You are here

Income Splitting and the Joint Return

29 July, 2015 - 16:31

The following excerpt from a legislative report reviews ebb and flow of policy in the choice of tax bracket breakpoints for different filing statuses.

Joint Committee on Taxation, The Income Tax Treatment of Married Couples and Single Persons 3-7 (April 2, 1980).

Under the initial version of the modern individual income tax, enacted in 1913, married couples were taxed as separate individuals. In 1930, the Supreme Court ruled that State community property laws were to be given effect for income tax purposes, which meant that, in the States with such laws, married couples could equally divide income considered community property, the split which minimizes a couple’s combined tax burden in a progressive tax system. After the large increase in tax rates enacted to finance World War II, many States enacted community property laws in order to give their citizens the tax benefit of this income splitting.

To stop this community property epidemic, in 1948 Congress provided that all married couples could enjoy the benefits of income splitting by filing joint returns. Separate filing by married persons was allowed, but the loss of income splitting meant that this almost always led to a tax increase. Single persons were required to use the same rate schedules as married couples and received no special treatment to offset the married couples’ benefit from income splitting; therefore, marriage almost always resulted in a tax reduction for married couples and divorce in a tax increase.

In 1951, Congress enacted the head-of-household rate schedule for single persons who maintain households for certain relatives. This provided a “divorce bonus” to married couples with children if they had relatively equal incomes.

In 1969, Congress enacted a special rate schedule for single persons to give them about one-half the benefit of income splitting and adjusted the head-of-household rate schedule to give these taxpayers about three-fourths of the benefit of income splitting. These changes increased the divorce bonus provided by the head-of-household rate schedule and created a “marriage penalty” when single persons with relatively equal incomes married each other.


The proper tax treatment of married couples and single persons involves judgments about equity, economic efficiency and complexity.


The first question is what should be the tax unit, the group whose income and deductions are pooled in determining tax liability. Many people believe that the tax system should be “marriage neutral;” that is, a married couple should have the same tax burden as two single persons, each of whom has the same income as one of the spouses. Many people, however, also believe that, because most married couples pool their income and spend as a unit, fairness requires that the tax burden of a married couple not depend on how their combined income is distributed between them. A third widely held proposition is that the tax system should be progressive; that is, as income rises, tax burdens should increase as a percentage of income. Many Americans, if asked, would express agreement with all three of these principles of tax equity: marriage neutrality, equal taxation of couples with equal incomes, and progressivity.

One problem with devising a satisfactory method of taxing married couples is that these three principles of tax equity are logically inconsistent. A tax system generally can have any two of them, but not all three. A progressive tax system that treats the individual, not the couple, as a tax unit preserves marriage neutrality but sacrifices equal taxation of couples with equal incomes because couples with unequal incomes would pay a larger combined tax than couples with relatively equal incomes. The present income tax sacrifices marriage neutrality, but maintains equal taxation of couples with equal incomes and progressivity. A proportional income tax could have both marriage neutrality and equal taxation of couples with equal incomes, but it would sacrifice progressivity ... Which of these three principles ought to be sacrificed is a subjective question.

A second equity issue is how the overall tax burden should be distributed between single persons, single heads of households, one-earner married couples and two-earner married couples. This too is essentially a subjective judgment. The enactment of income splitting in 1948 shifted the tax burden away from one-earner married couples and other couples with relatively unequal incomes. The special rate schedules for heads of households and for single persons shifted the burden away from these classes of taxpayers. Recent proposals to reduce the marriage penalty involve shifting the burden away from two-earner couples. Any proposal that shifts the tax burden away from one of these groups means increasing the relative burden on the others.


Considerations of economic efficiency dictate that tax rates be lowest on persons whose work effort would be most responsive to lower taxes. Virtually all statistical studies of the issue conclude that a wife’s work effort is more responsive to reduced taxes than her husband’s. Therefore, the present system of taxing both spouses’ earnings at the same marginal tax rate is economically inefficient compared to a system with lower tax rates on the wife’s earnings. (The marginal tax rate is the rate applicable to the next dollar of income.) However, the present system may have countervailing benefits to the extent society gains from uncompensated work performed by wives.

Alternative Proposals


Relief for second earners

[Some] proposals involve[] ad hoc relief for two-earner married couples, designed to reduce the marriage penalty and marginal tax rates on second earners while retaining the basic system of joint filing. Such relief could take the form of a deduction or credit equal to a percentage of the earnings of the spouse with the lower amount of earnings. ...

A deduction or credit for second earners is one of the simplest ways to reduce the marriage penalty and the marginal tax rates on second earners. Per dollar of revenue loss, a deduction would be more effective in these respects; however, a credit gives more benefit to lower income couples than a deduction. If either a deduction or credit were adopted, the system would be characterized neither by marriage neutrality nor by equal taxation of couples with equal incomes.

Notes and Questions:

  1. How would you resolve these conflicts? You can imagine that there are many interest groups that have their own views of what is fair – but the point is well-taken that the Code cannot, consistently with Poe v. Seaborn, please everyone.
  2. For a time, the Code provided a credit to married couples when both husband and wife worked. The credit was based upon the income earned by the spouse who earned less.

Now: Imagine several possible taxpaying units and some possible distributions of $70,000 of taxable income within those units. Review determinations of the tax liability of each unit using the tax tables found in § 1 before temporary reductions and indexing.

  1. Married taxpayers together earn $70,000. Couple files married filing jointly.
    • One spouse earns $35,000, the other earns $35,000
      • Tax burden = 5535 + 9268 = $14,803
  2. Married taxpayers together earn $70,000. Couple files married filing jointly.
    • One spouse earns $70,000, the other earns $0.
      • Tax Burden = $14,803
  3. Same sex partners, or unmarried cohabiting man and woman together earn $70,000. Each partner files as unmarried individual.
    • Both partners each earns $35,000
      • Tax Burden = 3315 + 3612 = 6927, x2 = $13,854
  4. Same sex partners, or unmarried cohabiting man and woman together earn $70,000. Each partner files as unmarried individual.
    • One partner earns $70,000, the other partner earns $0.
      • Tax Burden = 12,107 + 5115 = $17,222
  5. Divorced mother with child earns $70,000
    • Tax Burden = 4440 + 11,312 = $15,752


  • The first two couples pay the same tax. The Code does not discriminate among married couples, irrespective of who earns taxable income.
  • However the first two couples pay more income tax than the third couple. This is the marriage penalty.
  • The first two couples pay less than the fourth couple. This is the marriage bonus.
  • The fifth taxpayer pays less than the fourth couple, but more than the first two couples.

Are these results this fair?

Recompute the tax liabilities of these taxpaying units using the current tables found at the very front of your Code.

  • What has happened to the brackets that caused such dramatically different results?
  • Look at the bottom two tax brackets in tables 1 and 3. Notice the relationship between the lowest bracket in table 1 and the lowest bracket in table 3. Notice the relationship between the second lowest bracket in table 1 and the second lowest bracket in table 3.
  • To whom did Congress respond when it created these relationships in 2001? Perhaps the same people who supported adoption of the Child Tax Credit in 1997 (§ 24)?