A few decades ago, getting married was a chance for two people to better their financial fortunes as they started a family. In those days, it was easier to get by on a single income, and higher education (no matter your gender) wasn’t as essential as some think it is today. People married young so they could work together to improve their fortunes and set up house. Since 1996, the tax code has also provided tax bonuses for married couples with wide income disparities.
But the times are changing. The marriage age is increasing, and it’s now likely that both partners have some sort of education and career. As a result, marriage is no longer always in your best financial interest.
Tax Implications for High-Earning Couples
When you have high earners in a two-income household, the tax advantages of being married tend to disappear. Consider the 28 percent tax bracket for 2014. For a single person, that bracket spans $89,350 to $186,350. For those married filing jointly, that same tax bracket spans $148,850 to $226,850.
As you can see, it’s not a matter of simply multiplying the single income to get married income in a corresponding tax bracket. If you make $85,000 a year, you’d be in the 25 percent tax bracket as a single person. Get married to someone who makes the same amount that you do, and suddenly your combined income is $170,000 — putting you both in the 28 percent bracket.
If one of you makes a little bit more than the other, this can be an even bigger change. What if you make $89,000, but your partner makes $105,000? Now your combined income is $194,000. If you were both single, you’d be in the 25 percent bracket, and your partner in the 28 percent bracket. Now that you’re married, though, you’re both in the 33 percent bracket.
If you and your partner are both on the higher side of income earnings, you’ll find there’s not a tax advantage to marrying — and that you phase out more quickly for the use of certain tax deductions and credits.
Other Potential Financial Penalties
You also have to consider the impact that marriage might have on other aspects of your finances. Yes, you can reduce some of your expenses by sharing costs — but you also need to consider what happens if you and/or your partner have children.
Getting married can change the situation if you’ve previously qualified for financial aid for a college student, or if you’ve been taking advantage of government programs. Your new combined income might not be particularly high, but it might make your household income just high enough to take you out of the running for previously-used programs, which can lead to a budget squeeze each month.
You could also see increases in your insurance premiums for adding more covered people to your account, and if you have children, this will happen again when they start driving.
While there are some financial benefits to getting married, it’s important to carefully consider your own situation, and decide what’s best for you to succeed financially.
Do you think marriage has a positive or negative impact on personal finances?