Now that nearly everyone, of every persuasion, seems to want to be married, seniors should advise the newly matrimonial-prone that true love expressed can cost you big bucks, when dealing with Uncle Sam. Here is a mock 1040 for a mythical single filer Herman Schmidlap:
Herman is filing single, and the return would be the same if filed as “married, but filing separately.” His wages were $15,000, plus $10,000 he was required by RMD to take from his IRA or face penalties, plus $25,000 Social Security Benefits. He has a $25,000 basis (=income plus 1/2 Social Security benefits) before taxing additional Social Security benefits.
He has one exemption, $500 into tax withholding, and his taxes due total $2,173.
If girlfriend Sylvia filed a similar return and also claimed she was single, she would owe the same amount. Together their tax bill would be $4,346.
But if they were married, they would have to admit it on their tax return. Otherwise, they are guilty of tax avoidance. The most advantageous way for a married couple to file is jointly. This is what their joint return would look like:
Herman and Sylvia had the same combined wages, RMD, withholding and Social Security benefits. However, the bottom line on the 1040 is not the same as the combination of two separate returns.
The married couple owes $7,064, simply because they were married. (The IRS even stipulates that if you were married for even one day the prior year, you cannot file as divorced or single.)
Comparing the two return methods shows the married couple pays 62% more than if they were single, filing separately.
The major reason for this unfair outcome? Single filers get a $25,000 credit towards earnings before additional Social Security is taxed, and married joint filers get only $32,000 combined.
By the way, this number has not changed since Greenspan and company’s commission initiated cuts in the Social Security program in 1983. At that time $32,000 was a lot of money, but it was never increased the past 32 years, despite inflation, and the disparity between the $25,000 single and $32,000 married was never addressed by a Congress not too concerned with seniors, unless that includes “talking” concern during election campaigns.
A note to your Congressperson or Senator might help start the ball rolling in a fair direction for how we tax the retired.