Mendoza School of Business

IRS rule penalizes working poor for daring to marry

Published: September 24, 2009 / Author: By Milani

It wasn’t so long ago — during the presidential campaign of 2008, in fact — that both Barack Obama and John McCain were promising to cut taxes for low-income individuals. Well, that was then and this is now. Even though now President Obama resides in the White House, and McCain continues to serve in the U.S. Senate, the federal income tax laws continue to overlook and penalize a significant segment of the United States population — unmarried individuals (who are single parents) who decide to get married.

In connection with our work in the Vivian Harrington Gray Notre Dame-Saint Mary’s College Tax Assistance Program, we have had to calculate and communicate this 21st century “marriage penalty” to unsuspecting taxpayers.

This so-called “marriage penalty” occurs when two single individuals get married and combine their incomes. This is due to the higher income phase-outs that cause the benefits from the earned income credit, the child tax credit and the “additional” child tax credit to drop significantly or, in some cases, to disappear completely (not unlike the Cubs’ chances of winning the 2009 World Series).

For instance, if two unmarried individuals (each earning $13,000) who are single parents heading up families with two children decided to get married in 2008, the federal tax law generates a “marriage penalty” of a little over $5,000. Put differently, their combined tax liability on a Married Filing Jointly tax return listing four children would be more than $5,000 higher as a result of their deciding to walk down the aisle. If the income level of each person is $22,000, the 2008 marriage penalty was an incredible $7,000!

To state the obvious, the decrease in allowed credits reduced the amount of refund or increased the amount of tax to be paid when filing a 2008 tax return. With the 2009 earned income credit scheduled to increase, the “marriage penalty” will be higher in 2009 for a couple whose life situations are similar to those described.

In our opinion, federal income tax provisions that create a hurdle to getting married are unfair to the people involved and unhealthy for a society that already has too many people co-habitating instead of living as husband and wife.

We applaud the recent efforts of Congress to eradicate or reduce the marriage penalty for those with higher levels of income, but these efforts have overlooked the most at-risk sector of our society: families headed up by the working poor.

Studies continue to report that one of the contributing causes of poverty, illegitimacy, crime, inadequate education and other socioeconomic challenges can be traced to the absence of two married, committed parents in a family. Our current income tax laws don’t seem to help and actually create a hurdle to getting married — or cause a horrible surprise when the newly married couple files their first tax return as husband and wife.

The price of getting married for the working poor is both onerous and ongoing. We encourage the lawmakers of the United States to revisit the “marriage penalty” issue and focus on the low-income individuals who could use their assistance.

Ken Milani and Claude Renshaw are authors of the Tax Talk taxpayer assistance column that appears on The Tribune’s Business pages. Milani teaches accountancy at the University of Notre Dame. Renshaw is an emeritus professor of business administration and economics at Saint Mary’s College.Write to them in care of The Tribune. 


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