Good News for Married Couples

You've no doubt heard of the marriage tax penalty but if you don't understand exactly how it works, you're not alone. The penalty is built into the federal tax tables, which demand higher taxes for a married couple than for two single individuals with the same income, regardless of whether the married couple files jointly or separately.

The good news is that the marriage tax penalty has been eliminated for 2003 and 2004 for many married couples by the Jobs and Growth Tax Relief Reconciliation Act of 2003. Before the Act was passed, married couples were penalized in two ways:

1. The standard deduction that married people were allowed to claim was less than the total the two of them could deduct when they were single, resulting in higher taxes.

2. The tax tables delivered a second whammy by making the income limit in the 15% tax bracket for married couples filing jointly less than the limit for two single individuals.

According to divorce attorney James J. Gross of Chevy Chase, Maryland, "the marriage tax penalty causes some couples to put off marriage until January to defer the penalty for another year. And it causes a logjam at divorce court in December because many couples want to avoid being taxed as married for another year." The average penalty is about $1,400 a year, according to Gross.

Now the 15% bracket for joint filers is exactly twice the 15% bracket for singles, so for at least the next two years, couples in the 15% tax bracket who are married and file jointly will pay the same tax as two single individuals.

The downside of the 2003 Tax Act is that these benefits will disappear in 2005 unless Congress renews them, but previous reductions in the marriage tax penalty planned for 2005 and beyond will remain in place.

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