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Current time:0:00Total duration:10:05

Video transcript

so in a couple a right over here I have two individuals who have who make $100,000 each in taxable income the first thing I want to think about is how much they would pay if they were taxed as individuals so let's look at the individual tax brackets here and get our calculator to figure out what that would be so for each of them the first eight thousand nine hundred and twenty five of taxable income is going to be taxed at 10% and if we around that's eight hundred and ninety-three dollars $893 then the next increment from eight thousand nine hundred twenty-five to thirty six thousand two hundred fifty is going to be taxed at 15% I just I already I pre calculated what that is that's four thousand ninety nine dollars rounding a bit 4099 then the increment up to eighty seven thousand eight hundred fifty dollars is going to be taxed at 25 percent and that gets us to 12 that gives us twelve thousand nine hundred dollars and then the increment above eighty seven thousand eight fifty this is essentially the bracket they fall into because they make less than one hundred eighty three thousand two hundred fifty dollars that's going to be taxed at 28% so it's going to be plus 0.28 times the increment above eighty seven thousand eight fifty so we have a hundred thousand of taxable income they have a right number of zeros they see one so that's a hundred that's ten thousand right now that is a hundred thousand yep a hundred thousand minus eighty seven thousand eight hundred and fifty eighty seven thousand eight hundred fifty gets us to twenty one thousand two hundred and ninety four dollars now this is what they would each pay as individuals we're going to look at them as a couple so as a couple both of them combined if we multiply by two both of them are combined if they were taxed as individuals or if they never got married and if they I don't know they just live together what their combined taxes would be is forty two thousand five hundred eighty-eight dollars so forty two thousand five hundred and eighty-eight dollars combined if they're not married now let's think about how much they would pay as a married couple where they have two hundred thousand of combined taxable income now we would look at the joint file the the filing jointly married brackets and even if you're married and you file as individuals your your brackets are essentially going to be half of these brackets right over here so it comes out economically equivalent especially in the K or it comes out economically equivalent if you make the same incomes and we're going to talk about that a little bit more but let's look at this married filing jointly scenario for couple a let's get the calculator back out so now we will look at the married brackets and so the first the first 17850 is going to be taxed at 10% and you might already notice that at least these first few brackets are exactly twice the numbers as these brackets right over here and the general idea is that you now have two people so they can essentially have twice the income before they fall into another bracket but that keeps on going until you get to this point right over here and that's actually the whole point of this video to explore whether this results in married couples paying larger or smaller taxes let's think about how much this couples paying so the first seventeen thousand eight hundred fifty ten percent that's one thousand seven hundred and eighty-five dollars then the increment up to seventy two thousand five hundred is going to be taxed at 15% pre-calculated that is eight thousand one hundred and eighty eight dollars right over there then the increment up to one hundred forty six thousand four hundred is going to be taxed at 25 percent pre-calculated that as eighteen thousand eighteen thousand four hundred and seventy five dollars and then oh I I don't want to have that let me delete one of these plus signs and then finally finally we fall into this bracket right over here it's going to be taxed at 20% the increment above one hundred forty six thousand four hundred the increment above that is going to be taxed at 28% so it's 28% times two hundred thousand two hundred one two three - 146 four hundred and we get combined taxes of forty-three thousand four hundred the forty three thousand four hundred fifty-six forty three thousand four hundred and fifty-six now what immediately jumps out at you well first these are not the same number in particular when they're married they pay higher taxes so this couple that they had a fairly they have fairly high income and they both make the same amount they would have actually paid fewer taxes if they never got married and if they just filed as individuals now when they're married they're paying more taxes and the main idea is they fall out of this bracket and this bracket came faster than twice the rate at which this bracket came when they were just filing individually and so they fell into the 28 percent bracket faster so they had to pay 28% on more of their combined income they ended up having a bigger tax bill and so when people talk about the marriage penalty this is what they're talking about these people are essentially paying a tax because they got married so this is the marriage this is the marriage penalty now let's explore if there's always a marriage penalty if there's always a case that if by getting married you're going to pay more in income taxes so here we have couple B and they have less equal income they still have a combined income of $200,000 so if you look at the married joint find the married filing jointly they're still going to pay forty three thousand four hundred fifty six when they file jointly but let's see how much they would pay if they if they were individuals if they never got married and we combined how much they would have had to pay so let's get the calculator back out so first we're going to think about about the first member of the couple who makes one hundred eighty thousand in taxable income so they're going to pay 10% on the first eight thousand nine hundred twenty-five so that's eight hundred and ninety three and then we can add that to four thousand ninety nine we've done this already four thousand ninety nine to that we could add twelve thousand nine hundred twelve thousand nine hundred and then to that we're going to add twenty eight percent of the increment the increment above so where he makes or she makes one hundred eighty thousand one hundred eighty one two three minus eighty seven thousand eight hundred fifty eighty seven thousand eight hundred and fifty so that's the increment above eighty seven thousand eight fifty and we get this spouse this member of the couple is going to pay forty-three thousand six hundred and ninety four now to that we're going to have to add the amount that the other member that might pay so he is going to pay 893 on the first eight thousand nine hundred twenty-five so it's going to be 893 plus the 15 percent of the increment above eight thousand nine hundred twenty-five so plus 0.15 times twenty thousand one two three - minus eight thousand nine hundred and twenty-five gets us to this member of the couple is going to pay see two thousand five hundred fifty four in taxes if we add it to the other member of the couple so we add that answer plus forty three thousand six hundred ninety four that's what the larger earner is going to have to pay in taxes we get forty six thousand two hundred forty eight we'll just round to that forty six thousand forty six thousand two hundred and forty eight so here all of a sudden we see a scenario where we the opposite thing the higher value is if they don't get married so in this situation they actually got they actually got a marriage benefit they got a marriage they got a marriage benefit now why did this happen well the thing that might have jumped out to you is both of these people had high incomes and they had very equal incomes while both of these people their combined income was the same but then it was less equal and so what essentially happened here if this person filed by themselves on the individual tax bracket they get they go up the brackets very very very very quickly and then this person well they're not paying much in they're not they're not they're not paying much in taxes but this person is paying the bulk of it by becoming a couple by getting married as a combined entity and it pretty much this is the main beneficiary that one hundred eighty thousand and taxable income that's most of the two hundred thousand they're able to move up the tax brackets a lot slower so they're not they're getting they're getting taxed at 28% on a much smaller fraction of their income they're getting taxed at twenty five percent on a much smaller fraction of their income they're getting taxed at 10% on a larger fraction of the income then when especially this individual right over here filed as an individual so in general if you have a couple with very high taxable income and they both make roughly equal they both have very I taxable incomes as individuals they are likely to see a marriage penalty like we saw in scenario one if you have a couple where their salaries are very unequal even if their combined salaries are quite high you actually might get a marriage benefit because they move the through the tax brackets faster now let's think about couples see and I'll let you think about a little bit you have equal you have equal taxable incomes here so it's kind of like a couple a but their total taxable income isn't high in fact if you look at the married joint file if I the married filing jointly they fall under this tax bracket right over here and notice up to this point all of the tax brackets are exactly double the individual tax bracket so it goes exactly twice as slow so if I guess you can think about as a fraction of income when you have two people making the same you're having the same fraction tax at 20 percent or 15 percent or 25 percent and I encourage you to do the math here it's just good practice but you're going to see is that these people are going to pay the same taxes so this is going to be the same whether or not they are married or not married because they are not making enough combined income to get the penalty where the brackets start accelerating a little bit faster so anyway hopefully that clarifies things a little bit