House Research Department Updated: July 2007
Marriage Penalties and Bonuses and the Minnesota Income Tax Page 19
between the spouses. For example, if each spouse has $25,000 of income, the lower threshold
for including benefits in taxable income for joint filers increases the married couples’ taxable
income by $11,100.
33
By contrast, if one spouse was in the workforce and not receiving benefits
and, thus, would not have benefited from the $25,000 floor on inclusion of benefits in taxable
income, the couple receives a marriage bonus, because marriage increases the amount of
provisional income necessary to trigger inclusion of benefits in taxable income to $32,000.
Numerous provisions of federal law carry over to state law and can result in marriage penalties
or bonuses under the state tax. In 1996, the General Accounting Office (GAO) catalogued 59
provisions of the federal income tax where tax liability depends upon marital status and, thus,
can result in penalties or bonuses.
34
Of these 59 provisions, some do not carry over to calculation
of the Minnesota tax because they affect credits, rates, or other tax features that do not flow
through to Minnesota tax. However, 42 appear to flow through to Minnesota tax.
35
Since the
GAO report was prepared, Congress has enacted several tax bills. These bills have modified
some of the affected provisions and have enacted new provisions that create penalties and
bonuses.
36
The legislature has opted to conform to federal income tax provisions for a number of reasons.
Perhaps the most important of these is simplicity and ease of compliance and administration for
both taxpayers and the Revenue Department. Since most individuals must comply with the
federal tax, adopting its provisions greatly simplifies compliance with the Minnesota tax.
Adopting an approach that deviates from federal law on these basic tax base calculations could
have a high cost in additional resources for individuals to comply with the law. This was one of
the major complaints about the pre-1985 Minnesota tax that differed substantially from federal
law, including using individual filing rather than joint filing by married couples, the major source
of penalties and bonuses.
33
For married joint filers, the amount of Social Security benefits included in taxable income equals 50 percent
of the first $12,000 of provisional income (adjusted gross income other than Social Security benefits, plus tax-
exempt interest and half of Social Security benefits) over $32,000, and 85 percent of provisional income over
$44,000, up to a maximum of 85 percent of benefits. For single filers, 50 percent of the first $9,000 of provisional
income between $25,000 and $34,000 plus 85 percent of provisional income over $34,000 is included in taxable
income. Thus if two single filers with $25,000 of provisional income each marry, they move from having no
benefits included in taxable income to having up to $11,100 of benefits include in taxable income (50 percent of the
$12,000 of provisional income between $32,000 and $44,000, plus 85 percent of $6,000 of provisional income
between $44,000 and $50,000). The actual amount included in taxable income would be limited to 85 percent of
benefits. This example assumes that each single filer received higher Social Security based on individual earnings
rather than on the spousal benefit; in many cases couples would experience an increase in the amount of benefits
received as a result of marriage.
34
General Accounting Office, Income Tax Treatment of Married and Single Individuals, September 1996.
35
The marriage penalty or bonus potential of most of these provisions is minor. Some affect few taxpayers.
For others, the likelihood that they result in marriage penalties or bonuses seems low. It does, however, point out
the pervasiveness of the phenomenon.
36
See, e.g., Adam Carasso and C. Eugene Steuerle, How Marriage Penalties Change under the 2001 Tax Bill
(Washington, DC: Urban Institute, 2002) (estimating changes in penalty amounts).