All the Single Killers…
You might think this article would be a parody of Beyonce’s hit song, not about the tax disadvantages Single Steely-Eyed Killers face compared to their married counterparts. You’d be half right. The Beyonce similarities end at the title.
Single taxpayers face many disadvantages, but let’s focus on three that are awfully common to the fireproof pajama-wearing crowd: punishing tax brackets, Roth IRA rules, and heavily-taxed gains on home sales.
Tax Bracket Climb Rate
An O-4 with 12 years of service earns about $160K of taxable income in 2024 with basic pay, flight pay, and a $35K bonus. If married, s/he pays about $19K in federal income tax. Single zipper-suited sungods(esses)? That’ll be $28K please. A 47% increase occurs because single filers are in full AB through compressed tax brackets while their married counterparts can saunter without touching the 24% bracket until about two stars.
Shut the Front Door
If you earn too much, you can’t contribute to a Roth IRA. There’s a work around known as the Backdoor Roth IRA so you can think of your normal Roth IRA contributions as using the “Front Door.” A single-ship tax filer only needs to have an income above $146K to require the Backdoor Roth IRA strategy (2024). To avoid flying into the IRS MEZ, lots of single filers will skip IRAs when their tax software squawks about income being too high. Married filers? No such drama. The Roth IRA income phaseout doesn’t start until $230K. Married filers get 58% (Rage!) more income headroom before jumping through Backdoor Roth IRA hoops.
There’s no Tax like Home
Generally, if you lived in a home 2 of the last 5 years (15 for active military), you can exclude part of the gain the home sale, up to $500K for married couples. Single pringles? $250K. Does the IRS think the homes of single people appreciate slower? More likely, the tax code doesn’t like the idea of wealthy Gordon Gecko types getting a pass on their taxes while hard-working married couples struggle with the realities of raising families. Single service members know all too well that that if the military really wanted you to have a spouse, a spousal unit would be issued. There probably aren’t too many folks simultaneously putting their lives on the line thinking, “I hope that my military service allows me to outearn married couples, live a lifestyle generally hostile to finding a mate, and get skinny against the tax man…”
Cleared to Rejoin
Can the Single Ship Mission be Successful? We can skip past the notion of getting married just for the tax brackets, although if you’re planning on getting married on January 1st, you might consider hitting the courthouse for a quick Justice of the Peace ceremony before December 31st since you only need to be married on the last day of the year to file with Married Filing Joint status. Perhaps use the tax savings for the honeymoon? Single filers can choose Traditional TSP, which might drop the fight down a block to a lower tax bracket, e.g., 24% to 22%. The same tactic could enable “Front Door” Roth IRAs. If selling a home with more than $250K of gain, at least the gain over $250K will probably be taxed at 15% rather than a higher rate. But the fact remains that while the tax code has some “marriage penalties,” single military members, especially field-grade officers bare a heavy tax burden compared to their married peers. Before giving in to tax despair, keep in mind that the tax game isn’t about lower taxes this year, it’s about lower taxes over a lifetime. Working with a tax-focused financial planner can at least help identify targets of opportunity to skinny-down the tax bill.
