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Marriage Tax Penalty - How Being Married Could Cost You Thousands Every Year - YouTube
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conventional wisdom says that when you
get married you will save lots of money
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but in some cases that is not true in
this video we are gonna be talking about
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the marriage tax penalty and how because
of the way the tax code is structured
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married people can actually end up
paying more in taxes. Boo!
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I'm Joseph and this
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is Tasha from one big happy today
we are talking about just federal taxes
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and the marriage penalty there people
pay taxes in a lot of different ways
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state taxes local taxes real estate
sales tax sometimes their taxes built
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into things you find you don't even know
your bank but today just federal taxes
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because that's usually the biggest one
or at least one of the biggest ones all
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right so let's talk about how federal
income taxes work federal income taxes
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are a what's known as a progressive tax
that means the more money you make the
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more money you end up paying in taxes in
theory we have marginal tax rates that
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means that a certain bracket of money
say from zero to ten thousand dollars
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you get taxed at say ten percent and
then any dollar you make above ten
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thousand is taxed at a higher rate
so from $10,001 all the way up to say
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twenty thousand dollars you might get
taxed at 15% lots of people think that
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if you make more money that you'll
you'll definitely pay more in taxes on
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on everything because you'll hit a
higher tax bracket well it's just on
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that additional dollar so it's bracket
by bracket and don't get confused that
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if you get into a higher tax bracket oh
you're gonna owe way way more money no
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it's just on that additional dollar into
that bracket this is a breakdown of the
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current tax
and the different options for filing now
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there is one more married filing
separately but that's exactly half the
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married rates we didn't include that
here so what this chart shows you if you
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look across you'll see let's look at the
25% tax bracket you get into that tax
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bracket at 37,000 if you're single
50,000 for a head of household and
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75,000 for married so what that
generally looks like is that you can
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make more money without being taxed at
25 percent if you're married or head of
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head of household versus being single
but now let's look at how the married
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tax brackets compared to a single +
single filer so two single people filing
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separately but living together or a head
of household plus a single person filing
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so basically what these are are two
unmarried couples what their taxes would
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look like and their tax burden would
look like compared to a married couple
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this is the married bracket it's exactly
what we showed you in the chart before
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for a married couple
this is the single plus single tax
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bracket so exactly two times the single
bracket that we showed you before again
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this is a couple of two people but they
are not married here so they're filing
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as two single people even though they
share a household so what you'll see is
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if you look down at the 28% bracket
that's where single and single starts to
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beat married so a single plus single
couple could make up to a hundred and
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eighty three thousand dollars and still
stay in the twenty five percent tax
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bracket whereas the married couple would
have bumped up into the twenty eight tax
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bracket at one hundred and fifty-three
thousand so practically that costs the
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married couple an extra nine hundred and
twenty one dollars in taxes every single
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year not one year every single year so
if they were married for I don't know
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like 50 years that'd be almost like
fifty thousand dollars which is just
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outrageous plus if you invest that money
what
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yeah Lots that's a hundred thousand easy
yeah now let's look at the head of
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household plus single and so just to
clarify a head of household plus single
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would look like an unmarried couple who
share a child and live together
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that's head of household plus single
you'll notice right off the bat the
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single plus head of household brackets
are higher than both the married or the
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single plus single at the fifteen
percent tax bracket it starts at twenty
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two thousand six seventy five the twenty
five percent bracket starts at eighty
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seven thousand nine hundred fifty the
twenty eight percent bracket at two
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hundred twenty three thousand one
hundred dollars
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thirty three percent bracket at four
hundred thousand three dollars so if you
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were paying right at the top of the
twenty eight percent bracket you would
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end up paying twenty one hundred less in
taxes every year which means you will
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get twenty five hundred dollars of your
money back I think that's a really
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important distinction like people think
you know don't think of taxes as money
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that they have paid out of their income
but that is exactly what they are what
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that is
so when you lower your income tax
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liability you get to keep more of your
money instead of passing it on okay and
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so it's crazy that just not being
married that is the only difference like
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not being legally married you would have
twenty five hundred dollars more a year
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in your pocket every single year that
you were married and this is just the
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beginning so this is just the beginning
of the marriage penalty let's start
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looking at some of the other ways that
married people are penalized in our
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current tax structure the first thing is
health savings accounts so health
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savings accounts are pre-tax accounts
that you can contribute money to to help
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pay your medical expenses with pre-tax
money and the IRS sets contribution
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limits to those HSAs every year the
other benefit to the HSA is that once
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you reach age 65 you can withdraw that
money
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penalty-free without having any medical
expenses so it's kind of like a backdoor
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retirement account so it's a great way
to save extra money in addition to you
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like a 401k well right it'll work
exactly like a regular IRA where the
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month everything you can invest the
money it'll grow tax-deferred and then
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you pay taxes on it it went after your
sixty-five when you withdraw it for any
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reason so let's look at the contribution
limits because obviously the more you
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can contribute to these things the more
you shelter your income from taxes today
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and the more that money can grow
tax-free right so if you are single the
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limit for an HSA contribution is three
thousand four hundred and fifty if you
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are a family so you have family medical
coverage
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the limit is six thousand nine hundred
dollars so if you have single coverage
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and family coverage because one person
in the household has has his or her own
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single coverage and then the other
person covers themselves and the
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children then you can have up to a
combination of the two single plus
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family which is ten thousand three
hundred and fifty but now say you're a
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household of four two adults with two
children each adult has family coverage
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you can have two HSAs with family
coverage totaling thirteen thousand
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eight hundred dollars so the value of
that intact savings is seventeen hundred
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twenty-five dollars a year every single
year
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if you max out your HSA and that's at
the twenty five percent tax that's at
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twenty five percent so if you're at
twenty eight or 33 it goes up even more
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another is the dependent care flexible
spending account now this is similarly
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deducted like an HSA normally your
employer does this for you but every
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year you put more money into it now the
difference is huge if you are married
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with two kids the maximum that you can
contribute is six thousand dollars come
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by
Yeah right between the two of you 6000
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that's it now if you are unmarried that
max is 10,000 because one of you claims
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one child and the other claims the other
child until you while you both have two
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kids together you get to almost double
what married couples can put in their
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flexible spending accounts ten thousand
dollars that is a chunk of change that
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you will not pay taxes on so that saves
you one thousand dollars a year for
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every year that you're eligible to use a
dependent care flexible expense account
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and that phases out when your child is
on 13 so all of those thousands of
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dollars every year it really really adds
up but the next way that income taxes or
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the marriage penalty affects how much
money you end up paying in taxes is on
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anything that goes by a percentage of
your income like for example medical
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expenses you can only deduct medical
expenses in excess of ten percent of
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your adjusted gross income so if you're
a dual income couple making two hundred
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thousand dollars and so each of you
makes one hundred thousand and you have
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twenty thousand dollars in medical
expenses from a single person well ten
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percent of two hundred thousand is
twenty thousand so you won't be able to
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deduct that but if you file separately
then you have the twenty thousand
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dollars of expenses with that person
making one hundred thousand dollars so
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they can deduct anything above ten
thousand dollars because ten thousand is
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ten percent of hundred thousand so
that's another was it 25 hundred dollars
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in savings right there if you happen to
have a partner with high medical
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expenses
and then and that could be huge now
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right now this isn't as big a deal
because lots more people are covered by
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insurance and their out-of-pocket
maximums and so that adds some
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protection there but if you don't have
insurance or if you're about to lose
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your insurance as the marketplace kind
of rearranges or potentially rearranges
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well this could really come into play so
then the last way and this is not a
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comprehensive list we're just kind of
sharing some of the biggest
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heavy-hitting impact of the marriage
penalty so the last thing is student
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loans because your student loan payment
under the repayment income based
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repayment programs is based on your
adjusted gross income if you're married
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and if one of the only one of you has
student loans well both of your incomes
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will be used to calculate that and it
doesn't help for revised pay-as-you-earn
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they will count your spouse's income
even if you file married filing
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separately so being married could cost
you extra every single year on your
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student loans if you're using income
based repayment as you can see there are
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some major differences major penalties
for filing married now we think that
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this is completely unfair we've talked
about it before but this this is not
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everything that could possibly change
but it's just a few of the really big
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items that we wanted you to be aware of
not to necessarily say oh well if you're
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married you better go get divorced but
just to just to know be aware of how
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important these different tax filing
statuses can affect things so we hope
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you enjoyed the video and learn some new
things about unfortunate taxes I don't
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see you guys next time bye. bye.
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