Tax increase on marriage: should the happiness of love be so expensive?
Marriage is the dream of many couples, but some no longer dare to take this step. Why? Because the tax burden increases after the wedding. To get around this problem, couples stay in cohabitation and forgo marriage.
In this blog article, we’ll explain to you what exactely the marriage penalty is, how much it really burdens you, and how you can optimize your taxes despite getting married.
What exactly is the marriage penalty?
The marriage penalty is the popular term for the unequal tax treatment of married and unmarried dual-earner couples.
For married couples, the calculation of the tax burden is made jointly. The total income of both spouses forms the basis for the calculation of the tax rate. The summation results in married couples being exposed to a higher progression. This is not the case in concubinage. Both partners are taxed individually, resulting in a lower progression.
We talk about the marriage penalty when a dual-earner couple pays at least 10% more tax than an unmarried couple with the same conditions. While the cantons are accommodating married couples with measures, the federal government is sticking to the marriage penalty. (“Heiratsstrafe – Willst du mich heiraten oder Steuern sparen?”, 2022)
Two people in Zurich earn 75,000 and 65,000 francs per year. Thus, the joint income amounts to 140,000 francs. If the couple marries, the tax bill increases from 13,800 to 15,300 francs. Compared to cohabitation, the couple now has an additional tax burden of 11%, or 1500 francs per year. If children are added, discrimination increases further. Although the tax burden decreases, the marriage penalty grows to 32%. The amount of the tax burden depends strongly on the distribution of income between the spouses. The more equal the income distribution, the larger the marriage penalty.
The amount of the marriage penalty depends very much on the canton of residence. While in some cantons the difference between married and unmarried couples is enormous, in other cantons there is almost equality. If the couple moves from Zurich to Basel, for example, the difference between cohabitation and marriage is reduced to 3%.
The actual tax burden therefore depends on the amount of income, the income distribution, the number of children and the canton of residence. (Schmid, 2021)
Another difference between married and unmarried couples that should not be ignored is the AHV pension. As a married couple, one receives a maximum of 150% of the pension, while cohabiting couples receive two full pensions. The lower pension comes from the fact that married single earners pay in comparatively. However, this benefit only applies if one of the partners is employed. In the case of double earners, this advantage is forfeited again.
What is in favor of married couples, however, is the widow’s and widower’s pension. Couples receive this pension only after marriage. After the death of a spouse, the person left behind receives around CHF 20,000 per year. In order to have similar protection in cohabitation, life insurance can be purchased. However, this causes additional costs of 500 to 1000 francs per year. (Schmid, 2021)
Blessing or curse?
The marriage penalty seems to be a big challenge for couples, but not all of them are affected. The tax burden will only be drastic for couples with high incomes. Above an annual income of CHF 75,000 per spouse, a married couple begins to feel the higher tax burden. Couples with lower incomes, on the other hand, are less affected. (“Heiratsstrafe – Willst du mich heiraten oder Steuern sparen?”, 2022)
But what would happen if the federal government abandoned joint taxation and switched to individual taxation?
Contrary to expectations, the tax burden does not necessarily have to fall. If married persons are taxed individually, their tax rates decrease and, consequently, so does federal tax revenue. To compensate for these losses, the federal government must either take austerity measures or distribute the shortfall in revenue among all Swiss citizens. Since the marriage penalty mainly affects high-earning couples, it reduces their tax burden. At the same time, people with low incomes will be burdened more.
Save taxes despite wedding
To reduce the tax disadvantage, the federal government and the cantons grant two deductions for married couples.
A married couple receives a married deduction as a lump sum. At the federal level, 2,600 francs can be deducted, regardless of the respective income. In addition to the married deduction, there is also the possibility for a second-earner deduction. Half of the lower income can be deducted from taxes. The federal deduction is a minimum of 8,100 francs and a maximum of 13,400 francs.
Both deductions can also be made at the cantonal level. However, the specific deductions vary greatly from canton to canton (“Steuertipp,” 2021). Depending on the level of income, it may well be worth changing your place of residence.
In summary, the marriage penalty is often not as dramatic as it appears at first glance.
When deciding to get married, it is important to be aware of the pros and cons. Whether you get to the marriage or not, taxes are not always the deciding factor. But when it does come to the wedding, you should know where to save taxes.
As a consulting firm, we are happy to assist you in this regard and support you in assessing the tax implications of your marriage.
Heiratsstrafe – Willst du mich heiraten oder Steuern sparen?, 2022. . Schweiz. Radio Fernseh. SRF. URL https://www.srf.ch/news/schweiz/heiratsstrafe-willst-du-mich-heiraten-oder-steuern-sparen (accessed 1.23.23).
Schmid, S., 2021. Drum rechne, wer sich ewig bindet. Republik.
Steuertipp: So entkommen Sie der «Heiratsstrafe» [WWW Document], 2021. . Comparis.ch. URL https://www.comparis.ch/steuern/steuervergleich/uebersicht/null (accessed 1.23.23).