Chat Transcript: Kevin McCormally on the Marriage Penalty Tax
July 18 -- First Congress moved to eliminate the so-called death tax placed on estates. Now lawmakers are looking to remove the marriage penalty tax — the tax penalty that draws extra payments from an estimated 25 million two-income married couples.
How would the congressional measure affect your tax bill?
Tax expert Kevin McCormally of Kiplinger’s Personal Finance magazine responded to your questions in an online chat today.
Moderator at 2:58pm ET
Welcome Kevin McCormally.
Moderator at 2:59pm ET
Will this graduated tax cut really benefit every married couple?
Kevin McCormally at 3:01pm ET
Yes, I think every married couple would benefit, because the Republican plan would expand the 15% bracket. Part of everybody's income falls in the 15% bracket. Increasing the standard deduction, which is the other critical part of this change, would help only people who don't itemize deductions. That's about 75% of all taxpayers. But it's the 30% who itemize who suffer the most from the marriage penalty.
Every married couple would win under this plan, and that's a problem to some people, because right now about 25 million married couples get a marriage bonus — that is, they pay less tax than they would if they were single. The Republican plan being voted on today would increase that bonus.
Karen at 3:02pm ET
How much of a percentage would the new tax law reduce a married couple's yearly tax?
Kevin McCormally at 3:03pm ET
It depends on how much money you make now, and the mix between the husband's and the wife's incomes. The closer your incomes are, the more you currently are penalized for being married, and the more of a break you'll get. The farther apart your incomes are, the less of a penalty you suffer, or the bigger bonus you now receive.
One thing we know for sure is if you take the standard deduction, and the standard deduction is increased as proposed under this bill, it will save you somewhere between $200 and $400 a year.
Moderator at 3:04pm ET
Is the difference in the taxes paid between a married couple and a single person that significant?
Kevin McCormally at 3:05pm ET
The largest possible marriage tax penalty is $19,000. That's the most additional tax any two people pay, simply for getting married. That penalty applies if both husband and wife make $290,000 or more. The penalty can run anywhere from $0 to $19,074. So it can be significant.
If you go to the www.kiplinger.com Web site, we have a marriage tax penalty calculator that will show exactly how much of a marriage tax penalty you and your spouse pay now, or how much of a bonus you get.
Moderator at 3:07pm ET
What should couples ask their tax preparer about avoiding these types of taxes?
Kevin McCormally at 3:08pm ET
There are all sorts of ways people can save money on taxes. I think the first thing to do is forget about the marriage tax penalty. Ask you preparer how you can save money with your fringe benefits, with your retirement savings, and by using a home equity line of credit for your debt. The opportunities are numerous if you take a little time to investigate them. The Kiplinger Web site and the ABCNEWS Web site both have excellent information on how to save on taxes.
