The so-called “marriage penalty” affects couples whose incomes are roughly equal, or those where both spouses are in the upper brackets. Such couples will owe less tax if they’re unmarried, filing singly, than they would if they were married. As a result, some couples, including retirees, choose to cohabit rather than marry in order to hold down their tax bill.
On the other hand, couples with one primary breadwinner and one homemaker get a tax break if they’re married and file a joint return. If a couple that is cohabiting have unequal incomes, marrying likely will cut their taxes.
If that’s not possible or not desirable, an unmarried couple can try to shift tax-deductible expenses to the partner with the greater income. For example, the upper-income partner should write the checks for mortgage expenses, property taxes, and charitable contributions.
Moreover, if the partner who pays the mortgage interest is not the partner who owns the house and owes the mortgage debt, no deduction will be allowed. If possible, unmarried couples should arrange home ownership and borrowing so that the higher-income partner pays debt service on a mortgage for which he or she bears liability.
