Urban Wire How the government penalizes marriage for low-income families
Elaine Maag, Robert Cherry
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When couples decide to get married, the IRS is not the first institution they have in mind, but marriage can significantly affect how much taxpayers owe the federal government. Low-income earners—and low-income single mothers in particular—are especially vulnerable to marriage penalties through the tax code.

Most married couples owe less tax by filing jointly than they would if they were single: a marriage bonus. But low-income couples and high-income dual-earner couples still tend to face marriage penalties. In the extreme, consider a mother earning about $16,000 a year. If she has one child, she’ll qualify for about $3,200 from the earned income tax credit (EITC) and $1,000 from the child tax credit. (She also qualifies for food assistance from the Supplemental Nutrition Assistance Program --formerly food stamps-- and might qualify for child care and housing subsidies, depending on where she lives.)

If she were to marry a man earning about $25,000 a year, she would lose 90 percent of her EITC. That means that, together, they would owe almost $2,800 more in federal income taxes as a married couple than they would if they’d just decided to shack up. (Benefits outside the tax system are often sensitive to whether the couple lives together, but taxes are concerned only with marital status.)

What can we do to fix this imbalance?

One option would be to separate work and family credits in the tax code, with family credits reflecting the cost of maintaining a home and work credits incentivizing employment for low-income workers. All benefits would therefore be unrelated to marriage. Alternatively, newly married mothers could be given a marriage “grace period” during which they would continue receiving their pre-marriage benefits.

Both of those plans have problems, though. The first is potentially quite costly and may result in a politically untenable number of “losers” who would end up paying more in taxes. The second would not tax all married couples equally, which creates a new unfairness in the tax code.

Another solution, New Mothers Tax Relief, mitigates both of those problems by extending substantial EITC benefits to low- and moderate-income working couples until they jointly earn $40,000. The credits would then phase out by about $58,000.

For couples earning between $36,000 and $58,000 a year, New Mothers Tax Relief would provide at least $2,000 more in benefits than the current EITC program, reducing financial difficulties that often create marital tensions. The proposal limits total program costs by extending benefits only to families with children younger than six. Most important, for this vulnerable group of unmarried parents with young children, the federal tax code would be mostly removed from the decision to marry.

Photo by Al Behrman/ AP

Research Areas Economic mobility and inequality Taxes and budgets Children and youth Child welfare
Tags Individual taxes Federal budget and economy
Policy Centers Urban-Brookings Tax Policy Center