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EXPENSES & DEDUCTIONS

penalty/bonus. On the surface, Sec. marital decisions. Second is the upward couples are in the United States
199A appears relatively immune to trend in the number of opposite-sex (i.e., 412,000 same-sex¹⁴ and 8 million
marriage penalties/bonuses, in large couples opting to forgo legal mar- opposite-sex¹⁵).
part because the income ceilings under riage, likely for a host of reasons that This article discusses a series of
which a full QBI deduction is allowed include tax/financial considerations. hypothetical tax scenarios designed to
are logically paired (i.e., $163,300 for More specifically, Robin Fisher et al.,¹⁰ highlight the potential marriage bonus-
single taxpayers versus $326,600 for Mike Schneider,¹¹ and the U.S. Census es or penalties that may be associated
MFJ (2020 limits)). A deeper investiga- Bureau¹² found in their 2018, 2020, with Sec. 199A. It first briefly discusses
tion reveals this is not the case and that and 2021 studies that the number of the QBI deduction, with an explana-
the QBI deduction may significantly same-sex joint filers is estimated to be tion of key provisions of Sec. 199A, and
affect marriage bonuses/penalties.⁶ about 58% to 59% of the total number then gives an overview of the TCJA’s
One might ask whether tax planning of self-reported same-sex couples, while impact on marriage penalties/bonuses.
strategies linked to a decision to marry the same ratio for different-sex couples
are moot, given that a 1997 Congres- is 88.5% to 92%. Business taxation in the US
sional Budget Office study,⁷ using data Interestingly, the percentage of un- as justification for Sec. 199A
from 1969 to 1995, finds that marriage married same-sex couples has remained For federal taxation purposes, U.S. busi-
penalties/bonuses have little effect quite constant since marriage equality nesses fall primarily into two categories:
on whether a couple will marry. The was granted by the Supreme Court in (1) conduit (disregarded or passthrough
answer is no, for two reasons. First, the Obergefell v. Hodges¹³ in 2015, while the entities — e.g., sole proprietorships,
1997 study did not analyze same-sex percentage of unmarried opposite-sex partnerships, and S corporations) and
couples, who were granted the legal couples is on the rise, going from 8% (2) C corporations. Most businesses in
right to marry only in 2015,⁸ and who to 11.5% in the latter part of the last the United States are taxed as conduit,
Cheng et al.⁹ found do consider fac- decade. Overall, the data suggests that or passthrough, entities, as evidenced by
tors such as marriage penalties in their approximately 8.4 million unmarried the most recent data published by the

6. A variety of articles identify the marriage incentive possibilities of Sec. 199A, 10. Fisher, Gee, and Looney, Same-Sex Married Tax Filers After Windsor and
but none provide a relatively in-depth analysis (e.g., “Section 199A — The Obergefell, Tax Policy Center Urban Institute and Brookings Institution, p.
Tax Break of the Century,” Mad Fientiest (blog) (Aug. 12, 2019)). 20, Table 6, Line 1 (Feb. 28, 2018).
7. Congressional Budget Office, “For Better or For Worse: Marriage and the 11. Schneider, “Gay Marriages Rise 5 Years After Supreme Court Ruling,” As-
Federal Income Tax” (June 1997). sociated Press (Sept. 17, 2020).
8. By the U.S. Supreme Court decision in Obergefell v. Hodges, 576 U.S. 644 12. U.S. Census Bureau, “Census Bureau Releases Report on Same-Sex
(2015). Couple Households,” U.S. Census Bureau Release B21-TPS22 (2021).
9. Cheng, Crumbley, Enis, Yurko, and Yurko, “Does the Marriage Tax Dif- 13. Obergefell v. Hodges, 576 U.S. 644 (2015).
ferential Influence Same-Sex Couples’ Marriage Decisions?” 83 Journal of 14. U.S. Census Bureau, “Census Bureau Releases Report on Same-Sex
Marriage and Family 152 (February 2021). Couple Households,” U.S. Census Bureau Release B21-TPS22 (2021).
15. U.S. Census Bureau, “Who Is Living Together? Opposite-Sex Couples in the
United States,” (Nov. 19, 2019).

EXECUTIVE SUMMARY neutral with respect to married legalization of same-sex
and unmarried couples, for a marriages indicate that same-sex
• Changes made by the law known number of reasons, the QBI couples may weigh the tax and
as the Tax Cuts and Jobs Act, deduction can give rise to a financial implications of marriage
P.L. 115-97, included the creation marriage penalty or bonus. differently in determining whether
of the Sec. 199A qualified to marry.
business income (QBI) deduction • For opposite-sex couples,
to provide equity for passthrough studies have consistently shown • This article analyzes in four
entities taxed at individual tax that the existence of a marriage scenarios involving the QBI
rates with C corporations. penalty or bonus has little or deduction whether the deduction
no effect on whether a couple results in a marriage penalty or
• While, on its face, the QBI will marry. However, studies bonus for a couple.
deduction might seem to be conducted after the nationwide

24 December 2022 The Tax Adviser