You don't understand money!!!

[couchrobt]

Live the life that you want but you will have to work hard for it. It is the reality of it all. It may sound hard, but who knows. Some must have been lucky.

[thekid]

Canadian here too. Was about to post Debbie's question.

This is the first time I hear that both incomes get added together with the second income being taxed at the first's marginal rate going up.

If this was the situation in Canada, my wife would most probably not work. In Canada income taxes are filled seperately (only a few credits and deductions can be shared or applied to one income).

[KTP]

Originally Posted by thekid

Canadian here too. Was about to post Debbie's question.

This is the first time I hear that both incomes get added together with the second income being taxed at the first's marginal rate going up.

If this was the situation in Canada, my wife would most probably not work. In Canada income taxes are filled seperately (only a few credits and deductions can be shared or applied to one income).

that is how it *should* be in the USA, but we encourage our citizens to be non-productive whenever possible through our tax and welfare systems. Everybody seems to like it, so I figure don't rock the boat and gave up looking for work. They will even pay me half of my wife's SS for retirement even though I have only a couple of credits!

[thekid]

Originally Posted by KTP

that is how it *should* be in the USA, but we encourage our citizens to be non-productive whenever possible through our tax and welfare systems. Everybody seems to like it, so I figure don't rock the boat and gave up looking for work. They will even pay me half of my wife's SS for retirement even though I have only a couple of credits!

Well Canada (especially my home province of Quebec) tends to be much more left/social leaning, but it's certainly not the case here.

I'm actually quite perplexed, this is quite a steep "penalty" on marriage.

[jpg7n16]

Originally Posted by thekid

I'm actually quite perplexed, this is quite a steep "penalty" on marriage.

If you're perplexed it's because you're comparing taxes on a 2 income family to a 1 income family - instead of taxes on a married couple filing jointly, versus 2 separate single filers. (if they were both working, and not married, they'd have to file as singles)

The 120k income (if filing single) would have been in the 28% bracket of his own accord if filing single.

I used a quick calculator here: Federal Tax Calculator for 2010 for some quick estimates.

Filing separately as singles (one with $120k and one with $80k), the tax would have been approx. $38,535. Filing jointly, the tax is approximately $39,008 {remember to clear the standard deduction and personal exemptions before hitting submit}.

The 'penalty' isn't "steep." It's like $500.


And marriage is highly beneficial for married couples living off one person's income.

For instance, if the wife stayed at home, the family saves a lot by filing jointly:

$120k filing single - 24,691
$120k filing jointly - 17,688

[KTP]

There is a whole mess of other stuff that doesn't get calculated in such a simplistic analysis. For example, I had tuition payments in 2010 of $4500 but could not deduct ANY of it against my income because my wife's income put us over the eligibility limit. Same thing for Roth contribution, and also for the making work pay credit. You factor all that in and the penalty is a bit more than $500. I am sure I am forgetting some other things...when I did taxes it was a constant "Income is too high to qualify for this deduction".

The system makes it better to just not work. Less chance of AMT, you get better treatment filing jointly, and you get half of your spouse's eligible SS.

[LivingAlmostLarge]

Yep, AMT, no child tax deduction, no tuition deduction, etc. But with one high income you only pay this year 4.2% SS instead of 4.2% on two incomes. So it depends on if there is an income disparity.

[thekid]

Originally Posted by jpg7n16

If you're perplexed it's because you're comparing taxes on a 2 income family to a 1 income family - instead of taxes on a married couple filing jointly, versus 2 separate single filers. (if they were both working, and not married, they'd have to file as singles)

The 120k income (if filing single) would have been in the 28% bracket of his own accord if filing single.

I used a quick calculator here: Federal Tax Calculator for 2010 for some quick estimates.

Filing separately as singles (one with $120k and one with $80k), the tax would have been approx. $38,535. Filing jointly, the tax is approximately $39,008 {remember to clear the standard deduction and personal exemptions before hitting submit}.

The 'penalty' isn't "steep." It's like $500.


And marriage is highly beneficial for married couples living off one person's income.

For instance, if the wife stayed at home, the family saves a lot by filing jointly:

$120k filing single - 24,691
$120k filing jointly - 17,688

Why is that? Are the brackets different for joint filings than for single filings?

[KTP]

Originally Posted by thekid

Why is that? Are the brackets different for joint filings than for single filings?

Yes.

There is a benefit to filing joint if only one spouse works, and a disadvantage if both spouses work (but they have fixed a portion of the disadvantage at least temporarily).

But it is probably good that there are different brackets for joint vs single filings. Imagine the outrage if everyone could file single (not married filing separately). You could have a person with a 200K income and their spouse non working with the three kids getting $15,000 to $25,000 back from the government in the form of aid.

[thekid]

Makes much more sense now that I see that single and joint filings have different brackets. I understood it as the second income being taxed at the first income's maginal rate going up. That seemed crazy steep.

KTP, to your point, in Canada even if it's seperate filings most credits and aid are dependent on family income (so the low income spouse doesn't get aid destined to low income earners when the spouse makes significant money).

[KTP]

Originally Posted by thekid

Makes much more sense now that I see that single and joint filings have different brackets. I understood it as the second income being taxed at the first income's maginal rate going up. That seemed crazy steep.

KTP, to your point, in Canada even if it's seperate filings most credits and aid are dependent on family income (so the low income spouse doesn't get aid destined to low income earners when the spouse makes significant money).

Oh, then that is not really filing seperate. If you could truely file as single then it would not make a difference what income the spouse made.

[thekid]

Originally Posted by KTP

Oh, then that is not really filing seperate. If you could truely file as single then it would not make a difference what income the spouse made.

You file seperate but declare you are married, to whom and link to their return. Being married only affects certain tax credits and aid (as mentionned in my previous post) and allows you to maximize certain permitted deductions (as in you can apply certain deductions to the highest earner regardless of who incurred them). Other than that (which is not much), both are taxed on their respective incomes on the same brackets as applies to any other single person.

What I had initially understood being the US system is that the brackets for married couples were the same than for singles (as in Canada), but that married couples had to combine both incomes (therefore the second income would start being taxes at the first income's marginal rate). That seemed crazy. However, with different brackets, I'm sure it all comes out to roughly the same.

[LivingAlmostLarge]

No it doesn't. Depends on many factor including how much each spouse makes. That influences if it's worth working when kids come or hugely disparate incomes. Child tax credits, student loan deduction, etc all come off as well for certain income levels. too complicated.

[thekid]

Originally Posted by LivingAlmostLarge

No it doesn't. Depends on many factor including how much each spouse makes. That influences if it's worth working when kids come or hugely disparate incomes. Child tax credits, student loan deduction, etc all come off as well for certain income levels. too complicated.

I don't mean to keep beating on this, but I find it interesting. Fiscal policy is often used not only to get tax revenu, but also to encourage certain behaviours and discourage others (it's also social policy).

You mind giving me a brief overview of which situations are particularly advantaged in joint filling and which are particularly disadvantaged? I'd guess if they are more severely impacting large discrepencies in income, they want one parent to stay at home when the other makes a large(r) income (sort of a "pro family" policy through "penalties" rather than incentives).

[couchrobt]

True, bad spending habits is the main or the big chunk of issue why you get in the pit or get broke. Why keep spending more than you can afford?

[MonkeyMama]

For the most part, buying homes, investing, and having kids, are specifically encouraged.

Families doing better on one income, in the tax code? I think a lot of what we see today was unintentional (like AMT, which has nothing to do with social preferences), but, that said, it was more how the tax system was initially set up. Set up in a time when women weren't generally working professionals or big earners.

Saving for retirement and giving to charity is very strongly encouraged by our tax code.