Under the TCJA, the Marriage Penalty Was Bad for High Earning Newlyweds. Under the OBBA, it's Even Worse.
For most married couples, filing a joint tax return is generally simpler, cheaper, and better than filing separately. Joint filers are positioned in more favorable tax brackets and receive greater credits, so it’s advantageous to combine your returns.
The exceptions to this general rule are narrow and highly specific—think unusually large medical bills relative to one spouse’s income, student-loan repayment plans that look only at the borrower’s return, or in the heat of a separation or divorce proceeding. In less common cases, a separate return can be a rational choice even if it means losing out on some breaks.
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But starting in 2025, high-income couples may want to add a new reason to that list—preserving their full state and local tax deduction. Under the newly passed “One Big Beautiful Bill Act (OBBBA),” the marriage penalty embedded in the state and local tax (SALT) cap isn’t just back—it’s bigger and more punitive than it was under the 2017 tax law.
What’s most striking is that it builds on an existing penalty. Under the Tax Cuts and Jobs Act (TCJA), the state and local tax deduction was capped at $10,000, regardless of filing ‘single’ or ‘married filing jointly.’ That flat cap created a subtle but very real marriage penalty where two single filers could each deduct up to $10,000 in SALT, but a married couple filing jointly got the same total deduction. In effect, getting married cuts your combined SALT deduction in half.
Now, under the OBBBA, the SALT cap is being expanded to $40,000 per return starting in 2025, but the marriage penalty hasn’t gone away. In fact, it’s getting worse for certain couples. Unlike the TCJA’s uniform cap, the OBBBA introduces income-based phase-outs that hit joint filers harder and faster than those who file separately.
This means that while two high-income individuals could each preserve a full $40,000 deduction by filing their own separate returns, their combined deduction could shrink dramatically once they marry and file jointly. The old penalty was static, whereas the new one is dynamic and gets more harsh as your income rises.
What’s more, under the OBBBA, the maximum SALT deduction is $40,000 per return for both single and joint filers. However, those who are married and choose to file separately would be capped at $20,000 each.
The bill also includes an income phase-down. This indicates that for joint filers, the cap starts shrinking once modified AGI exceeds $500,000 and can fall back to the old $10,000 floor by $600,000 of income. But for separate filers, both the cap and the thresholds are halved, and the floor is $5,000. In other words, two high-earning singles can each claim a SALT deduction of up to $40,000, but as newlyweds filing together, they could see their deduction fall to as little as $10,000 if their combined income is high enough. That’s the new marriage penalty.
In many instances, the default is to file a joint return. But if you’re a high-income professional in a high-tax state and are looking to marry someone in a similar financial situation, filing separate returns can preserve more of the SALT deduction for both of you.
For example, two spouses each earning $250,000 with $40,000 of SALT apiece might keep $20,000 each by filing separately—totaling $40,000—whereas a $500,000 joint return maintains the same $40,000 deduction. But the moment either party starts earning more, a joint return would begin phasing down toward $10,000. And once they reach more than $600,000 in combined income, separate returns won’t help either because the separate-filer cap would phase down too.
If you’re a high-earning duo in a high-tax state such as New York, New Jersey, California, Massachusetts, or Connecticut, your outcome can vary greatly. And if your individual incomes are similar, there may not be much you can do once you tie the knot. But if one spouse makes significantly more than the other, regardless of your state of residence, it’s worth running the numbers to see how much savings filing separately can yield.
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Malcolm Ethridge is the Managing Partner at Capital Area Planning Group, based in Washington, D.C. His areas of expertise include retirement planning, investment portfolio development, tax planning, insurance, equity compensation and other executive benefits.
Disclosures:
The information provided is for educational and informational purposes only, does not constitute investment advice, and should not be relied upon as such. Be sure to consult with your legal advisors before taking any action that could have tax and legal consequences.
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