Marriage Penalty Relief

What is it?
Married couples sometimes pay more tax than if they were filing as single taxpayers, thus creating a marriage penalty. The bill cuts taxes for many married couples.

What's Changing?
The tax cut increases the standard deduction (used by taxpayers who do not itemize), and widens the 15 percent tax bracket for married couples. Using the current single rate, the standard deduction for single taxpayers is $4,550. The tax cut raises the joint deduction to $9,100, double the single rate, which is larger than the current rate of $7,600 for married couples filing jointly. In expanding the 15 percent tax bracket for couples, the new law will increase the ceiling from $45,200 to $54,100, which is twice the $27,050 cutoff in the 15 percent tax bracket for single filers.

What does it mean to me?
Relief starts in 2005 and is fully phased in by 2010. An estimated 6 million couples who will no longer need to itemize.

The Details ...
The 2001 Act provides for an expansion of the 15% tax bracket and an increase in the married filing joint standard deduction to twice that for single filers. These provisions will be phased in beginning in 2005. The 2001 Act also contains a provision to extend the EITC phaseout range for married couples by $1,000 (2002–2004), $2,000 (2006–2007), and $3,000 (2007 and later).

The marriage penalty provisions of the 2001 Act are discussed below.

Expand the 15% Rate Bracket
The expansion of the 15% tax bracket only benefits taxpayers who are in the 28% bracket or higher. Under current law, the 15% bracket for single filers ends at $27,050. For joint filers, the 15% bracket ends at $45,200, 1.67 times the amount at which the 15% rate bracket ends for single filers. When fully phased in (in 2009), the 15% rate bracket for MFJ filers will end at a level equal to two times the end of the single bracket. Using 2001 amounts, an additional $8,900 ($54,100 – $45,200) in income will be taxed at 15% rather than 28%. Thus, taxpayers in the 28% bracket or higher will receive a tax cut of up to $1,157 ($8,900 × (28% – 15%)).

Increase the Standard Deduction
In 2001, the standard deduction for the single filing status is $4,550. The joint standard deduction of $7,600 is $1,500 shy of being twice the standard deduction for single filers. The disparity between the standard deductions is somewhat greater than in recent years.

Historically, the joint standard deduction has been approximately 1.6 times the single standard deduction. The 2001 Act increases the amount of the standard deduction relative to that for single filers beginning in 2005. The scheduled increase is shown below.

Joint Standard Deduction Increase
Year	Amount > Single
2005	+1.74
2006	+1.84
2007	+1.87
2008	+1.90
2009	+2.00

Increasing the standard deduction directly addresses the marriage penalty inherent in the married filing joint standard deduction. It benefits only taxpayers who do not itemize, but it will also simplify filing for an estimated six million filers who will no longer need to itemize.

The tax benefit related to the shift in the standard deduction is shown below. Although the current tax rates are used to define the rows, the 2001 Act tax rates are used to calculate the benefit for each year.

Tax Bracket	Year
Tax Bracket	2005	2006	2007		2008
10%	$32	$77	$91	$105
15%	$48	$116	$136	$157
28%	$82	$193	$227	$261
31%	$92	$216	$255	$293
36%	$108	$255	$300	$345
39.60%	$119	$270	$318	$316

Expand the EITC Phaseout Range for Married Couple
A married couple's earned income tax credit (EITC)can be reduced or eliminated because their income is combined to determine the EITC amount. Under the new law, the phaseout range for married couples is adjusted slightly to compensate for this penalty. The phaseout is adjusted as follows:

EITC Phaseout-Range for Married Couples
Year	Range
2003-2004	$1,000
2005-2007	$2,000
2008	$3,000
2009 and later	Adjusted for inflation

The shift in the phaseout range benefits only married taxpayers whose qualifying earned income and/or AGI fall within a narrow range, but it also means that more couples will qualify for the credit. The chart below illustrates who will benefit from this provision in 2002 through 2004 and the maximum benefit associated with each income range.

Who Benefits From Expanding the Phaseout Range?

Amount Credit is Based

Maximum Tax Benefit

One Qualifying Child

$0 – $13,090

$0

$13,090 – $29,281

$160

$29,281 and higher

$0

Two Qualifying Children

$0 – $13,090

$0

$13,090 – $33,121

$211

$33,121 and higher

$0

No Qualifying Children

$0– $5,950

$0

$5,950 – $11,710

$77

$11,710 and higher

$0

Note: The 2001 Act also contains provisions that change (and simplify) the calculation of the earned income tax credit. A couple's actual tax benefit may also be affected if these changes are passed into law.