Here are Justice Anthony Kennedy’s thoughts following the Supreme Court’s decision on June 26, 2015, granting same-sex couples the constitutional right to marry. Justice Kennedy, the pivotal vote, expressed the following:
Marriage holds a profound significance, embodying the highest ideals of love, fidelity, devotion, sacrifice, and family. When two people enter into marriage, they become something greater than they were individually. Some of those who brought these cases forward show us that marriage encompasses a love that can endure beyond death. It would be a misunderstanding to say these individuals disrespect marriage. Their plea is one of deep respect, seeking the fulfillment of marriage for themselves. They aspire not to be condemned to loneliness, excluded from one of civilization’s oldest institutions. They seek equal dignity in the eyes of the law, a right that the Constitution grants them.
Looking ahead 20 years from now, we will likely reflect on June 26, 2015, with amazement. We might wonder how the decision to allow same-sex marriage rights came down to a contentious 5-4 vote. Granting gays the right to marry doesn’t infringe upon others’ freedoms. I’ve reviewed arguments from both sides, and the undeniable truth is that discrimination is simply wrong. Rulings in favor of equality are inevitable.
We don’t choose our sexual orientation, race, ethnicity, or economic status at birth. Our choices lie in the actions we take in life. Now that an estimated 2% to 10% of the U.S. population can legally marry, let’s discuss what marriage means financially for everyone.
1. Potentially Lower Income Taxes: Married same-sex couples can now file joint state income tax returns, often resulting in lower tax liabilities compared to filing individually. However, there are also instances, as I’ll illustrate with ten different income scenarios in this post, where marriage may lead to tax penalties, especially for couples with disparate incomes.
2. Gift Tax: As of 2015, the gift exclusion amount is $14,000. Giving more than this to a girlfriend or boyfriend incurs taxes. As a married couple, you’re allowed unlimited tax-free gifts to your spouse.
3. Estate Tax: Upon death, the federal estate tax exemption is $5.43 million per person, and $10.86 million per married couple. For unmarried couples with an $8.43 million estate, about $3 million could be taxed at around 50%.
4. Health Benefits: In states that previously denied same-sex marriage, health insurance plans could refuse coverage to spouses. Now, the cost savings can be significant—personally, I pay $1,500 monthly for health benefits for two healthy people. For an unemployed or underemployed partner, this expense would be prohibitive without spousal coverage.
5. Financial Security: Social Security benefits are a critical reason to marry. Without a spouse, the government retains all funds contributed if you die before reaching eligibility. Designating a beneficiary other than a spouse during retirement is challenging.
In addition to Social Security, similar rights extend to inheriting IRAs, 401(k)s, and other retirement plans. Upon divorce, assets and earnings accumulated during the marriage are typically divided equally.
MARRIAGE PENALTY TAX EXAMPLES
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Here are hypothetical couples with various incomes and deductions, illustrating the potential additional taxes married couples may pay. Some arguments against gay marriage focus on increased tax revenue for the government.
Marriage Penalty Tax Example #1A
Both earn $50,000, no kids, no mortgage—no penalty. Great!
Marriage Penalty Tax Example #1B
Same $50,000 income each, with a mortgage and two children—shows a marriage penalty, though overall tax is lower due to child tax credits. From $11,638 to $7,863.
Marriage Penalty Tax Example #2
One earns $100,000 with a mortgage, the other $50,000. No kids, but they exceed the $110,000 combined income threshold for full child tax credits, creating a $1,050 marriage penalty.
Marriage Penalty Tax Example #3
Both earn $200,000, no home, two children. With or without kids, a significant $15,162 marriage penalty applies.
Marriage Penalty Tax Example #4
Both earn $200,000, with $45,000 in deductions. Two children under 17. Deductions lower their tax bill to $92,089, down from $104,987 unmarried—17% less.
Marriage Penalty Tax Example #5
One earns $500,000, the other $80,000. Home with a mortgage, one child. Financially favorable for the $80,000 earner; over 20 years, the $500,000 earner pays $270,000 more in taxes than if single.
Marriage Penalty Tax Example #6
Both earn $85,000, no kids, no mortgage. Total $170,000 income triggers marriage income tax.
Marriage Tax Credit Example #7
One earns $60,000, the other $40,000. No mortgage, no kids—under $110,000 combined, qualifying for child tax credits, reducing their taxes to $10,638.
Marriage Tax Credit Example #8
One earns $50,000, marrying someone with no income. No mortgage or kids—$3,548 tax liability, declining $1,000 per child.
Marriage Tax Credit Example #9
One earns $200,000, the other nothing. Mortgage interest, state taxes, charitable contributions—yields a $7,330 tax credit.
Marriage Tax Credit Example #10
One earns $300,000, marrying someone with no income. State taxes, mortgage interest, charity, and a child—saves $11,162 annually. Above $300,000, the marriage tax credit decreases.
IDEAL INCOME COMBINATIONS TO AVOID MARRIAGE PENALTY TAX
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Based on analysis, ideal income levels to avoid the marriage penalty tax include:
1) Total adjusted gross income under $110,000, eligible for child tax credits. Owning a home and mortgage further reduce tax bills, hovering around $100,000 total income might even yield a marriage tax credit.
2) One person earning below $300,000 MAGI marrying someone with $0 income—common middle-class scenarios like Example #8 ($50,000 + $0). Examples #9 ($200,000 + $0) and #10 ($300,000 + $0) benefit high-cost living areas. Above $300,000, the marriage tax credit decreases.
3) Combined income of $150,000 – $170,000 caps penalties, Example #2 generates only a $1,050 penalty. Consider the value of marriage benefits against tax penalties in Examples #3 and #4, where an extra $15,000 in annual taxes seems excessive.
WORST INCOME COMBINATIONS FOR MARRIAGE TAXES
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1) One high-income earner marries a low-income earner (e.g., $30,000 + $600,000). The lower earner’s income moves into the higher tax bracket.
2) Two high-income earners marry, compounding the tax issue. Combined incomes push them into higher tax brackets, possibly resulting in one partner quitting or reducing work to avoid excessive taxation. Delay marriage until near retirement for Social Security and estate planning advantages.
Note: Same-sex couples adopting can benefit from the federal adoption tax credit of up to $13,190 per child. It’s non-refundable, requiring sufficient federal income tax liability to maximize. Adoption credits are expected to increase, simplifying adoption for 100 million+ orphans.
MARRIAGE HAS PROS AND CONS
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Understanding financial implications—positives and negatives—is crucial before tying the knot. Aligning financial goals and open communication strengthen any marriage, regardless of who you love.
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Updated for 2020 and beyond.
