The Tax Man Cometh

I just received my final tax forms from my company, mutual fund holdings, etc. I use TaxCut and have found over the years that it has gotten better and better (at least the interface has gotten prettier). As usual I imported last years return and started filling in all the 1099's and W-2s. One difference this year is that I'm no longer single (got married last summer). Now, I was expecting back around $6,000 based upon the fact that I over paid Social Security due to a job switch in October (basically, you stop paying social security once you hit $94,200. However, if you switch jobs the new company usually considers you starting from zero...won't get it back until tax time). When I finished the last entry I looked up in that little right corner box and saw those devilish red colored numbers saying I owed $654 to the federal government!

I kept going over in my head what could have I done wrong! An extra zero here, a double entry there? The next day I figured it all out by entering both my wife and myself as single. Lo and behold I got back around $5,500 and my wife got back $500. My missing 6 grand.

What happened was since my wife and I earn close to the same salaries our combined income pushed us into the next tax bracket. She was in the 28% bracket and I was in the 33% bracket. Combining us together essentially made all of her income taxed at the 33% level. I always heard about the marriage penalty, and now I had it slap me in the face.

Here is the federal tax schedule:
http://www.irs.gov/formspubs/article/0,,id=150856,00.html

I jokingly said to my wife that she was costing me 6 grand a year...she coyly smiled and said to just wait because she has her eye on a few new designer handbags! Gulp!