Why do my husband and I owe so much in taxes every year?

I make $165,000 a year and my husband makes $125,000 a year. We own two houses, and have two mortgages. One mortgage has a balance of $500,000 and the other has an $80,000 balance. We currently file married separate because my husband receives part of his salary from W-9 income and I don't want the tax liability in my name since he isn't diligent in paying them in a timely fashion.

Before we got married six years ago, we had similar income but got tax refunds of about $10,000 or more per year, but now we owe approximately $2,000-$3,000 per year. I only recently started filing taxes as married separate. Our tax liabilities were the same when we filed joint returns. Why do I pay so much in taxes every year?

Co-Published on Investopedia

Co-Published on Investopedia

While the specifics of your tax situation can't be determined without reviewing your tax returns, most likely you are just a victim of the marriage penalty. When two high-income people get married, they actually owe more taxes than before they were married.

This is because the tax code doesn't double the single tax brackets to get the married filing jointly tax brackets. Instead, married couples get slightly less than double of their previous tax brackets. As a result, the more money each of you make, the more of your total money starts getting taxed at a higher rate than when you were single.

There is a ray of hope though!

The 2017 tax cuts fixed the marriage penalty, so that the married filing joint tax brackets are actually double the single tax brackets. This is true for all but the ultra-high-income tax brackets. You can ask your CPA or financial advisor to provide a projected tax return for next year, which should help you understand what your tax liability should be. Additionally, you can use the projection to change your withholdings to more closely match your income tax liability

The fastest way to lower your tax liability is avoiding filing married filing separate (MFS). The MFS tax filing has the worst tax brackets other than trusts. Some people would abuse the tax system and social security safety net using the MFS status, so the tax code makes it an undesirable filings status. This may seem unfair to someone like you who isn't abusing the system, but it's the easiest thing the government could do to solve the problem. Talk to your CPA or a financial advisor to see how to solve the W-9 issue without having to file separately.

Joshua Escalante Troesh is the President of Purposeful Strategic Partners and a tenured professor of Business at El Camino College. To explore working with him on your personal financial planning and investment advising needs, simply schedule a free Discover Meeting.

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