Is the IRS' 'marriage penalty' real?

If your spouse-to-be is considering postponing the wedding because of fears about the so-called "marriage penalty," you two probably have bigger issues than whether you'll have to pay higher taxes as a married couple than when you were single.

Having said that, marriage does indeed have many financial ramifications – both good and bad – and several involve the dilemma over whether to file income taxes together or separately. Let's sort through the noise:

First, a quick primer on how progressive taxation works. As your income increases, the additional income gets taxed at increasingly higher rates. Currently there are six federal tax rates ranging from 10 percent for low-income families and individuals to 35 percent for earnings over $388,350 a year. Most people's income straddles several brackets.

For example, a single person with $50,000 in taxable income would pay 10 percent tax on the first $8,700 earned; plus 15 percent on income between $8,700 and $35,350; plus 25 percent on income between $35,350 and $50,000. Thus, you're not paying 25 percent on the full amount; just on the portion within that range.

The marriage penalty occurs when couples file a joint return and, in some cases, pay higher income tax than if they'd remained single. For example:

• If you have only a single household income (or one spouse earns significantly more) you usually get a "marriage bonus" – that is, your combined income is taxed at a lower rate than if the high earner were paying tax as a single person.
• However, once you enter the higher end of the 25 percent tax bracket, the disparity between filing jointly and as a single person becomes more pronounced as your combined income increases, especially if you earn fairly similar amounts and/or you're both highly paid.
• For example, single people with $75,000 in taxable income fall squarely within the 25 percent bracket; however, if you're married and earn a combined $150,000 income, you would hit the 28 percent bracket.

Some would argue, then, that getting married is a financial disadvantage, but that's not necessarily true. Married couples are eligible for many tax breaks and other benefits that often more than compensate for paying higher income tax. For example:

• If you have medical coverage through your spouse's employer, monthly premiums are not considered taxable income, as they are for unmarried domestic partners.
• Similarly, your spouse can pay for your medical expenses on a pretax basis using his or her flexible spending account.
• You're entitled to 50 percent of your spouse's Social Security benefits while he or she is alive and can collect their benefit amount after death if it exceeds your own. Plus, you're entitled to a $255 spousal death benefit.
• If you die without a will, your spouse automatically inherits your estate, tax-free. Everyone else besides spouses must pay taxes on estates valued over $5.12 million.
• Married people are usually charged less for auto and other insurance than singles.

If you're considering the "married, filing separately" filing option instead of filing jointly, note that you'll forfeit several tax credits and deductions available only to joint filers, including the Earned Income Tax Credit, the tax credit for child and dependent care expenses and deductions for tuition and fees and student loan interest. Plus, the IRS says you must both either claim the standard deduction or itemize deductions.