The federal “marriage penalty” affects couples whose combined taxable income exceeds $600,000. These couples pay 37% tax on income that exceeds this amount. However, two individuals filing separate returns would not be taxed at 37% until their combined income exceeds $1 million. This phenomenon is called the “marriage penalty.” Under the old law, the penalty applied to couples whose combined taxable income exceeded $156,150.
California does not have a marriage penalty based on tax brackets. But the state’s mental health services tax penalizes couples whose combined taxable income exceeds $1 million. At this level of income, married couples pay more health services taxes compared to individuals because California law does not increase the $1 million amount to $2 million for couples. So the taxable income for two individuals filing separate returns can be $2 million before paying the tax.
In some cases, California Registered Domestic Partners will pay less tax than either married couples or individuals who are not married.
Our firm assists clients with pre-marriage tax planning, and we are experts at tax planning for Registered Domestic Partners. Call us at (323) 285-9880 or send us an email if you have tax planning questions.