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As tax season approaches, millions of married couples in the U.S. are preparing to pay more when filing jointly, and women who earn less than their spouses may face even steeper losses in potential tax savings.
Joint filing has historically placed women at a disadvantage when it comes to benefiting from certain aspects of the tax code. Because of the way the system is structured, women often find themselves taxed at a higher rate than their husbands, as revealed in a new article by Vox. This adds to the financial complexity for married couples, as their combined earnings are taxed as one income.
So, how does the tax system allow this to happen?
Under the U.S. tax code, higher incomes are taxed at higher marginal rates, meaning that a couple’s combined income can push them into a higher tax bracket than if they filed separately. For married women, who are typically considered secondary workers, this means that their earnings are taxed at the higher rate based on their spouse’s income, if they earn less. Essentially, joint filing “stacks” their income on top of their husband’s, often resulting in higher taxes than if they filed individually, Vox notes.
Currently, the IRS imposes a 24% tax rate on married couples filing jointly with incomes ranging from $201,051 to $383,900, according to Fidelity. This means that couples within this income bracket are taxed at 24% on earnings in this range. If married couples choose to file separately, they would fall under the 24% tax rate if their individual income is between $100,526 and $191,950. The marriage penalty is somewhat alleviated for couples with lower earnings, as the tax brackets for lower-income earners are more favorable. For instance, the 10% tax rate applies to married couples filing jointly with incomes of $23,200 or less. For married couples filing separately, the 10% rate applies to incomes of $11,600 or less.
Still, inequalities exist between husband and wife. To put this into perspective, imagine a woman named Emily who earns $80,000 a year, and her husband David earns $150,000. If they decide to file jointly, their combined income of $230,000 would place them in the 24% tax bracket for married couples filing jointly.
If Emily had filed separately, she would fall into the 22% tax bracket based on her income alone, while David’s $150,000 would place him in the 24% bracket. In this case, filing jointly results in Emily’s earnings being taxed at a higher rate because the combined income pushes them into a higher bracket than if they filed separately. In simpler terms, by filing jointly, Emily’s income is taxed more heavily because the combined total income moves them into a higher bracket, even though her individual earnings would have been taxed at a lower rate.
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There are growing concerns that the high rates associated with joint filing may also have a negative impact on women’s labor market participation.
A 2021 study from the NBER Working Paper Series revealed that joint filing can actually discourage wives from working, especially at a time when their careers are advancing. This can affect everything from mid-career promotions to long-term retirement savings. As more women enter the workforce than ever before, more women are also feeling the financial penalties of joint filing.
NYU Review of Law & Social Change notes that the marriage penalty also contributes to gender bias, as women are often the secondary earners in households. When a wife’s income is taxed at the higher marginal rate set by her husband’s earnings, joint filing effectively penalizes dual-income couples. This structure discourages women from entering or staying in the workforce, reinforcing a bias that favors male primary earners and creates financial disincentives for women’s employment.
How do we fix this unfair penalty?
Michael Graetz, a tax professor emeritus at Columbia and Yale law schools, told Vox that the government should consider reinstating a tax deduction for secondary earners. During the Reagan administration, a deduction was introduced that helped reduce the penalty on wives by allowing couples to deduct 10% of the lower-earning spouse’s income, up to $3,000.
Reinstating such a measure could provide crucial support to secondary earners, particularly women, at key career stages when child-rearing responsibilities often lead to reduced working hours or a drop in income.
There may be some temporary relief ahead. For 2024, the IRS has raised the standard tax deduction to $29,200 for married couples filing jointly, up from $27,700 in 2023. Single filers will see their deduction increase to $14,600, up from $13,850. Additionally, if your income falls within the IRS thresholds, it might be beneficial for some women to consider filing separately this year.
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