The Taxable Unit, or Who Pays the Tax?
Single Individuals
The single (unmarried) individual with no dependents (which are usually children) is the simplest taxable unit. This person works to support herself alone. It is fairly straightforward to set tax rates for this person (and these are the rates used for How Much Is Taxed?).
Married Individuals
Married individuals filing jointly see tax rates on their combined income that are somewhere between the rates for one and two single taxpayers (meaning the tax brackets from the single taxpayer aren’t just doubled). This makes sense when considering how the income can be split between each spouse. The greatest difference between the tax rates for two single filers and married individuals filing jointly occurs at the top tax brackets, with the tax brackets becoming much less than two single taxpayers as income for married individuals increases.
One Working Spouse
If one spouse works and the other maintains the home, getting married is a tax discount. The higher bracket thresholds become a discount for this person’s income. If this person is earning $100,000, before marriage she is in the fourth tax bracket and pays 24% on her top taxed income. After marriage, with the other spouse staying at home, her $100,000 income drops to the third bracket, and she only pays 22% on her top dollar, in addition to paying a lower percentage on every other dollar. As the income rises, the lower percentages they pay on every dollar add up significantly: a single person earning $100,000 owes $15,000 in taxes, while a married couple earning $100,000 owes $9,000 in taxes.
Two Working Spouses with Pay Disparity
If both spouses work but there is a significant pay disparity, then the same forces apply, but somewhat less so. A couple earning $80,000 and $20,000 would see the same combined taxes as above. Married, they owe approximately $9,000 in taxes. Filing individually, $10,000 would be owed on the $80,000 income and nearly $1,000 would be owed on the $20,000 income. Together, this couple pays about $2,000 less each year by getting married.
Two Working Spouses with Equal Pay
When both spouses earn a similar income, then the combined rates actually increase the taxes that the couple owes. As with the above example, a married couple earning $100,000 per year owes around $9,000 in income taxes. If each individual earned $50,000 and was not married, each would owe just over $4,000 in taxes, for about an $8,000 total. Getting married costs this couple $1,000 in taxes every year.
Heads of Households
A head of household is an individual who meets a number of requirements. They must be unmarried, they must pay for more than half of the household’s expenses, and they must have a qualifying dependent. A dependent can be a child who lived with the taxpayer for more than six months, or any other closely related family member who the taxpayer provides more than half their financial support.
The relationships discussed briefly here are explored in more depth in Edward McCaffery’s bookTaxing Women.
Next: Read When Are We Taxed?