United States General Accounting Office

GAO Report to the Honorable

Orrin G. Hatch, U.S. Senate

September 1996 TAX

ADMINISTRATION

Income Tax Treatment

of Married and Single

Individuals

G O A

years

1921 - 1996

GAO/GGD-96-175

GAO United States

General Accounting Office

Washington, D.C. 20548

General Government Division

B-272101 

September 3, 1996

The Honorable Orrin G. Hatch

United States Senate

Dear Senator Hatch:

This report responds to your request for information on income tax

provisions in the Internal Revenue Code (IRC) that potentially create

“marriage penalties” or “marriage bonuses” with respect to the tax liability

of married couples. As defined herein, a marriage penalty results when

two married individuals have a greater tax liability than two similarly

situated single individuals, i.e., individuals with the same total income.

Conversely, a marriage bonus results when a married couple owes less

taxes than two similarly situated single individuals. This report

(1) summarizes the current income tax provisions in the IRC whose

applicability depends upon whether a taxpayer is married or single,

(2) identifies those provisions likely to result in marriage penalties or

marriage bonuses or both, and (3) discusses the feasibility of quantifying

the numbers of taxpayers affected by the marriage penalties and bonuses.

Background Current federal income tax law divides individual taxpayers into two

major groups—those who are married and those who are single. Married

people can file jointly with their spouse or can elect to file separately

(“married filing separately”). Single people file either as an unmarried

taxpayer or as an unmarried taxpayer maintaining a household with

dependents (“head of household”). A married person may file as a single

person only under limited circumstances.1

 For the most part, married

taxpayers file jointly with their spouse.2

Traditionally, the tax treatment of married and single taxpayers has

involved trade-offs among three basic principles: (1) there should be

progressive tax rates, with successively higher income brackets taxed at

increasingly higher rates; (2) families with equal income should have equal

tax burdens, notwithstanding how the income is divided between spouses;

1

A married taxpayer can file as a single taxpayer or as a head of household if he or she is legally

separated under a decree of divorce or separate maintenance, or if he or she qualifies as an

“abandoned spouse” under IRC section 7703(b). To be considered an abandoned spouse, the taxpayer

must have maintained a household for a dependent child, provided over 50 percent of the household

expenses for the tax year, and lived apart from his or her spouse for the last 6 months of the tax year.

2

In 1992, about 95 percent of all married taxpayers filed jointly. At present, the income tax rates are

structured to discourage married taxpayers from electing to file separate returns. Under current law,

such an election would lead to higher taxes in most cases.

Page 1 GAO/GGD-96-175 Tax Treatment of Married Individuals
B-272101 

and (3) individual tax liability should not change when people marry (the

tax system should be “marriage neutral”). The trade-offs among these

principles exist because, as public finance experts have long recognized, a

tax system cannot satisfy all three principles simultaneously.

An example of the trade-offs is our current tax system, which has

progressive tax rates and taxes married couples with the same income

equally. However, this can result in the income of some married couples

falling into different tax brackets than would be the case if they were to

file as single individuals. Therefore, the present tax system is not

“marriage neutral” and two married people may not have the same tax

liability as two similarly situated single people. Generally, large income

differences between spouses can lead to marriage bonuses while roughly

equal incomes can lead to marriage penalties.

The equity of the comparative treatment of married and single people

under the income tax laws has been the subject of debate for nearly the

past 50 years. In 1948, Congress permitted married couples to split their

income between spouses if they reported the income on a joint return. For

most married couples at the time, this change led to lower tax liability.3

Since that time, most married people have elected to file jointly, while

most unmarried people file as single individuals.

In general, the debate over the most equitable way to deal with married

and single taxpayers has focused on the tax rate structure. Beginning in

1948, the rate schedules were structured so that the tax liability for

married taxpayers was never more than—and could be up to 42 percent

less than—that of similarly situated single people. To correct the apparent

inequity in the tax rate for single people, Congress enacted a separate rate

schedule for single taxpayers in 1969, providing that the tax liability for a

middle-income single person could be no more than 20 percent greater

than that for a married couple with the same total income. This rate

change, however, created a new “marriage penalty” for certain married

couples if both spouses earned approximately the same income.4

3

The change came about after inequities arose between married taxpayers in “community property”

states and those in “common law” states. Because community property states required spouses to split

income between one another, typically the tax liability for taxpayers in these states was less than that

of taxpayers in common law states. By allowing all married couples to split their income when

reporting jointly, the differences in federal tax liability were effectively eliminated.

4

With the new rate schedule, married taxpayers were not allowed to file as single individuals. If,

therefore, two married people with roughly equivalent incomes were bumped up into a higher tax

bracket than either would be in had each filed individually, the new law provided no relief.

Page 2 GAO/GGD-96-175 Tax Treatment of Married Individuals
B-272101 

Notwithstanding the focus on the rate structure, many other provisions of

the income tax code take into account the fact that one large group of

people reports jointly as a household, while the other large group reports

as single earners.5

 This adds complexity to the income tax code, and the

continuing possibility of tax breaks for some, under certain circumstances,

and tax penalties for others, under different circumstances. Over the

years, various proposals have been made for dealing with these inequities.

We summarize the major proposals in appendix VI of this report.

Results in Brief We identified 59 provisions in the income tax code where tax liability

depends, at least in part, on whether a taxpayer is married or single. These

provisions include three IRC sections most commonly discussed in

connection with marriage penalties and bonuses: the sections on the tax

rate, the standard deduction, and the earned income credit. The remaining

56 provisions are less frequently discussed and include many different

types of tax law provisions, such as those dealing with taxation of social

security benefits, limitations on capital losses, and the home mortgage

interest deduction.

When enacting these varied provisions, Congress has dealt with the

equities between income reported jointly by most married couples and the

single income reported by most single people in different ways, which we

categorize into four groups. One of these groups encompasses nine

provisions, such as those on the tax rate and social security taxation, for

which Congress has created different sets of requirements for married and

single people, making some adjustment for the differences between joint

and single income. For a second group encompassing 15 other provisions,

such as those limiting capital losses and the home mortgage interest

deduction, the laws include only 1 limit for both married and single

taxpayers. For a third group of nine provisions, like that allowing a

personal exemption, Congress has treated married couples as if they were

single individuals, or provided them with twice the benefit allowed a single

person. A fourth group consists of 26 provisions under which married

people are considered a unique unit for the purpose of the tax code

section.

The different ways that married and single people are treated under the

income tax code could lead to situations where the tax liability of married

taxpayers is not the same as that of two similarly situated single taxpayers.

5

In 1992, 42 percent of taxpayers filed jointly with their spouse, while 43 percent of taxpayers filed as

single individuals.

Page 3 GAO/GGD-96-175 Tax Treatment of Married Individuals
B-272101 

As defined in this report, these situations may result in either a marriage

penalty (married couple owes more tax) or a marriage bonus (married

couple owes less tax).6

 All but 3 of the 59 income tax provisions we

identified could result in a marriage penalty or a marriage bonus,

depending on the individual circumstances of the taxpayer.

The marriage penalties and bonuses associated with the various provisions

discussed in this report follow several patterns, but all hinge upon the

individual circumstances of the married couple. The single most important

factor in these situations is how income is divided between spouses.

Generally, disparate income between spouses could lead to marriage

bonuses, while equivalent income could result in marriage penalties. Thus,

where one spouse has a high income and the other spouse has little or no

income, tax rates for the married couple filing jointly would be lower than

had each spouse filed individually—a marriage bonus. If, though, both

spouses earn roughly the same income, their combined income may

increase their tax rate beyond what either would have had as a single

filer—a marriage penalty.

Marriage penalties and bonuses related to many provisions, though, are

tied to other individual factors, such as which spouse owns property and

which spouse is qualified for tax deductions and credits, in addition to the

split of income between husband and wife. For example, current law limits

deduction of capital losses from ordinary income to $3,000 for either a

married couple or a single taxpayer. If husband and wife have capital

losses of $3,000 each, the law leads to a marriage penalty—the couple

would be able to deduct $6,000 as single taxpayers instead of $3,000 filing

jointly. On the other hand, if one spouse has $8,000 in capital losses and

the other has $8,000 in capital gains, the capital loss completely offsets the

capital gain, leading to a marriage bonus.

The impact on taxpayers of marriage penalties and bonuses is widely

varied, both in terms of the numbers of taxpayers potentially affected by

the provisions and in terms of the dollar amounts involved in the tax

liability. To assess the comparative importance of these many different

provisions, we attempted to quantify the number of taxpayers potentially

subject to the specific marriage penalties and bonuses. However, when we

6

Public finance experts have long recognized alternative views in determining when tax schedules are

“neutral” with respect to marriage. As one example, if two can live together cheaper than two people

alone, then a couple living together may be viewed as having a greater ability to pay taxes than two

people living alone with the same combined income. According to this view, therefore, imposing the

same tax burden on a married couple as on two single individuals living apart results in a marriage

subsidy or bonus.

Page 4 GAO/GGD-96-175 Tax Treatment of Married Individuals
B-272101 

examined the information available, we determined the current data

insufficient to make such an assessment.

Analysis of the

Income Tax

Treatment of Married

and Single Taxpayers

In the first 4 appendixes to this report, we discuss the 59 income tax

provisions we have identified. The four appendixes group the provisions

according to the general tax treatment of married and single taxpayers,

and each appendix lists various provisions, describing how each provision

operates, how it affects married taxpayers, and what potential marriage

penalties and bonuses may arise through the operation of the provision.

Appendix I describes nine income tax provisions, including two—on the

tax rates and the standard deduction—which potentially affect most

taxpayers. These nine provisions adjust the income levels and deduction

amounts to account for joint and single income. However, the adjustments

for married couples filing jointly are less than twice those allowed to a

single person. Thus, the tax rate for single people in tax year 1995 was

28 percent for taxable income over $23,350, while married people are

taxed at a rate of 28 percent when taxable income exceeds $39,000—less

than twice the income level of the single taxpayer.

Generally, all these provisions potentially could lead to either a marriage

penalty or a marriage bonus, depending on the relative income of the two

spouses. With the tax rates, for example, there would be a marriage

penalty if each spouse earns $21,000—their joint taxable income of $42,000

would be taxed at a marginal rate of 28 percent, even though if each filed

as single individuals their highest tax rate would be 15 percent. On the

other hand, there would be a marriage bonus if one spouse earns $34,000

and the other spouse earns $2,000—the married couple would be taxed at

a rate of 15 percent although the spouse with $34,000 in taxable income

would have a marginal tax rate of 28 percent filing as an individual.

Appendix II shows 15 income tax provisions that provide the same income

or deduction level, whether the taxpayer is filing jointly as a married

couple or as a single individual. For instance, the home mortgage interest

deduction is limited to the interest on a mortgage balance not exceeding

$1 million; this limit is the same for a married couple as for a single

person.

Overall, the tax treatment of married and single people in these provisions

leads to a mixed impact on married taxpayers. These provisions produce

both penalties and bonuses, depending on the individual circumstances.

Page 5 GAO/GGD-96-175 Tax Treatment of Married Individuals
B-272101 

With the home mortgage interest deduction, for example, two married

taxpayers may both own houses with mortgages of $600,000 each, for a

combined mortgage of $1.2 million—over the $1 million limit. As a married

couple, the taxpayers would not be able to deduct interest attributable to

the mortgage amount over $1 million. As single taxpayers, though, each

could deduct the interest on the two individual mortgages. However,

suppose that one of the married taxpayers owns a home with a mortgage

balance but has little or no income; in this case, the mortgage interest

could be used to offset the other spouse’s income, a tax advantage

unavailable to two unmarried taxpayers.

Appendix III examines nine provisions that provide full adjustment for

joint and single income, either by treating married taxpayers as single

taxpayers or allowing them twice the tax benefit allowed a single person.

Thus, married taxpayers are each allowed to deduct the same personal

exemption as a single person—$2,500 per spouse. For the most part, these

provisions could only result in a tax bonus to the married couple. For

example, even though one spouse has little or no income, a married couple

would be eligible for two personal exemptions of $2,500, and both

exemptions could be used to offset the income of the other spouse.

Appendix IV describes 26 income tax provisions that treat married couples

as a unique unit in the case of certain special situations between husband

and wife. In one such provision, the law provides that a husband (or wife)

cannot deduct losses on a sale of property to a spouse because they are

considered “related parties.” Technically, many of these provisions could

create tax penalties for married couples. For instance, where the loss on

the sale of property between two spouses is nondeductible, such a loss

would be deductible in a sale involving an unmarried couple. On the other

hand, some provisions, such as IRC section 7872 on below-market loans,

free married people of the tax consequences of financial dealings between

spouses.

Page 6 GAO/GGD-96-175 Tax Treatment of Married Individuals
B-272101 

Insufficient Data

Available to Measure

the Comparative

Significance of the

Different Tax

Penalties and Bonuses

Cited in This Report

We found that tax data, as currently reported by taxpayers and compiled

by the Internal Revenue Service (IRS), did not contain data elements that

would permit the identification of the numbers of people potentially

affected by all the marriage penalties and bonuses described in this report.

Such data would be necessary, for example, to rank the comparative

significance of the individual provisions. Assessment of the numbers of

taxpayers potentially affected by these penalties and bonuses would

require identification of the married taxpayers whose individual tax

situations include a marriage penalty or bonus. Information on numerous

individual factors, the most important of which is division of income

between spouses, would be critical to attribution of a specific penalty or

bonus to a married couple.

Current IRS tax data do not contain information on how income is split

between spouses.7

 Even with information on how income is split between

spouses, though, much other necessary information—for example, the

amount of a couple’s home mortgage balance or which spouse owns assets

resulting in capital gains or losses8

—is not available. Although some

studies9

 have been done making assumptions as to how to allocate certain

common tax items, such as itemized deductions, other types of tax items,

such as those identified above, would be difficult, at best, to estimate and

allocate without further information.

To add some perspective to the many different provisions we describe in

this report, appendix V includes a list showing the numbers of married and

single taxpayers filing under some of the provisions discussed herein;

specifically, those provisions for which we could quantify the number of

taxpayers filing using IRS’ public tax files. However, these numbers do not

in any way indicate the number of taxpayers actually affected by the

marriage penalty or marriage bonus possible in application of the

7

At the current time, taxpayers do not generally report information on how income is split between

spouses. The last time taxpayers reported such information was in tax year 1986 on Schedule W,

Deduction for a Married Couple When Both Work. IRS is adding information on earned income and

other types of income to its compilation of Statistics of Income tax data for tax year 1993; however,

this information will not be available until, at the earliest, the beginning of next year.

8

A married couple may be penalized because the amount of mortgage interest deductible on a joint

return is limited to that attributable to a mortgage balance of less than $1 million; although the tax

return reports the total amount of interest deducted by the couple, it provides no information on the

total amount of the mortgage held by the couple. Similarly, with capital gains and losses, the tax return

does not provide information on which spouse owned the property sold for a capital gain or loss.

9

See, for example, Daniel R. Feenberg and Harvey S. Rosen, “Recent Developments in the Marriage

Tax,” National Tax Journal 48 No. 1 (March 1995): 91-101. In this article, the authors look at the

marriage tax for three IRC sections—on the tax rates, the standard deduction, and the earned income

credit. To calculate the marriage tax, they assumed that itemized deductions would be reported by the

spouse with the higher income.

Page 7 GAO/GGD-96-175 Tax Treatment of Married Individuals
B-272101 

provision; as we have indicated above, other factors must be considered

before it can be determined that an individual married couple is subject to

a marriage penalty or bonus.

Objectives, Scope,

and Methodology

Our objectives were to (1) identify provisions in the income tax code that

treat married and single taxpayers disparately, determining how each

section operates, and how its treatment of taxpayers varies depending on

marital status; (2) analyze each provision to determine whether the

provision can create a marriage penalty or marriage bonus, or both; and

(3) quantify, to the extent possible, the number of taxpayers potentially

affected by marriage penalties or marriage bonuses.

To identify the income tax code provisions, we conducted a computer

search of the IRC using certain key words such as “joint,” “married,” and

“spouse,” and we examined the available literature on the subject.

Through this research we also determined how each section operated, and

how it dealt with married and single taxpayers. From this analysis, we

identified whether the specific treatment of married and single taxpayers

could lead to marriage penalties or bonuses.

To determine the extent to which we could quantify the number of

taxpayers potentially affected by marriage penalties and bonuses, we

reviewed data available in IRS’ public file on Statistics of Income, a

compilation of tax data from a sample of individual tax returns. We also

interviewed IRS staff responsible for research on individual returns. In

addition, we researched the relevant literature to determine whether other

theoretical models could provide sufficient information to estimate the

numbers of taxpayers affected by IRC sections described in this report.

We did our work in Washington, D.C. between March 1996 and July 1996 in

accordance with generally accepted government auditing standards.

Agency Comments We requested comments on a draft of this report from the Commissioner

of Internal Revenue or her designated representative. At a meeting held

August 2, 1996, representatives of the IRS Office of Chief Counsel

suggested technical revisions to this report. We revised the report as

suggested.

Page 8 GAO/GGD-96-175 Tax Treatment of Married Individuals
B-272101 

We are sending copies of this report to the Chairmen and the Ranking

Minority Members of the House Committee on Ways and Means, the

Senate Committee on Finance, and various other congressional

committees; the Secretary of the Treasury; the Commissioner of Internal

Revenue; and other interested parties. Copies will be made available to

others upon request.

The major contributors to this report are listed in appendix VII. If you have

any questions, please contact me on (202) 512-9044.

Sincerely yours,

Natwar M. Gandhi

Associate Director, Tax Policy

 and Administration Issues

Page 9 GAO/GGD-96-175 Tax Treatment of Married Individuals
Contents

Letter 1

Appendix I 

Marriage Penalties

and Bonuses

Associated With

Income Tax

Provisions Allowing

Some Adjustment for

Joint and Single

Income

14

Appendix II 

Marriage Penalties

and Bonuses

Associated With

Income Tax

Provisions That Make

No Adjustment for

Joint and Single

Income

19

Appendix III 

Marriage Penalties

and Bonuses

Associated With

Income Tax

Provisions That Fully

Adjust for Joint and

Single Income

25

Page 10 GAO/GGD-96-175 Tax Treatment of Married Individuals
Contents

Appendix IV 

Marriage Penalties

and Bonuses

Associated With

Income Tax

Provisions That Treat

Married Taxpayers as

Special Unit

29

Appendix V 

Number of Taxpayers

Filing Under Certain

Provisions Cited in

This Report

34

Appendix VI 

Summary of Major

Proposals to Change

Current Treatment of

Married and Single

Taxpayers

36

Appendix VII 

Major Contributors to

This Report

38

Tables Table I.1: Comparison of How the 1995 Tax Rate Schedule Affects

Two Married Couples Filing Jointly and as Singles

14

Table I.2: 1995 Income Tax Provisions With Some Adjustment for

Joint and Single Income

15

Table II.1: Comparison of 1995 Tax Liability Involving Capital

Losses and Gains of Two Married Couples Filing Jointly and as

Singles

20

Page 11 GAO/GGD-96-175 Tax Treatment of Married Individuals
Contents

Table II.2: 1995 Income Tax Provisions With No Adjustment for

Joint and Single Income

21

Table III.1: Comparison of How Section 1244 Loss Deductions

Affect Two Married Couples Filing Jointly and as Singles in 1995

26

Table III.2: 1995 Income Tax Provisions With Full Adjustment for

Joint and Single Income

27

Table IV.1: 1995 Income Tax Provisions Treating Married

Taxpayers as Special Unit

29

Table V.1: Numbers of Taxpayers Filing in 1992 Under Specific

Provisions Cited in This Report

34

Abbreviations

AGI adjusted gross income

IRA individual retirement account

IRC Internal Revenue Code

IRS Internal Revenue Service

Page 12 GAO/GGD-96-175 Tax Treatment of Married Individuals
Page 13 GAO/GGD-96-175 Tax Treatment of Married Individuals
Appendix I 

Marriage Penalties and Bonuses Associated

With Income Tax Provisions Allowing Some

Adjustment for Joint and Single Income

In this appendix, we describe nine income tax provisions that have some

type of tax adjustment (generally, a higher income limit) for the combined

income of married taxpayers filing jointly relative to single taxpayers. The

adjustments in this category, though, are always less than twice the limit

allowed to single taxpayers. These sections include provisions that affect

large numbers of taxpayers. For example, section 1 sets the rate schedules

for all taxpayers, section 63 determines the standard deduction, and

section 86 defines when social security benefits are taxable.

Generally, all these sections have one pattern for a penalty and one for a

bonus—both of which are derived from the relative incomes of the two

spouses. A married couple may have a tax penalty if both spouses have

relatively equal income—in that case, their combined income may put

them into a higher rate bracket or give them a lower deduction, even

though individually each taxpayer would have been eligible for a lower tax

bracket or a larger deduction. However, where the husband and wife have

larger disparities in individual income, the couple may get a marriage

bonus—in this case, the spouse with the higher income may owe less in a

joint return than if he or she were to file as a single taxpayer.

To illustrate these tax penalties and bonuses, table I.1 shows how the tax

rate under IRC section 1 affects the tax liabilities of two hypothetical

married couples with the same household taxable income. For couple A,

the husband and wife have the same taxable income while for couple B,

the wife earns all the household income. To indicate a tax penalty or

bonus, we compare the tax liability of these couples as joint filers with

that of unmarried individuals.

Table I.1: Comparison of How the 1995

Tax Rate Schedule Affects Two

Married Couples Filing Jointly and as

Singles

Couple A Couple B

Husband Wife Husband Wife

Income $30,000 $30,000 0 $60,000

Combined income $60,000 $60,000

Tax if filed jointly $8,503 $8,503

Tax if filed as single $3,580 $3,580 0 $11,980

Combined tax as singles $7,160 $11,980

Amount joint tax differs from

tax as singles

$1,343 –$3,477

Marriage penalty or bonus Penalty Bonus

Source: GAO analysis of IRC section 1, assuming use of the standard deduction.

Page 14 GAO/GGD-96-175 Tax Treatment of Married Individuals
Appendix I 

Marriage Penalties and Bonuses Associated

With Income Tax Provisions Allowing Some

Adjustment for Joint and Single Income

As shown in table I.1, couple A are penalized $1,343 by filing a joint return

because their combined income puts them in a higher tax bracket than if

they were each taxed as single individuals. On the other hand, couple B

receive a $3,477 tax bonus by being able to file a joint return because the

wife’s $60,000 income is taxed at a lower rate filing jointly than it would

have been had she been allowed to file as a single individual.

Table I.2 describes nine income tax provisions that have some type of tax

adjustment.

Table I.2: 1995 Income Tax Provisions With Some Adjustment for Joint and Single Income

Code section Description

Treatment of married

taxpayers Basis for penalty Basis for bonus

1. Section 1: Tax Imposed

on Individuals (tax rates)

Tax rates are set

according to personal

status: married or single.

Income tax rates are

progressively increased

at various income levels,

depending on personal

status. The tax rates

range from 15 percent at

the lowest income levels

to 39.6 percent at the

highest income levels.

Except for the highest tax

rate, the income level at

which tax rates are

increased is higher for

married couples than

single people. However,

it is not twice the level of

the single income level.

Thus, the tax rate for

married couples is

increased from 15 to 28

percent when joint

taxable income is over

$39,000, while a single

person pays 28 percent

if taxable income is over

$23,350. Married filing

separately is taxed at 28

percent when taxable

income is $19,500. At the

highest income rate (39.6

percent), the income

level of $256,500 is the

same for both married

couples filing jointly and

single people.

Relatively equal income

between two

spouses—tax rate would

be less if each filed as

single than if filed jointly.

Relatively unequal

income between two

spouses—tax rate would

be greater if filed as

single than if filed jointly.

(continued)

Page 15 GAO/GGD-96-175 Tax Treatment of Married Individuals
Appendix I 

Marriage Penalties and Bonuses Associated

With Income Tax Provisions Allowing Some

Adjustment for Joint and Single Income

Code section Description

Treatment of married

taxpayers Basis for penalty Basis for bonus

2. Section 22: Credit for

the Elderly and the

Permanently and Totally

Disabled (elderly credit)

If over 65 or disabled,

taxpayer is eligible for

credit of up to $1,125 for

married couples and

$750 for singles.

However, the amount of

the credit is reduced

(and potentially

eliminated) by amounts

one-half of tax-free social

security and pensions

received by the taxpayer,

and by amounts the

taxpayer’s adjusted

gross income (AGI)

exceeds certain limits.

The income levels at

which the credit is

reduced or eliminated

are higher for married

couples than single

people, but not double.

The credit for married

couples with both

spouses eligible is

eliminated when either

tax-free social security or

other nontaxable income

is $7,500 or more or AGI

is $25,000 or more; for

single people, the figures

are $5,000 and $17,500,

respectively. A married

couple must file jointly to

get credit unless couple

is legally separated or

taxpayer qualifies as an

“abandoned spouse.”a

Relatively equal income

between two

spouses—credit would

be greater if each filed

as single than if filed

jointly.

Relatively unequal

income between two

spouses—credit would

be less if each filed as

single than if filed jointly.

3. Section 38: General

Business Credit

Total amount of tax

credits from 11 various

business credits cannot

exceed either the

tentative alternative

minimum tax or 25

percent of regular tax

liability over $25,000,

whichever is greater.

The operation of this

provision is dependent

on two other provisions,

section 55 on the

alternative minimum tax

and section 1 on tax

rates. For both these

latter provisions, the

income levels for the tax

rates are higher for

married couples than

single people, but not

double. If married filing

separately, level is

one-half of married filing

jointly unless one spouse

has no credit or

carryover or carryback of

the credit.

Relatively equal income

between two

spouses—credit would

be greater if each filed

as single than if filed

jointly.

Relatively unequal

income between two

spouses—credit would

be less if each filed as

single than if filed jointly.

(continued)

Page 16 GAO/GGD-96-175 Tax Treatment of Married Individuals
Appendix I 

Marriage Penalties and Bonuses Associated

With Income Tax Provisions Allowing Some

Adjustment for Joint and Single Income

Code section Description

Treatment of married

taxpayers Basis for penalty Basis for bonus

4. Section 55: Alternative

Minimum Tax Imposed

(alternative minimum tax)

Taxpayer who gets

certain special

deductions and credits

may be subject to an

“alternative minimum tax”

if income exceeds

certain levels.

The income levels for the

minimum tax are higher

for a married couple than

a single person, but not

double: married people

are taxed if income is

over $45,000, while

single people are taxed if

income is over $33,750.

If married filing

separately, level is

$22,500.

Relatively equal income

between two

spouses—tax rate would

be less if each filed as

single than if filed jointly.

Relatively unequal

income between two

spouses—tax rate would

be greater if each filed

as single than if filed

jointly.

5. Section 63: Taxable

Income Defined (standard

deduction)

Rather than itemize

individual deductions,

taxpayer can take

“standard deduction.”

The amount of the

deduction depends on

personal status.

The amount of the

deduction for a married

couple is higher than for

a single person, but not

twice as much: married,

$6,550; single, $3,900. If

married filing separately,

deduction is $3,275 and

the other spouse may not

itemize.

Both spouses have

income over $6,400 and

would elect to file

individually with the

standard deduction.

One spouse’s income is

less than $6,400 and the

spouse would not file

individually.

6. Section 86: Social

Security and Tier I Railroad

Retirement Benefits (social

security benefits)

Social security income

may be taxed if taxpayer

has other types of

income. To be taxed, the

sum of the other income

plus one-half of social

security benefits must

exceed certain limits.

Threshold limits at which

social security is taxed

are higher for a married

couple than a single

person, but not double: if

married, up to 50 percent

of benefits will be taxed if

threshold exceeds

$32,000, while if single,

$25,000. If married filing

separately, any other

income will result in

taxable social security,

unless legally separated,

or an abandoned

spouse, or live apart from

spouse the entire year.

One spouse’s taxable

income may require

other spouse’s social

security benefits to be

taxed.

Relatively unequal

income between two

spouses—tax on

individual benefits would

be more than tax on

combined income.

(continued)

Page 17 GAO/GGD-96-175 Tax Treatment of Married Individuals
Appendix I 

Marriage Penalties and Bonuses Associated

With Income Tax Provisions Allowing Some

Adjustment for Joint and Single Income

Code section Description

Treatment of married

taxpayers Basis for penalty Basis for bonus

7. Section 135: Income

from U.S. Savings Bonds

Used to Pay Higher

Education Tuition and Fees

(savings bonds for

education)

Taxpayer who redeems

U.S. savings bonds to

pay college expenses

can exclude from income

the amount of interest

earned on the bonds.

The exclusion is phased

out when the taxpayer’s

modified AGI exceeds

certain limits.

The limits at which the

exclusion is phased out

are higher for a married

couple than a single

person, but not double:

for married couple,

phased out if modified

AGI is $63,450 and

eliminated at $93,450; for

single, the figures are

$42,300 and $57,300,

respectively. Married

person (unless

“abandoned spouse”)

cannot qualify unless

files jointly or is legally

separated.

Relatively equal income

between

spouses—exclusion

would be greater if filed

individually than if filed

jointly.

Relatively unequal

income between

spouses—exclusion

would be less if filed

individually than if filed

jointly.

8. Section 151(d)(3):

Phaseout of Allowance of

Deductions for Personal

Exemptions (personal

exemption phaseout)

Taxpayer can deduct

$2,500 for each personal

exemption—for taxpayer,

spouse, dependents.

The deduction is phased

out if AGI is above

certain limits.

The deduction begins to

be phased out at higher

AGI for married couple

than single person, but

not double: if married,

over $172,050; if single,

over $114,700. If married

filing separately,

deductions phased out

over $86,025.

Relatively equal income

between

spouses—exemptions

would not be phased out

if each filed individually.

Relatively unequal

income between

spouses—exemption for

higher-income spouse

would be phased out if

each filed as single

rather than as married.

9. Section 219(g):

Retirement Savings

(individual retirement

account with employer

plan)

Taxpayer can deduct up

to $2,000 per year in

tax-free individual

retirement account (IRA).

However, if also in

employer pension plan,

deduction is reduced

over certain modified

AGI levels.

The deduction begins to

be phased out at higher

AGI if filing joint return

than filing as single

person, but not double

the amount of the single

taxpayer: if married,

phased out beginning at

modified AGI over

$40,000; if single,

beginning at modified

AGI over $25,000. If

married filing separately,

will be phased out when

AGI exceeds zero,

unless the married

couple lives apart for

whole year.

Relatively equal income

between

spouses—deduction

would not be phased out

if each filed individually.

Relatively unequal

income between

spouses—deduction

would be phased out if

each filed as single

rather than as married.

aSee footnote 1 on page 1. A taxpayer who qualifies as an “abandoned spouse” is not considered

married for the purposes of the IRC. Such a taxpayer may file as a single person or as a head of

household. This option is applicable for all code sections discussed in this report.

Source: GAO’s analysis of IRC provisions.

Page 18 GAO/GGD-96-175 Tax Treatment of Married Individuals
Appendix II 

Marriage Penalties and Bonuses Associated

With Income Tax Provisions That Make No

Adjustment for Joint and Single Income

In this appendix, we describe 15 income tax provisions that each allow

some type of tax benefit—a credit, a deduction or an exclusion—which is

limited either in the amount of the benefit or by the amount of total

taxpayer income. For all these provisions, the benefit and income limits

are the same whether for two married taxpayers or for one single

taxpayer.

Each of these provisions offers the possibility of tax penalties to married

couples and, generally, there are two patterns of potential marriage

penalties. First, there would be a penalty when the joint income exceeds

the limit for the tax benefit, even though individually one or both of the

spouses could qualify for the benefit. As an example, consider a husband

and wife who each earn $14,000, for a combined adjusted gross income

(AGI) of $28,000. Because IRC section 32 on the earned income credit limits

the earned income credit for 1995 to those taxpayers—married or

single—with an AGI less than $26,673, the couple would be ineligible for

the credit. However, if each had filed as a single taxpayer, both may have

qualified for the credit.

Another type of penalty is possible where the tax benefit is limited to one

amount—for either a married or single taxpayer—and the married couple

would have reported more than that amount if they had each filed as single

taxpayers. For instance, if two taxpayers each have $3,000 in capital

losses, for a total of $6,000 in losses, the deduction limit of $3,000 in IRC

section 1211 imposes a tax penalty on a married couple.

However, nine of these provisions, including IRC section 1211 on capital

losses, offer possible tax advantages to a married couple that are

unavailable to two similarly situated single people. With joint returns,

taxpayers could pool their income and deductions, using any available

deductions to offset their combined income. Thus, where one spouse has a

deduction (or a loss), that amount could be applied to reduce the income

(or gains) of the other spouse.

Table II.1 shows the tax consequences of the marriage penalties and

bonuses related to section 1211 on capital losses. Couple A is a

hypothetical married couple where each spouse has sold property, each

losing $8,000 in long-term capital losses. With couple B, though, the wife

has incurred a long-term capital loss of $8,000 but the husband has sold

property for a long-term capital gain of $8,000.

Page 19 GAO/GGD-96-175 Tax Treatment of Married Individuals
Appendix II 

Marriage Penalties and Bonuses Associated

With Income Tax Provisions That Make No

Adjustment for Joint and Single Income

Table II.1: Comparison of 1995 Tax

Liability Involving Capital Losses and

Gains of Two Married Couples Filing

Jointly and as Singles

Couple A Couple B

Husband Wife Husband Wife

Taxable income (before

capital gains or losses)

$30,000 $30,000 $30,000 $30,000

Capital gains (or losses) ($8,000) ($8,000) $8,000 ($8,000)

Capital loss deduction if filed

jointly ($3,000 maximum)

($3,000) 0

Tax if filed jointly $10,897 $11,737

Capital gains (or losses) if file

as singles ($3,000 maximum

loss deduction)

($3,000) ($3,000) $8,000 ($3,000)

Tax if filed as single $4,532 $4,532 $7,612 $4,532

Combined tax as singles $9,064 $12,144

Amount joint tax differs from

tax as singles

$1,833 –$407

Marriage penalty or bonus Penalty Bonus

Source: GAO analysis of IRC section 1211.

As can be seen in table II.1, couple A’s tax liability as a married couple is

$1,833 greater than their liability had they filed as singles. As single

taxpayers, they could deduct $6,000 in capital losses, while they could

deduct only $3,000 as a married couple. Couple B, though, received a tax

bonus when they filed jointly. As married taxpayers filing jointly, they

could use the wife’s capital loss to offset the husband’s gain. As single

taxpayers, however, the husband would have had to report the full $8,000

as capital gain, and the wife could have deducted only $3,000 of her capital

losses from ordinary income.

Table II.2 describes 15 income tax provisions that allow some type of tax

benefit.

Page 20 GAO/GGD-96-175 Tax Treatment of Married Individuals
Appendix II 

Marriage Penalties and Bonuses Associated

With Income Tax Provisions That Make No

Adjustment for Joint and Single Income

Table II.2: 1995 Income Tax Provisions With No Adjustment for Joint and Single Income

Code section Description

Treatment of married

taxpayers Basis for penalty Basis for bonus

1. Section 21: Expenses

for Household and

Dependent Care Services

Necessary for Gainful

Employment (child-care

credit)

Taxpayer who maintains

more than 50 percent of

household expenses is

allowed a credit for

child-care expenses of

up to $720 for one child,

$1,440 for two or more.

Credit is for 20-30

percent of expenses,

depending on AGI, but

cannot exceed

taxpayer’s earned

income. The reduction of

the percentage begins at

AGI in excess of $10,000

and ends at AGI over

$28,000.

Income limits are the

same for a married

couple as for a single

person. A married couple

must file jointly to get

credit, unless taxpayer is

legally separated or

qualifies as an

abandoned spouse.

Unless one spouse is a

full-time student, both

spouses must work, and

credit cannot exceed

either spouse’s earned

income. If spouse is a

full-time student, the

spouse is considered to

earn $200 per month.

The combined income of

both spouses may

reduce credit, even

though individually one

or both spouses may be

eligible for larger credit.

Full-time student without

earned income but

otherwise eligible for the

credit, will be able to

take credit if married.

2. Section 32:

Earned Income Credit

Low-income taxpayer

with earned income

allowed credit. With two

children, credit up to

$3,110, but eliminated if

AGI greater than

$26,673. With no

children, allowed up to

$314, but eliminated at

AGI of $9,230.

Income limits are the

same for a married

couple as for a single

person. A married couple

generally must file jointly

to get credit, unless

taxpayer qualifies as an

abandoned spouse.

The combined income of

both spouses may

reduce or eliminate

credit, even though

individually one or both

spouses may be eligible

for larger credit.

Person with no children

but with income less than

limit marries person with

children and little or no

earned income.

3. Section 62(b)(2): Certain

Trade and Business

Expenses of Qualified

Performing Artist

(performing artist expense)

Performing artists whose

AGI without regard to this

deduction is $16,000 or

less may deduct certain

business expenses to

determine AGI, rather

than as a miscellaneous

itemized business

deduction.

Income limits are the

same for a married

couple as for a single

person. A married couple

must file a joint return,

unless taxpayer lived

apart from spouse for

entire year or qualifies as

an abandoned spouse.

The combined income of

both spouses may

eliminate deduction,

even though individually

one or both spouses may

be eligible.

Married couples can

pool income and

deductions—spouse

eligible for deduction has

little or no income.

4. Section 68: Overall

Limitation on Itemized

Deductions (itemized

deduction limit)

If AGI exceeds $114,700,

certain itemized

deductions (not medical,

investment interest,

casualty loss, or

gambling loss) are

reduced.

Income limits are the

same for a married

couple as for a single

person. If married couple

elect to file separately,

limit is $57,350.

The combined income of

both spouses may

require reduction in

deductions, even though

individually one or both

spouses would not be

required to reduce

deductions.

None

(continued)

Page 21 GAO/GGD-96-175 Tax Treatment of Married Individuals
Appendix II 

Marriage Penalties and Bonuses Associated

With Income Tax Provisions That Make No

Adjustment for Joint and Single Income

Code section Description

Treatment of married

taxpayers Basis for penalty Basis for bonus

5. Section 121: One-Time

Exclusion of Gain from

Sale of Principal

Residence by Individual

Who Has Attained Age 55

(one-time residential sale

exclusion)

Taxpayer over 55 who

sells principal residence

may exclude up to

$125,000 in gain from the

sale. Taxpayer may elect

to exclude gain only

once during lifetime.

Exclusion amount is the

same for married couple

as for single person.

Married couples must

jointly elect to exclude

the gain whether filing

jointly or separately.

Once having elected to

exclude gain, must jointly

revoke to revise. Married

filing separately may

exclude up to $62,500.

Two unmarried taxpayers

would be eligible for

twice the amount of the

total exclusion.

None

6. Section 129: Dependent

Care Assistance Programs

(employer child-care

benefits)

Taxpayer can exclude

employer benefits for

child-care, up to either

$5,000 or the amount of

earned income,

whichever is smaller.

Limit on exclusion is the

same for married couple

or single person. Married

couple is limited to the

smaller amount of earned

income by either spouse,

and if filed separately,

total exclusion cannot

exceed $2,500.

Two unmarried taxpayers

would be eligible for

twice the amount of the

total exclusion.

None

7. Section 163(h)(3):

Qualified Residence

Interest

(mortgage interest

deduction)

Taxpayer can deduct

interest costs on

mortgages from one or

two residences and on

home equity debt. The

mortgage balance

cannot exceed $1

million, and the amount

of the home equity loan

cannot exceed $100,000.

Limit on mortgage

principal is same for

married couple or single

person. If married couple

files separately, loan

limits are reduced to

$500,000 for mortgage

and $50,000 for home

equity, and each spouse

can only deduct interest

from one residence

unless other spouse

consents in writing.

Two unmarried taxpayers

would be eligible for

twice the amount of the

total deduction.

Married couple can pool

income and

deductions—spouse with

deduction has less

income than deduction

amount.

8. Section 165(l): Losses in

Insolvent Financial

Institutions (uninsured

financial deposit loss)

Taxpayer can deduct

losses of uninsured

financial deposits as a

miscellaneous itemized

deduction, to the extent

that losses are over 2

percent of AGI, up to

$20,000, with respect to

each financial institution.

Limit on loss deduction is

same for married couple

as for single person. If

married filing separately,

the limit is reduced to

$10,000, with respect to

each financial institution.

Two unmarried taxpayers

would be eligible for

twice the amount of the

total deduction.

Married couple can split

deductions—spouse with

lower income can file

separately to meet AGI

percentage.

9. Section 179: Election to

Expense Certain Business

Assets (section 179 assets)

The cost of certain

tangible personal

property used over 50

percent for business can

be treated as expense

and immediately

deducted. The deduction

is limited to $17,500.

Limit on deduction is

same for married couple

or single person. If

married filing separately,

the limit would be

automatically divided

between the spouses,

unless otherwise agreed.

Two unmarried taxpayers

would be eligible for

twice the amount of the

total deduction.

Married couple can pool

income and

deductions—spouse with

deduction has less

income than deduction

amount.

(continued)

Page 22 GAO/GGD-96-175 Tax Treatment of Married Individuals
Appendix II 

Marriage Penalties and Bonuses Associated

With Income Tax Provisions That Make No

Adjustment for Joint and Single Income

Code section Description

Treatment of married

taxpayers Basis for penalty Basis for bonus

10. Section 194:

Amortization of

Reforestation Expenses

(reforestation deduction)

Certain costs of

maintaining timber

property can be

amortized over 7-year

period. However,

taxpayer is limited to

$10,000 per year.

Limit on deduction is

same for married couple

or single person. If

married couple files

separately, limit is

reduced to $5,000.

Two unmarried taxpayers

would be eligible for

twice the amount of the

total deduction.

Married couple can pool

income and

deductions—spouse with

deduction has less

income than deduction

amount.

11. Section 469: Passive

Activity Losses and Credits

Limited (passive activity

loss)

Taxpayer can deduct

losses from rental real

estate against ordinary

income only if taxpayer is

“active participant.”

Deduction is limited to

$25,000 per year, and is

reduced if AGI exceeds

$100,000 and eliminated

if AGI is over $150,000.

Excess losses can be

deferred to future years.

Deduction amounts and

AGI limits are the same

for married couple as for

single person. However,

married filing separately

cannot take deduction if

the spouses lived

together any time during

the tax year. If lived apart

the entire year,

deduction limited to

$12,500, reduced if AGI

is over $50,000, and

eliminated if AGI is over

$75,000.

Two unmarried taxpayers

would be eligible for

twice the amount of the

total loss; also, combined

income, but not

individual income,

reduces or eliminates

amount of loss deduction.

Married couple can pool

passive gains and

losses—loss from one

spouse will offset gain

from other spouse; also,

generally can pool

income and

deductions—spouse with

deduction has less

income than deduction

amount.

12. Section 1044. Rollover

of Publicly Traded

Securities Gain into

Specialized Small

Business Investment

Companies (small

business rollover)

Taxpayer can elect to roll

over gain from sale of

public stock if gain is

reinvested in a small

business licensed by the

Small Business

Administration. The tax

basis of the small

business stock (which is

used to calculate gain or

loss on a later sale of that

stock) is reduced by the

rolled over gain. Limit on

rollover is $50,000 a

year, or $500,000

reduced by amount

previously rolled over,

whichever is smaller.

Limits are same for

married couple as for

single person. If married

couple files separately,

rollover amount is limited

to $25,000, or $250,000

reduced by amount

previously rolled over,

whichever is smaller.

Two unmarried taxpayers

would be eligible for

twice the amount of the

rollover gain.

None

(continued)

Page 23 GAO/GGD-96-175 Tax Treatment of Married Individuals
Appendix II 

Marriage Penalties and Bonuses Associated

With Income Tax Provisions That Make No

Adjustment for Joint and Single Income

Code section Description

Treatment of married

taxpayers Basis for penalty Basis for bonus

13. Section 1202:

50 Percent Exclusion for

Gain from Certain Small

Business Stock (small

business stock exclusion)

Beginning in 1998, a

taxpayer can exclude 50

percent of the gain from

sale of stock in qualified

small business if

purchased at its original

issue and held for 5

years. Gain is limited to

$10 million reduced by

amounts previously

excluded or 10 times the

taxpayer’s basis in the

business, whichever is

greater.

Exclusion limit is same

whether for married

couple or single person.

If married couple files

separately, taxpayer is

limited to $5 million

reduced by amounts

previously excluded or

10 times the taxpayer’s

basis in the business,

whichever is greater.

Two unmarried taxpayers

would be eligible for

twice the amount of the

total exclusion.

None

14. Section 1211:

Limitations on Capital

Losses (capital loss)

Taxpayer can deduct a

net capital loss of $3,000

against ordinary income.

Excess over $3,000 can

be carried forward into

future years.

Deduction limit is same

for married couple or

single person. If married

couple filing separately,

annual deduction is

limited to $1,500.

Two unmarried taxpayers

would be eligible for

twice the amount of the

total loss.

Married couple can pool

capital gains and

losses—loss from one

spouse can offset gain

from other spouse.

15. Section 6654: Failure

by Individual to Pay

Estimated Income Tax

(estimated income tax)

If estimated quarterly

payments are based on

last year’s tax, taxpayer

with AGI under $150,000

must pay quarterly 25

percent of 100 percent of

last year’s tax. If AGI is

over $150,000, taxpayer

must pay quarterly 25

percent of 110 percent of

last year’s tax.

AGI limit is same for

married couple as for

single person. If married

couple files separately,

must pay quarterly 25

percent of last year’s tax

if AGI is $75,000 or less.

If AGI is over $75,000,

taxpayer must pay

quarterly 25 percent of

110 percent of last year’s

tax.

Combined spousal

income, but not

individual income,

increases amount of

estimated tax to be paid

quarterly.

None

Source: GAO’s analysis of IRC provisions.

Page 24 GAO/GGD-96-175 Tax Treatment of Married Individuals
Appendix III 

Marriage Penalties and Bonuses Associated

With Income Tax Provisions That Fully

Adjust for Joint and Single Income

The nine IRC provisions described below fully adjust for joint and single

income. The operations of these tax provisions are widely different. Some

of these provisions effectively treat married taxpayers the same as if they

were single people. IRC section 6017, for example, requires that

self-employment tax be calculated separately on each spouse’s individual

self-employment income. Section 213 allows a married taxpayer filing

separately to report medical deductions with the same limitations allowed

a single taxpayer. Other sections allow a married couple twice the benefit

allowed a single person. Thus, section 1244 permits married couples to

deduct $100,000 in losses, while a single person is limited to $50,000.

For the most part, these sections can only result in the same, or less, tax

liability for married taxpayers than for single people. Thus, the

self-employment tax assessed on two married people should always be the

same as that assessed for a similarly situated unmarried couple. Three

sections—section 213 on medical deductions, section 165 on nonbusiness

losses, and section 172 on net operating losses—require that married

taxpayers file separately to take full advantage of the tax bonuses possible

for a married couple. When married taxpayers file separately, many tax

provisions reduce or eliminate the tax benefits available to the taxpayer.

To take full advantage of these three sections, therefore, a married

taxpayer may have to forgo other possible tax benefits, leading to a

possible tax penalty.

We illustrate the impact of a tax provision that allows married taxpayers

twice the benefit provided to single people in table III.1 below. In this

table, we show how income tax section 1244, which allows married

taxpayers to deduct up to $100,000 on the sale of certain small business

stocks, would affect two married couples filing jointly and as singles. Each

spouse in couple A holds $50,000 in small business stock losses, while for

couple B, the husband has incurred $100,000 in losses by himself.

Page 25 GAO/GGD-96-175 Tax Treatment of Married Individuals
Appendix III 

Marriage Penalties and Bonuses Associated

With Income Tax Provisions That Fully

Adjust for Joint and Single Income

Table III.1: Comparison of How Section

1244 Loss Deductions Affect Two

Married Couples Filing Jointly and as

Singles in 1995

Couple A Couple B

Husband Wife Husband Wife

Taxable income (before 1244

losses)

$60,000 $60,000 $60,000 $60,000

1244 losses $50,000 $50,000 $100,000 0

1244 loss deduction if filed

jointly ($100,000 is maximum

loss)

$100,000 $100,000

Tax if filed jointly $3,004 $3,004

1244 loss deduction if filed

as single ($50,000 is

maximum loss)

$50,000 $50,000 $50,000 0

Tax if filed as single $1,504 $1,504 $1,054 $13,876

Combined tax as singles $3,008 $14,930

Amount joint tax differs from

tax as singles

–$4 –$11,926

Marriage penalty or bonus Bonus Bonus

Source: GAO analysis of IRC section 1244.

As shown in table III.1, couple A’s tax liability is nearly the same whether

the couple files jointly or as single individuals. In each case, both spouses

could deduct the full amount of their individual section 1244 losses.

Couple B, on the other hand, received an $11,926 tax bonus by filing jointly

because the husband’s entire loss (which is twice that allowed a single

person) can be applied to offset his wife’s income.

Table III.2 describes nine tax provisions that fully adjust for joint and

single income.

Page 26 GAO/GGD-96-175 Tax Treatment of Married Individuals
Appendix III 

Marriage Penalties and Bonuses Associated

With Income Tax Provisions That Fully

Adjust for Joint and Single Income

Table III.2: 1995 Income Tax Provisions With Full Adjustment for Joint and Single Income

Code section Description

Treatment of married

taxpayers Basis for penalty Basis for bonus

1. Section 151: Allowance

of Deduction for Personal

Exemptions (personal

exemptions)

Taxpayer is allowed to

deduct $2,500 as

“personal exemption.”

Personal exemption also

allowed for spouse and

all dependents.

Each married taxpayer is

allowed same exemption

amount as a single

taxpayer; each spouse is

allowed to deduct $2,500.

None Exemption amount for

one spouse with little or

no income can be used

to offset larger income of

other spouse.

2. Section 165: Losses

(casualty and gambling

losses)

Taxpayer can deduct

certain nonbusiness

losses: casualty losses,

to the extent that each

loss is over $100 and the

net casualty loss

exceeds 10 percent of

AGI; and gambling

losses, up to amount of

gambling wins.

Married taxpayers and

single taxpayers are

treated the

same—married

taxpayers can file

separately to reduce AGI

levels. Married taxpayers

are subject to same limits

whether filing jointly or

separately.

To take full advantage of

possible marriage bonus

related to casualty loss,

spouses must file

separate returns.

Separate returns would,

in many instances,

reduce or eliminate other

tax benefits available to

the taxpayer.

Married taxpayers can

file separately to reduce

AGI levels; can also pool

gains and losses.

3. Section 172: Net

Operating Loss

In cases where casualty

or theft losses exceed

total income, the

taxpayer may have a “net

operating loss.” In this

case, the taxpayer can

deduct amount against

taxes in either prior or

future years.

Married taxpayers and

single taxpayers are

treated the

same—married

taxpayers can file

separately to reduce

income level. Married

taxpayers are subject to

same limits whether filing

jointly or separately.

To take full advantage of

possible marriage bonus,

spouses must file

separate returns.

Separate returns would,

in many instances,

reduce or eliminate other

tax benefits available to

the taxpayer.

Married taxpayers can

file separately to reduce

AGI levels; can also pool

gains and losses.

4. Section 213: Medical,

Dental, Etc., Expenses

(medical expenses)

Taxpayer can deduct

medical expenses to the

extent that the expenses

exceed 7.5 percent of

AGI. Taxpayer can also

deduct medical

expenses for spouse and

dependents.

Married taxpayers and

single taxpayers are

treated the

same—married

taxpayers can file

separately to reduce

income level. Married

taxpayers are subject to

same limits whether filing

jointly or separately.

To take full advantage of

possible marriage bonus,

spouses must file

separate returns.

Separate returns would,

in many instances,

reduce or eliminate other

tax benefits available to

the taxpayer.

Married taxpayers can

file separately to reduce

AGI levels; one spouse

can also deduct

expenses paid for

medical costs of other

spouse.

5. Section 219: Retirement

Savings (IRA with no

employer plan and special

IRA)

If taxpayer is not covered

by an employer pension

plan, taxpayer can

deduct up to $2,000 per

year, limited to amount of

earned income.

IRA deduction for two

married taxpayers

calculated exactly same

as single taxpayers.

However, if one spouse’s

income is less than $250,

other spouse can deduct

up to $2,250 for both.

None “Special IRA” allows a

larger IRA deduction to

married taxpayer whose

spouse has very little or

no income.

(continued)

Page 27 GAO/GGD-96-175 Tax Treatment of Married Individuals
Appendix III 

Marriage Penalties and Bonuses Associated

With Income Tax Provisions That Fully

Adjust for Joint and Single Income

Code section Description

Treatment of married

taxpayers Basis for penalty Basis for bonus

6. Section 1034: Rollover

of Gain on Sale of Principal

Residence (residence

rollover)

Taxpayer who sells old

home and buys new

home costing at least as

much as the old home

must roll over gain on

sale by applying the

amount of the gain to

reduce the basis of the

new home. The tax basis

of the new home is

reduced by the gain.

Can only be used once

every 2 years.

Married taxpayers

allocate the rollover of

gain on sale of a

residence, without

regard to who owned the

old home or who bought

the new home, if both

meet certain

requirements.

None None

7. Section 1244: Losses in

Small Business Stock

Taxpayer can deduct

loss from sale or

exchange of certain

small business stocks

against ordinary income,

limited to $50,000 per

year.

For married couples, the

deduction limit is twice

that allowed single

taxpayers—$100,000 if

married filing jointly.

None One married taxpayer

can deduct up to twice

as much as single

taxpayer.

8. Section 6017:

Self-Employment Tax

Returns (self-employment

tax)

Every taxpayer with

self-employment income

over $400 must file a

return and report on

self-employment tax.

Married taxpayers

calculate

self-employment tax

exactly as if they were

two single

taxpayers—tax is

computed on separate

earnings of each spouse.

The amount reported on

the joint return is the sum

of the two taxes.

None None

9. Section 6096:

Designation by Individuals

(presidential campaign)

Every taxpayer may

designate that $3 be

paid to the Presidential

Election Campaign Fund.

Married taxpayers

treated as if they are two

single taxpayers—each

spouse may designate

$3 to campaign fund.

None None

Source: GAO’s analysis of IRC provisions.

Page 28 GAO/GGD-96-175 Tax Treatment of Married Individuals
Appendix IV 

Marriage Penalties and Bonuses Associated

With Income Tax Provisions That Treat

Married Taxpayers as Special Unit

Table IV.1 describes the operations of 26 IRC sections that treat married

taxpayers as unique units. For the most part, these sections relate to

special situations between spouses—for example, loans or sales between

husband and wife.

The purpose of many of these provisions was to regulate sham

transactions in commercial ventures. For example, IRC section 1092 taxes

“straddles”—business investments in which the taxpayer buys two

interests in property, each of which offsets the other. Under the current

tax law, the investor cannot recognize the loss in one interest without

realizing the gain in the offsetting investment. To identify a straddle

position, any property purchased by a wife that offsets property previously

purchased by her husband is considered to be owned by the husband.

Under certain circumstances, this provision could create a tax penalty,

where, for instance, both husband and wife are independent investors. In

that case, the married couple might incur a greater tax liability than a

similarly situated unmarried couple.

Table IV.1: 1995 Income Tax Provisions Treating Married Taxpayers as Special Unit

Code section Description

Treatment of married

taxpayers Basis for penalty Basis for bonus

1. Section 1(g): Certain

Unearned Income of Minor

Children Taxed as if

Parent’s Income (kiddies

tax)

Child under 14 will be

taxed at parent’s highest

marginal rate.

If married parents file

separately, child is taxed

at the rate of the parent

with the highest income.

Even if child’s custodial

parent files separately,

the child’s unearned

income is taxed based

on the rate of the parent

with the highest income.

None

2. Section 42: Low-Income

Housing Credit

Tax credit for investment

in low-income housing

project. Credit must be

recaptured if project fails

to meet program

requirements.

Certain partnerships with

35 or more partners are

treated as one taxpayer

for the purpose of

recapture unless

partnership elects not to

be so treated; a husband

and wife are considered

one partner of such a

partnership.

If husband and wife are

in a partnership dealing

with low-income housing

unit, they will not be

considered independent

investors for purpose of

determining whether

partnership is to be

treated as one unit for

purpose of recapture.

None

3. Section 63(c)(6):

Certain Individuals Not

Eligible for Standard

Deduction (election to

itemize)

A married individual filing

a separate return is not

eligible for a standard

deduction if spouse

itemizes deductions.

Where married taxpayers

file separately, both

spouses must either

itemize their deductions

or elect to take the

standard deduction.

If unmarried, two

taxpayers could

determine individually

whether to itemize or use

the standard deduction.

None

(continued)

Page 29 GAO/GGD-96-175 Tax Treatment of Married Individuals
Appendix IV 

Marriage Penalties and Bonuses Associated

With Income Tax Provisions That Treat

Married Taxpayers as Special Unit

Code section Description

Treatment of married

taxpayers Basis for penalty Basis for bonus

4. Section 125:

Cafeteria Plans

A taxpayer need not

include any amount in

income solely because,

as an employee, the

taxpayer may choose

among different

compensation benefits,

unless the taxpayer can

be considered a “highly

compensated” employee.

The spouse of a “highly

compensated” employee

may have to include

income attributable to a

choice of benefits if he or

she is also a participant

in the compensation plan.

Two taxpayers, who are

neither married to each

other nor is one a

dependent of the other,

would not be affected by

this provision.

None

5. Section 147(a):

Substantial User

Requirement of Certain

Private Activity Bonds

(private activity user)

Where a holder of a

private activity bond is a

“substantial user” of the

local facilities financed

by the bond, the bond is

not eligible for

tax-exempt status. Any

interest earned from the

bond must be included

in income.

If the bond holder’s

spouse is a “substantial

user” of the facilities

financed by the bond,

the bond is not qualified

for tax-exempt status.

Two unrelated taxpayers

who are not married to

each other would each

be able to use private

activity facility without

affecting the tax status of

the other.

None

6. Section 147(c)(2):

Limitation of Use of Certain

Private Activity Bonds for

Land Acquisition (private

activity first-time farmer)

Private activity bond is

not qualified for

tax-exempt status if 25

percent of the proceeds

are to be used to buy

land except if land

purchase is for the use of

a “first-time farmer.”

First-time farmer must

have never previously

owned a farm and must

not have received over

$250,000 in financing.

Any prior ownership of a

farm, or receipt of

financing, by the

first-time farmer’s spouse

will be imputed to the

farmer.

Two unrelated taxpayers

who are not married to

each other would not be

affected by this provision

and neither would be

bound by the prior

history of the other.

None

7. Section 162(l)(1):

Special Rules for Health

Insurance Cost of

Self-Employed Individuals

(self-employed health

insurance)

Self-employed taxpayer

can deduct up to 30

percent of health

insurance costs.

Taxpayer can deduct

costs of health insurance

for spouse and

dependents.

None If unmarried, taxpayer

cannot deduct costs of

medical insurance of

another person who is

not a dependent.

8. Section 263A(e)(2):

Exception to Capitalization

Requirements for Farming

Businesses (farm

deduction)

Taxpayer can elect to

deduct costs of certain

plants used on farm.

Taxpayer bound by

deduction elected by

spouse.

Two unrelated taxpayers

who are not married to

each other would not be

affected by this

provision, and neither

would be bound by the

prior deductions elected

by the other.

None

(continued)

Page 30 GAO/GGD-96-175 Tax Treatment of Married Individuals
Appendix IV 

Marriage Penalties and Bonuses Associated

With Income Tax Provisions That Treat

Married Taxpayers as Special Unit

Code section Description

Treatment of married

taxpayers Basis for penalty Basis for bonus

9. Section 267: Losses,

Expenses and Interest with

Respect to Transactions

between Related Parties

(related party losses)

No deduction is allowed

for loss from sale or

exchange of property

between “related

parties.” Related parties

includes spouse.

Married taxpayers

cannot deduct losses

from transactions

between spouses.

Two unrelated taxpayers

who are not married to

each other can deduct

losses from a sale of

property between them.

None

10. Section 318:

Constructive Ownership of

Stock (corporate

ownership in distributions);

also sections 302, 304

For purposes of certain

corporate distributions

and adjustments, the

taxpayer will be

considered to own stock

owned by members of

the taxpayer’s family.

Ownership of stock by

the taxpayer’s spouse

will be imputed to the

taxpayer.

Two unrelated taxpayers

who are not married to

each other would not be

affected by this

provision, and ownership

of stock by one would

not be attributed to the

other.

None

11. Section 341:

Collapsible Corporations

Gain from the sale,

exchange, or distribution

of a collapsible

corporation is ordinary

income.

Ownership of stock by

the taxpayer’s spouse

will be imputed to the

taxpayer.

Two unrelated taxpayers

who are not married to

each other would not be

affected by this

provision, and ownership

of stock by one would

not be attributed to the

other.

None

12. Section 424(d):

Attribution of Stock

Ownership (employee

stock options); also

sections 422, 423

Stock options or

employee stock

purchase plans provided

to employee are not

immediately taxable to

the employee unless the

employee owns certain

amount of the company’s

stock.

For the purpose of the

limitation on the tax-free

provision, ownership of

stock by the taxpayer’s

spouse will be imputed

to the taxpayer.

Two unrelated taxpayers

who are not married to

each other would not be

affected by this

provision, and ownership

of stock by one would

not be attributed to the

other.

None

13. Section 544: Stock

Ownership in Personal

Holding Companies

(personal holding

companies); also sections

542, 543

An additional tax will be

imposed on certain

undistributed income in a

personal holding

company. To be a

“personal holding

company” there must be

five or fewer

shareholders and 60

percent of the company’s

income must be

specified types of

income.

For the purposes of the

number of shareholders,

ownership of stock by

the taxpayer’s spouse

will be imputed to the

taxpayer.

Two unrelated taxpayers

who are not married to

each other would not be

affected by this

provision, and ownership

of stock by one would

not be attributed to the

other.

None

(continued)

Page 31 GAO/GGD-96-175 Tax Treatment of Married Individuals
Appendix IV 

Marriage Penalties and Bonuses Associated

With Income Tax Provisions That Treat

Married Taxpayers as Special Unit

Code section Description

Treatment of married

taxpayers Basis for penalty Basis for bonus

14. Section 613(A)(c):

Exemption of Percentage

Depletion Limitation for

Independent Producers

and Royalty Owners of Oil

and Gas Wells

(percentage depletion)

Independent producers

and royalty owners are

allowed to use the

percentage depletion

method to account for

dwindling oil and gas

reserves. However,

percentage depletion is

limited to a production of

1,000 barrels per day.

The oil and gas holdings

of the taxpayer, the

taxpayer’s spouse, and

other members of the

taxpayer’s family are

treated as if held by one

taxpayer.

Two unrelated taxpayers

who are not married to

each other would not be

affected by this

provision, and holdings

of one would not be

attributed to the other.

None

15. Section 672: Related or

Subordinate Party to

Grantor of Trust (trust

income); also sections

674, 675, 677

Trust income will be

income to the grantor to

the extent that the

grantor has power to

control the use of the

trust assets. If power

over the trust is

exercised by an

independent trustee, the

grantor will not be

treated as the owner.

A grantor/taxpayer’s

spouse is presumed to

be a “subordinate party”

to the grantor, and not an

independent trustee for

control of the trust

assets. The grantor is

also treated as holding

any power or interest of

the grantor’s spouse.

Two unrelated taxpayers

who are not married to

each other would not be

affected by this

provision, and one

taxpayer could act as

independent trustee for

the other.

None

16. Section 704(e):

Partner’s Distributive Share

of Family Partnership

(family partnership)

An interest in partnership

purchased by one

member of a family from

another is treated as a

gift from the seller and

the fair market value of

the purchased interest

will be considered

donated capital.

Taxpayer/seller’s family

includes spouse,

ancestors, and lineal

descendants.

Sale of partnership

interest between two

unrelated taxpayers not

married to each other

would not be considered

a gift.

None

17. Section 911: Citizens

or Residents of the U.S.

Living Abroad (foreign

housing allowance)

A taxpayer living abroad

can elect to exclude from

gross income a certain

amount related to the

costs of foreign housing.

The housing expenses

excluded from gross

income include those

paid or incurred for the

taxpayer’s spouse and

dependents.

None If unmarried, taxpayer

could not include

housing expenses of

another person into

housing cost exclusion.

18. Section 1092: Straddles A taxpayer with offsetting

investment positions

(“straddles”) cannot

recognize loss on these

investments until the gain

is realized.

To the extent that the

taxpayer’s spouse holds

an investment position

that offsets that of the

taxpayer, the spouse’s

investment position will

be attributed to the

taxpayer.

Between an unmarried

couple, the assets of one

taxpayer would not be

attributed to the other.

None

19. Section 1233: Gains

and Losses from Short

Sales (short sales)

Tax treatment of gain or

loss from short sale of

property depends upon

whether the property

used to close the sale

was a capital asset.

For purposes of gain and

loss on short sales,

investments of either

spouse are attributed to

the other spouse.

If a couple is not married

to each other, the assets

of one taxpayer will not

be attributed to the other.

None

(continued)

Page 32 GAO/GGD-96-175 Tax Treatment of Married Individuals
Appendix IV 

Marriage Penalties and Bonuses Associated

With Income Tax Provisions That Treat

Married Taxpayers as Special Unit

Code section Description

Treatment of married

taxpayers Basis for penalty Basis for bonus

20. Section 1235: Sale or

Exchange of Patents

(patents)

Sale or exchange of a

patent is considered sale

of a long-term capital

asset, unless transfer is

between related parties.

Any transfer of a patent

between husband and

wife will not be

considered sale of a

long-term capital asset.

If taxpayers unmarried to

each other engage in

sale of patent, the sale

will be considered that of

a long-term capital asset.

None

21. Section 1239: Gain

from Sale of Depreciable

Property between Certain

Related Taxpayers (related

party gains)

Gain from sale of

depreciable property

between related parties

is considered ordinary

income.

Gains on sale between

husband and wife of

depreciable property is

treated as ordinary

income.

Two unrelated taxpayers

who are not married to

each other can treat

gains on sale of property

between them as capital

gains.

None

22. Section 1256(e): Mark

to Market Not to Apply to

Hedging Transactions

(hedging transactions)

Gain or loss from

contracts deemed

section 1256 contracts

shall be treated as 40

percent short-term gain

or loss and 60 percent

long-term gain or loss.

The interest of a spouse

who actively participates

in management will not

be treated as held by a

limited partner or limited

entrepreneur.

Two taxpayers who are

not married to each other

would not be affected by

this provision.

None

23.. Section 1272: Current

Inclusion in Income of

Original Issue Discount

(original income discount)

Discount on issuance of

certain bond or other

debt instrument must be

included in income as it

accrues (it is considered

a form of interest).

However, this will not

apply if it is a loan

between two people,

neither in business to

make loans, and the loan

is less than $10,000.

In considering the

personal loan exception,

husband and wife are

treated as one person.

None Married persons can

make loans between one

another without tax

consequences.

24. Section 1361: S

Corporation Defined

To qualify as an “S”

corporation, a business

cannot have more than

35 shareholders.

For the purposes of

counting shareholders,

husband and wife are

treated as one person.

None If both spouses own S

corporation, only one will

count toward limit on

number of S corporation

owners.

25. Section 1563:

Controlled Group

Corporation

Taxpayer has certain

limits on multiple tax

benefits if associated

with certain controlled

corporations.

For the purpose of

determining whether

entity is controlled group

corporation, spouse’s

stock holdings are

attributed to the taxpayer.

Two unrelated taxpayers

who are not married to

each other would not be

affected by this

provision, and assets of

one would not be

attributed to the other.

None

26. Section 7872:

Treatment of Loans with

Below-Market Interest

Rates (below-market loans)

If below-market interest

rate on loan, IRS can

impute interest income to

the lender and interest

expense to the borrower.

Husband and wife are

treated as one person.

None Married persons can

make loans between one

another without tax

consequences.

Source: GAO’s analysis of IRC provisions.

Page 33 GAO/GGD-96-175 Tax Treatment of Married Individuals
Appendix V 

Number of Taxpayers Filing Under Certain

Provisions Cited in This Report

We compiled, from data in IRS’ 1992 Individual Public Use Tax File for

Statistics of Income, table V.1 showing the number of taxpayers who filed

under various provisions described elsewhere in this report. The

provisions included in this table are only those provisions for which such

information is available in IRS’ public tax file.10 In addition to the number of

taxpayers filing under each provision, by filing status, we have also

included (in the last column) a cross-reference to the table where the

provision has been described in this report.

Table V.1: Numbers of Taxpayers Filing in 1992 Under Specific Provisions Cited in This Report (Millions)

Income tax

provision All taxpayers

Married

taxpayers filing

jointly

Married

taxpayers filing

separately

Single

taxpayers filing

individually

Single

taxpayers filing

as head of

household

Crossreference to

table where

provision

described

Section 1: filing

status of taxpayers

113.60 48.02 2.46 48.58 14.45 Table I.2 (1)

Section

151:personal

exemption

104.31 48.02 2.44 39.30 14.54 Table III.2 (1)

Section 63:

standard deduction

80.07 25.15 1.53 40.92 12.47 Table I.2 (5)

Section 163(h)(3):

home mortgage

interest deduction

26.98 20.00 0.62 4.65 1.71 Table II.2 (7)

Section 6096:

presidential

campaign

23.31 10.02 0.40 9.40 3.50 Table III.2 (9)

Section 32: earned

income credit

14.10 4.93 not applicable 0.36 8.81 Table II.2 (2)

Section 6654:

estimated tax

payments

12.78 7.47 0.15 4.80 0.35 Table II.2 (15)

Section 6017:

self-employment tax

12.24 8.42 0.22 2.94 0.66 Table III.2 (8)

Section 86: social

security benefits

10.78 6.35 0.12 3.98 0.34 Table I.2 (6)

Section 21:

child-care credit

(plus section 129

dependent care)

6.40 4.32 0.06 0.06 1.96 Table II.2 (1

and 6)

(continued)

10For many provisions listed in this report, information on how many taxpayers filed under the

provision was not available in IRS’ public file. For some provisions, such as section 135 on interest on

U.S. savings bonds used for education, information is reported by the taxpayer but not available in IRS’

public file. For other provisions, such as section 267 on related party losses, the taxpayer does not

report any information on the application of the provision.

Page 34 GAO/GGD-96-175 Tax Treatment of Married Individuals
Appendix V 

Number of Taxpayers Filing Under Certain

Provisions Cited in This Report

Income tax

provision All taxpayers

Married

taxpayers filing

jointly

Married

taxpayers filing

separately

Single

taxpayers filing

individually

Single

taxpayers filing

as head of

household

Crossreference to

table where

provision

described

Section 213:

medical expenses

5.51 3.50 0.11 1.5 0.39 Table III.2 (4)

Section 1211: net

capital loss (a) total 

(b) with losses

>$3,000

(a) 4.44

(b) 2.08

(a) 2.80

(b) 1.39

(a) 0.06

(b) none

(a) 1.41

(b) 0.62

(a) 0.17

(b) 0.07

Table II.2 (14)

Section 469: passive

loss limits

3.66 2.59 0.05 0.87 0.14 Table II.2 (11)

Section 68: limitation

on itemized

deduction

3.34 2.92 0.04 0.31 0.07 Table II.2 (4)

Section 151(d)(3):

reduction of

personal exemption

1.68 1.26 0.06 0.31 0.04 Table I.2 (8)

Section 55:

alternative minimum

tax

0.29 0.19 0.02 0.07 0.01 Table I.2 (4)

Section 38: general

business credit

0.25 0.21 <0.01 0.04 <0.01 Table I.2 (3)

Section 22: elderly

tax credit

0.24 0.06 none 0.16 0.02 Table I.2 (2)

Section 42:

low-income housing

credit

0.14 0.11 <0.01 0.02 <0.01 Table IV.1

(2)

Section 165: net

casualty loss

0.12 0.08 <0.01 0.02 0.01 Table III.2 (2)

Section 172:

personal net

operating loss

0.01 0.01 <0.01 <0.01 <0.01 Table III.2 (3)

Source: GAO analysis of IRS data.

Page 35 GAO/GGD-96-175 Tax Treatment of Married Individuals
Appendix VI 

Summary of Major Proposals to Change

Current Treatment of Married and Single

Taxpayers

Over the years there have been various proposals to change the tax

treatment of married couples and single people. These proposals include:

(1) mandatory separate filing by married couples using the same rate

schedule as single taxpayers; (2) optional separate filing by married

couples using the same rate schedule as single taxpayers; (3) tax

deduction or credit for two-earner couples; (4) allowing single people to

use the joint rate schedule; and (5) flattening the rate structure. These

proposals all adjust, to some extent, the current balance among the

principles of progressive tax rates, equal taxation of families with equal

incomes, and marriage neutrality. We describe each of these proposals

below.

(1) Mandatory separate filing by married couples using the same rate

schedule as single taxpayers. This proposal would require all married

taxpayers to file as single individuals, with one rate schedule for all

taxpayers. In effect, this change would reinstate the tax system in place

before 1948, and would impose different tax burdens on families with the

same income. To address the problems of the different tax burdens in

community property and common law states, rules would have to be set

up to allocate income and deductions. Mandatory separate filing would

eliminate the marriage penalties and bonuses in the current rate schedule.

However, if the allocation rules for income and deductions were different

for married and single people, new penalties and bonuses could be

created.

(2) Optional separate filing by married couples using the same rate

schedule as single taxpayers. As an alternative to mandatory separate

filing, married couples could be allowed the option to file either under the

joint rate schedule or the single rate schedule. (Currently, married couples

can file separately, but the amount of taxable income at which the tax

rates increase is much lower for such couples than for single individuals.)

As with the first proposal, this would result in different tax burdens for

families with the same income and there would need to be rules for

allocation of income and deductions between spouses. Unlike the first

proposal, though, there would be a certain revenue loss because only

those married couples with tax decreases would be likely to file as single

individuals.

(3) Tax deduction or credit for two-earner couples. Another proposal

would continue the existing system of joint returns, but would provide

some relief to two-earner married couples through a deduction (or credit)

equal to a percentage of the earned income of the spouse with the lesser

Page 36 GAO/GGD-96-175 Tax Treatment of Married Individuals
Appendix VI 

Summary of Major Proposals to Change

Current Treatment of Married and Single

Taxpayers

amount of earnings. While this proposal would not make the system

“marriage neutral,” it would reduce the amount of the marriage penalty to

two-earner couples. A tax deduction was allowed for two-earner couples

between 1982 and 1986; this deduction was repealed by the Tax Reform

Act of 1986. As enacted, this deduction provided lower taxes to all

two-earner couples, not just those previously subject to a marriage

penalty. Thus, although this reduced the marriage penalty for many

couples, it also created marriage bonuses for other couples.

(4) Single taxpayers file under the joint rate schedule. A fourth proposal

would allow single people to use the joint rate schedule. In effect, this

would lower the tax rates for single people. This proposal would not lead

to a system that would be “marriage neutral” and would, in fact, tend to

increase the marriage penalty for two-earner couples. To be feasible, this

proposal would need to be supplemented by other relief for two-earner

couples, such as the tax deduction or credit described above.

(5) Flattening the rate structure. The final proposal would flatten the rate

structure for all categories of taxpayers. By itself, this proposal would

reduce the progressivity of the tax code. However, in doing so, it would

decrease the number of tax brackets, thereby minimizing the effects of

combining income on joint returns. When the Tax Reform Act of 1986

repealed the two-earner deduction, it also flattened the rate structure to

reduce the marriage penalty to two-earner couples.

Page 37 GAO/GGD-96-175 Tax Treatment of Married Individuals
Appendix VII 

Major Contributors to This Report

General Government

Division, Washington,

D.C.

Ralph Block, Assistant Director, Tax Policy and Administration Issues

Nancy Peters, Evaluator-in-Charge

Cliff Tuck, Senior Economist

San Francisco/Seattle

Field Office

Sam Scrutchins, Evaluator

(268730) Page 38 GAO/GGD-96-175 Tax Treatment of Married Individuals
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