The Social Security Marriage Tax Penalty

by Doug Thorburn, EA, CFP

Single taxpayers with Social Security benefits subject to the phase-in rules experience exorbitant tax brackets at moderate incomes. Married filers suffer quietly at generally lower rates, but that doesn’t mean they are better off.

The reason is the “base amounts” for married filers begin at such relatively low income levels that by the time the couple is in the 25% advertised tax bracket, in most instances 85% of the Social Security is already taxed. You might think, then, that the law treats married couples better than singles but, incredibly, you would be wrong. While the disincentives to produce other income are not as great, the combined tax for doing the right thing for the sake of the grandchildren is higher.

Let’s marry two single Social Security recipients, aged 65 or over, neither of whom itemizes deductions. We’ll assume they receive equal amounts of non-Social Security income, along with $18,000 each of Social Security. If we calculate the marriage penalty over a range of other income, we find that the penalty is $540 at “other income” levels of $12,000 each and $2,100 at “other income” levels of $20,000 each. This marriage penalty is particularly deplorable considering these are very moderate income levels.

To see Doug’s charts showing the effect of the marriage penalty on a couple when both are age 65 or over, click here.

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