The Crushing Financial Penalties for Marriage in Your Later Years—Courtesy of Uncle Sam
A devastating new critique in the Washington University Law Review has spelled out how federal law punishes older couples for being married.
It’s not just that if you meet and fall in love during your golden years you may be much better off staying unwed than tying the knot; it’s that under current federal law if you and your long-term spouse make it into your 60s you might well be able to help your struggling finances by divorcing.
These are the implications of “Preferencing Nonmarriage In Later Years,” by law professor Richard Kaplan, the Guy Raymond Jones Chair in Law at the University of Illinois.
He highlights two key areas of elder finance where a couple is often better off unmarried than married: Social Security and nursing-home care. As these are two of the most important financial issues facing all elders, the argument about elder marriage—or elder divorce—may be more than academic.
On Social Security, Uncle Sam started taxing benefits in 1983. As Kaplan points out, the taxation system is so “bizarre” (his word) that taxes are higher on a married couple than on an unmarried couple with the exact same finances. That’s because Social Security taxes kick in at two thresholds, and in both cases, Kaplan says, “the applicable threshold for a married couple is less than twice the threshold for an unmarried person.”
The first income threshold is $25,000 for a single person, and $32,000 for a couple. The second threshold is $34,000 for a single person, and $44,000 for a couple. That means two unmarried people living together with incomes of $25,000 apiece will end up paying no Social Security taxes in retirement. They won’t even hit the first threshold. But a married couple with income of $50,000 blows through both thresholds and ends up paying tax on 85% of their benefits.
“The current income-tax structure pertaining to Social Security benefits makes nonmarriage the law’s preferred status on this important and widely applicable issue,” Kaplan writes.
This isn’t the only way the taxation of Social Security takes on a bizarre character. The taxes were introduced in 1983, under Alan Greenspan’s plan to “save” the system. As noted before, these are double taxes, because you pay into the Social Security system with after-tax dollars. So your contributions are subject to income tax, and then the benefits are subject to income tax as well. They get you coming and going, as the expression goes.