Question

In 2017, Lisa and Fred, a married couple, had taxable income of $545,000. If they were to file separate tax returns, Lisa would have reported taxable income of $360,000 and Fred would have reported taxable income of $185,000. What is the couple’s marriage penalty or benefit?

Answer 1

Step 1. Calculate ta payable if Lisa and Fred file a joint return.

Tax payable if they file a joint return = $131,628 + [($545,000 - $470,700) x 39.6%] = $161,050.80

Step 2. Calculate total tax payable if they file separate returns.

Tax payable by Lisa = $46,643.75 + [($360,000 - $191,650) x 33%] = $102,199.25

Tax payable by Fred = $18,713.75 + [($185,000 - $91,900) x 28%] = $44,781.75

Therefore,

Total tax payable if they file separate tax returns = $102,199.25 + $44,781.75 = $146,981

Step 3. Compare the amount of tax payable in each case.

When Lisa and Fred file a joint return, they will have to pay tax of $161,050.80. If they file separate returns they will have to pay a total tax of $146,981. The amount of total tax payable is less if Lisa and Fred file separate returns.

Therefore,

The couple’s marriage penalty = $161,050.80 - $146,981 = $14,069.80