The Single Tax Penalty

For Singles, April Really Is the Cruelest Month

To understand the harshness of the tax threshold imposed on most singles, let's consider one who earns $9,600 and see what it's like for her to try to live on that amount. Well, it isn't really $9,600, because 7.65 percent is withheld for Social Security and Medicare taxes, and, thanks to Congress, she has to pay a small income tax. That leaves $8,835, or about $740 a month.

The poverty threshold for single people last year was about $9,600; but single people who claim a standard deduction on their 2003 returns are expected to begin to pay a tax if their income exceeds a mere $9,300 -- that is, before what they earn has, by the government's own definition, lifted them out of poverty. (The $9,300 tax threshold results from the sum of the personal exemption plus the standard deduction, and the benefit of a small earned income credit.)

Our taxpayer -- let's call her Meg -- lives by herself in an efficiency apartment, doesn't own a car and takes the bus to work and on personal trips. In a typical American city such as Baltimore or Cleveland, she might get that apartment for $350 to $600 a month. Say her rent is $440, which leaves her with $300 to pay for everything else -- food, clothing, furniture, household and personal supplies, telephone, utilities, laundry, sales taxes, public transportation, and much more. (Heaven forbid she should actually buy a magazine or go to a movie.) Health insurance alone -- she doesn't qualify for Medicaid because she doesn't have a dependent child -- would consume much of the $300, so she goes without it and crosses her fingers. It isn't really a choice anyway: Meg runs out of money before she finishes paying her other bills.

Now consider Fran and Bill, a hypothetical married couple with two preschool children. Both work full-time and earn a combined income of $47,700. We'll assume they pay $7,000 for child care ($30 a day, five days a week), and $3,650 in Social Security and Medicare taxes. This leaves about$37,000 (still nearly twice the poverty threshold), or about $3,100 a month, to pay all other expenses. We don't have to elaborate on the details to reach an obvious conclusion: It's a lot easier, given economies of scale, for Fran and Bill to meet their family's basic living expenses on $3,100 a month than it is for Meg to cover her basic living expenses on $740 a month.

Moreover, at their income level, Fran and Bill are more likely than Meg to receive benefits at work, such as paid health insurance premiums or contributions to a retirement plan, none of which count as income on their tax return. This means that their actual income may be greater than $47,700, yet they still don't owe any income tax. Meg probably has only her $9,600 because jobs at her salary level usually offer no benefits.

Congress believes that this couple should not begin to pay a penny of income taxes until its income exceeds $47,700, or about 2 1/2 times its poverty threshold. (To calculate their tax, subtract $12,200 for four personal exemptions and $9,500 for their standard deduction, which leaves $26,000 of taxable income. Taxes tentatively owed: $3,200. Then subtract their tax credits: $2,000 in child credits ($1,000 for each child) and $1,200 in child care credits ($600 for each child), for a total of $3,200. Taxes finally owed: zero.)

Most of us who are married and also have young kids are going to fare a lot better than most of those who haven't tied the knot or had any children.