The ‘Marriage Penalty’ Returns: A Hidden Tax on Couples in Key States

For many American couples, filing a joint tax return is a routine part of financial life. However, in several states, this act of marital unity can trigger an unexpected financial penalty. Known as the “marriage tax penalty,” this issue forces some married couples to pay significantly more in state income taxes than they would if they were single and filing separately. While federal tax reforms have largely addressed this problem at the national level, a number of states continue to use tax systems that inadvertently punish dual-income households.

How the Marriage Penalty Works

The penalty arises from the structure of state tax codes. Many states set their income tax brackets and standard deductions for married couples filing jointly at less than double the amounts for single filers. When both spouses earn similar, moderate-to-high incomes, their combined earnings can push them into a higher tax bracket much faster than if they were taxed as two individuals.

For example, imagine a state where the single filer tax bracket of 5% applies to income up to $50,000, and the next bracket of 7% starts above that. A single person earning $60,000 would pay 5% on the first $50,000 and 7% on the remaining $10,000. Now, consider a married couple where each spouse earns $60,000. If the married joint bracket is not simply double the single bracket, their combined $120,000 income might be taxed at 7% on a much larger portion of their earnings, leading to a higher total tax bill than the sum of two single filers.

Where the Penalty Hits Hardest

The marriage penalty primarily impacts couples with two earners who have comparable incomes. Single-earner households or couples with one very high income and one very low income often benefit from “marriage bonuses” under the same systems. The financial sting can be substantial. Depending on the state and the couple’s income level, the penalty can amount to hundreds or even thousands of dollars in extra taxes owed each year.

States identified as having notable marriage penalties often include those with complex, multi-bracket tax systems that have not been adjusted for dual-income norms. While the specific states can change with annual legislation, research consistently shows that couples in states like Georgia, Maryland, Minnesota, New Jersey, and New Mexico, among others, should be particularly vigilant. The penalty is a hidden cost, not a separate line item, making it easy for taxpayers to overlook.

Context and Investor Considerations

This state-level penalty persists despite federal fixes. The federal tax code now features brackets and standard deductions for married couples that are exactly double those for singles, effectively eliminating the marriage penalty for most at the national level. The disconnect between federal and state treatment creates a planning challenge.

For investors and financial planners, understanding this dynamic is crucial for holistic tax strategy. It affects disposable income, retirement savings rates, and overall household cash flow. In some cases, the penalty may influence decisions about work, residency, or even the legal structure of a relationship for financial partners. As states grapple with budget concerns, the political will to reform these tax structures and remove the penalty varies widely, making it a persistent feature of the financial landscape for married Americans in many parts of the country.