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Marriage has long been considered a financially savvy move that offers access to health insurance, shared expenses and tax breaks. The IRS may be changing that cultural perception as it chips away at the tax benefits of marriage in a recent policy update that will increase the taxes owed by middle-class married couples.
For Americans who are married with children, the Child Tax Credit and Earned Income Tax Credit, which offer thousands of dollars annually for those with dependents, provide deep discounts. For the increasing numbers of child-less couples, the tax benefits of marriage are not as straightforward.
For taxpayers earning between $75,000 and $150,000, the so-called “marriage penalty” limits some deductions and increases the income tax for a wedded couple filing jointly compared to two single individuals. This results in a higher tax burden for couples who elect to marry and delay having children. A recent legal move by the IRS has added another large deduction to this list, exacerbating the effects.
Cohabiting unmarried tax payers can claim twice as high a deduction for mortgage interest compared to a married couple. This seemingly small decision can add up to tens of thousands of dollars in financial differences, as the deduction is capped at $1.1 million of mortgage debt. The ramifications of this new decision will first be felt in early 2017 as income tax returns are due.