The Error Cost of Marriage
43 Pages Posted: 18 Sep 2020 Last revised: 29 Oct 2021
Date Written: August 1, 2020
Since its inception in 1918, the joint filing election has been one of the U.S. tax system’s most controversial concepts. This tax election allows married taxpayers to file a joint tax return or file two separate returns. Some err, either because they do not know they have a choice or simply because they choose unwisely and elect the less beneficial filing status.
The writers of the Code acknowledged taxpayers may need to correct a filing status error. Married taxpayers filing separately can retroactively amend their filing status for a previous year to joint filing under certain circumstances at no cost. Surprisingly, joint filers do not enjoy this opportunity to amend prior returns to filing separately in any circumstance. Scholars have extensively argued for and against treating married taxpayers as a single economic unit rather than on an individual basis. But they have yet to notice this asymmetric amendment rule. This Article is the first to examine the overlooked problem of the asymmetric treatment of married taxpayers who wish to amend their initial filing status election.
This asymmetric error-correction rule has two problems: it is unfair and inefficient. First, it enables only one group of married taxpayers to revisit their election and correct their filing status. Given that the U.S. tax system incentivizes joint filing in several ways, married taxpayers assume joint filing is the sole or favorable election for them. That, however, is not always the case. This rule has adverse effects on the fairness of the tax system, especially when it comes to female taxpayers who usually bear the cost of joint filing. Second, those who can correct their election do not bear correction’s administrative costs, producing an administrative inefficiency.
After identifying and explaining this puzzling problem, the Article proposes an elegant solution: a Pigouvian rule enabling all married taxpayers to amend but requiring them to internalize all the associated administrative costs through a reduced tax refund. This rule eliminates both inefficiencies and unfairness.
Keywords: tax elections, errors, filing status, married filing separately, married filing jointly, joint and several liability, asymmetry, Pigouvian tax
JEL Classification: K34
Suggested Citation: Suggested Citation