (usually state income tax) the groom has. Hence, you now pay taxes on an additional $5,450 which at the lowest tier, 10%, is $545 more!

What a bum deal. You get married, and then you get bumped into a higher tax tier and get deductions taken away! :(

Now, there are some situations where it is beneficial, such as when you have one very high earner and one that earns little-to-none. This widens the taxable tiers, and includes more of the higher income earner’s wages in a lower bracket. For those of you eventually planning to stay home to raise the kids, you will eventually get some of this advantage. Of course, you still have the deduction issue. Now, why not file as married filing separately? No luck. They’ve already altered your tiers to the married levels and, in some cases, you can’t take as many deductions or credits.

So what does this all mean? Well, anecdotally, love comes with sacrifice. And to still marry someone knowing the financial burden of additional taxes tacked on must mean that you really do love that person! ;)

Happy tax day, you crazy newlyweds!

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71 Responses to “Happy Tax Day!”

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1.
Member Icon
Member
kandi (message)  28 posts, Newbee

Thank you for this post! Unfortunately, we will be bumped into a higher tier next year. :\

 
2.
Gerbera
Member
Gerbera (message)  4,481 posts, Honey bee

Mr. Cookie,
That was waaay too many #’s for this early in the morning! Yikes!
This is why FI & I have an accountant! Yeesh!
However, I thank you for enlightening us. It’s always fun when Misters blog!

 
3.
Bee Icon
Bee
Miss Bruschetta (message)  5,565 posts, Bee Keeper

Whoa. Early and numbers and head cold don’t mix. Mr. Bruschetta’ll probably enjoy reading this, though, because he’s much more of a math person than me — thanks for sharing, Mr. Cookie!

 
4.
Guest Icon
Guest
Jen

Poo!

 
5.
Bee Icon
Bee
Miss Crab Cake (message)  834 posts, Busy bee

Wow… never knew any of that! Yikes!

 
6.
Miss Bear Cub
Bee
Miss Bear Cub (message)  1,566 posts, Bumble bee

So - given that having kids is a HUGE tax break, does the government want us to procreate like little bunnies?

 
7.
Miss Gloss
Bee
Miss Gloss (message)  1,222 posts, Bumble bee

Ugh. Depressing! We will get bumped into a very unfortunate tax bracket next year.

 
8.
BeachBrideT
Hostess
BeachBrideT (message)  1,052 posts, Bumble bee

Wow!!!!!! GREAT EXPLANATION MR. COOKIE!!! I’ve always heard about the marriage tax break, usually followed quickly by married couples saying “Nope, we owed more taxes after we got married.” And now I see why.

 
9.
ggsb
Member
ggsb (message)  1,245 posts, Bumble bee

Great way of wording it Mr. Cookie! We won’t have the joy of this penalty until next year, but the former accountant in me ran the numbers this year….and YUCK! Just Yuck! Enough that my FI actually asked if we could just not turn in the marriage certificate to make it “legal” ;)

 
10.
Guest Icon
Guest
Yach

Great explanation. I knew about the ‘marriage penalty’ but never knew exactly how much. This article totally simplified things. =)

 
11.
Team Buchanan
Member
Team Buchanan (message)  14 posts, Newbee

Thanks Mr. Cookie!! Great explaination! It’s a bummer… but good to be in the know. :)

 
12.
Guest Icon
Guest
Stefani

Actually, it is my understanding that one household may deduct mortgage interest on two homes. So it doesn’t actually get worse if both people own a house. My fiance and I each have a house and will be getting deductions on both.

 
13.
ejs4y8
Member
ejs4y8 (message)  14,581 posts, Bee Keeper

Ugh!!!! My Fi and I are both engineers and will get bumped into new tax brackets once married. We’re screwed in our 20’s already! 28% is a chunk of my hard-earned dough! booooo. Thanks for the super handy information, though! You explained it nicely! I hope my MBA provides me with as much information!

 
14.
Miss Pinot Grigio
Member
Miss Pinot Grigio (message)  1,410 posts, Bumble bee

My head is spinning from all the numbers!! Yikes. Thanks for breaking it down for us.

 
15.
ktdid23
Member
ktdid23 (message)  622 posts, Busy bee

I sort of have no idea how, but we got back about $800 this year (after getting married last Nov). No clue why, but I’m not complaining!!

 
16.
Bee Icon
Bee
Miss Cheese (message)  801 posts, Busy bee

This is a GREAT post… thanks for doing this, Cookies!

 
17.
mary-alice-me
Member
mary-alice-me (message)  1,864 posts, Buzzing bee

My FI was just asking about filing together next year… and asking about the marriage penalty! I’ve sent him the link to read your article. Thanks!

 
18.
MissCamera
Member
MissCamera (message)  770 posts, Busy bee

Apparently in this case we’re lucky we’re poor. Our taxes will remain the same since we’re in a lower bracket. Thanks!

 
19.
Bee Icon
Bee
Miss D'orsay (message)  2,272 posts, Buzzing bee

I’m overwhelmed by all these numbers but now kinda glad that Mr.D probably won’t be a permanent resident by Secember. Suck on that US government. :)

 
20.
Bee Icon
Bee
Miss D'orsay (message)  2,272 posts, Buzzing bee

I mean December…what is wrong with me?

 
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Mrs. Cookie
Mrs. Cookie

Mrs. Cookie, Denver Age and Occupation: 25, Nonprofit Fundraiser/Theatre Designer Fiance's Age and Occupation: 27, Financial Analyst Engagement Date: September 2007 Wedding Date: September 2008 Blogging Since: May 8, 2008 Venue: Ten Mile Station About Me: With a degree in Theatre I never realized that planning a wedding was a lot like Theatre Management, until I started planning my own. I am a coffee addict, especially Starbucks' Grande Mochas, yummy! I love to cook (especially chocolate chip cookies for my honey), travel to exotic places, and be creative. As a couple, Mr. Cookie and I are extremely practical, down to earth, and children at heart. We live in a cozy abode with our adorable Pomeranian, and love to play board games and watch movies into the evening.

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