Women, Taxes, and Social Security

Chapter 13

Income Taxes Marriage Tax Marriage Subsidy Income Taxes

Marginal Tax Rate Progressive Tax

Tax Schedules Similar to Those That Prevailed from 1948 to 1969

Table 13.1, p. 493

Single Tax Rate Schedule Married Tax Rate Schedule

Income Marginal Tax Rate

Income Marginal Tax Rate

$0-10,000 0% $0-20,000 0%

$10,001-30,000 15% $20,001-60,000 15%

$30,001-60,000 30% $60,001-120,000

30%

$60,001 and up 40% $120,001 and up

40%

TAX REFORM ACT OF 1969 Introduced to correct the disparity

in favor of married individuals At this time, women were not

active participants in labor market New tax introduced to reduce

marriage subsidy but as women entered into the labor market it introduced Marriage penalty

Simplified Version of 2002 Income Tax TableTable 13.2 , p 494

Single Rate Schedule Married Rate Schedule

Taxable Income Marginal Tax Rate

Taxable Income Marginal Tax Rate

Up to $6,000 10% Up to $12,000 10%

$6,001-27,950 15% $12,001-46,700 15%

$27,951-67,700 27% $46,701-112,850 27%

$67,701-141,250 30% $112,851-171,950

30%

$141,251-307,050

35% $171,951-307,050

35%

$307,051 and up 38.6% $307,051 and up 38.6%

Marriage Penalty Household with only husband

working earning $80,000 Tax would be 10% of first 12,000 or

$1,200 plus 15% of 12,001 to 46,700 or

$5,204.85 plus 27% of 46,701 to 80,000 or

$8,990.73 or a total of $15,395.58 or $15,396

Marriage Penalty Household with both spouses working

each earning $40,000 or a combined income of $80,000 Tax would be 10% of first 12,000 or $1,200 plus 15% of 12,001 to 46,700 or $5,204.85 plus 27% of 46,701 to 80,000 or $8,990.73 or a total of $15,395.58 or $15,396 just as in the previous household

Marriage Penalty However, if these individuals were not

married their individual tax liability would be: 10% of first 6,000 or $600 plus 15% of 6,001 to 27,950 or $3,292.35 plus 27% of 27,951 to 40,000 or $3253.23 for a total of $7145.58 or combined of $14,291.16 or $1,104.84 less in taxes

Marriage Penalty Furthermore, if they were to file married

but each income was considered separately their tax liability would be 10% on first 12,000 or $1,200 and 15% on remainder or $4,199.85 for a total each of $5,399.85 or $5,400.00 for a combined tax liability of $10,800 which

is $4,596.00 less than their current tax liability

Marriage Tax Penalty and Marriage Tax Subsidy

Note that AGI is Adjusted Gross Income

Income before itemizing or taking standard deduction

This table is based on 1998 tax liability

Marriage Penalties and Subsidies for Hypothetical Couples, 1998

Table 13.2, p. 495

AGI of One Spouse

AGI of Other Spouse(negative = marriage subsidy; positive = marriage penalty)

  $0

$20,000 $40,000 $60,000 $80,000 $100,000 $150,000 $200,000

$0 0 -833 -1,834 -3,764 -4,113 -4,713 -6,119 -7,197

$20,000   209 -122 -122 -471 -915 -1,800 -1,664

$40,000     1,477 1,477 1,284 1,284 1,477 1,866

$60,000       1,633 1,884 1,884 3,388 3,777

$80,000         2,135 2,712 4,950 5,339

$100,000           3,946 6,261 7,155

$150,000             9,082 10,644

$200,000               12,075

2002 Tax Rates for Married Couple Filing Jointly

Table 13.4, p. 501

Taxable Income Level Tax Rate for Married Couples Filing Jointly

Up to 12,000 10%

$12,001 to 46,700 15%

$46,701 to 112,850 27%

$112,851 to 171,950 30%

$171,951 to 307,050 35%

307,051 or more 38.6%

Marriage and Tax Liability There is debate on the true impact Nevertheless, it is clear that marriage

can impose additional burden An attempt has been done with the

2001 Tax Relief Act which provides two provisions to attempt to reduce the tax penalty between 2005-2009

Marriage and Tax Liability 2001 Tax Relief Act (2005-2009): Standard Deductions for married

couples will increase as compared to single individuals (see next table)

And the 15% Rate for married couples also will increase for those filing jointly (see next table)

Phase-In attempts to eliminate Marriage Tax Penalty from 2001

Tax Act table 13.5, p. 506

Calendar Year Standard Deduction for Joint Returns as Percentage of Standard DeductionFor Single Returns

End Point of 15% Rate Bracket for Married Couple filing Joint Return as Percentage of End Point of 15% Rate Bracket for Unmarried Individuals

2005 174% 180%

2006 184% 187%

2007 187% 193%

2008 190% 200%

2009 and later 200% 200%

Marriage and Tax Liability There is debate on the true impact Nevertheless, it is clear that

marriage can impose additional burden

In particular the Earn Income Tax Credit can in particular instances reduce the incentive to marry

EITC Benefit Schedule, 2002Table 13.6, p. 510

 Subsidy

Rate

Earnings Subsidy

Threshold

Maximum Credit

Phase-Out Rate

Maximum Income for EITC

Eligibility

No Children (recipient must be between the ages of 25 to 64)

7.65% $4,900 $376 7.65%$11,060 (single)

$12,060 (married)

One child34.0% $7,350 $2,506 15.98%

$29,201 (single)$30,201 (married)

Two or more children

40.0% $10,350 $4,140 21.6%$33,178 (single)

$34,178 (married)

Social Security Regressive Tax It currently is set up to benefit

mostly households where the income was obtained primarily from the husband

Average Monthly Benefit by Sex, December 1999

Table 13.8, p. 517

Type of Beneficiary Men Women

Retired worker collecting own earnings record

$951 $729

Spouse $232 $419

Widows/widowers $606 $811

Costs and Benefits of Wife’s Work Under Social Security

Table 13.9, p. 518

Family Earnings Pattern

Increase in Social Security Taxes

Attributed to Wife’s Working

Increase in Social Security Benefits Attributable to Wife’s Working

Husband high/wife average

43.3% 1%

Husband average/wife low

46.6% 1.2%

Husband low/wife low

103.6% 15.2%

Poverty Rates by Age, Race/Ethnicity and Gender

Table 13.10, p. 519

Age All Black Hispanic White

  Women Men Women Men Women Men Women Men

65 and over

12.2% 7.5% 25.8% 17.1% 19.6% 17.6% 10.8% 6.5%

75 and over

14.0% 8.2% 29.1% 22.4% 21.8% 13.1% 12.9% 6.7%