Same-Sex Married Couples: Tax Issues

Nobody looks forward to tax day, but for same-sex partners, April 15th was particularly daunting because gay and lesbian couples faced a number of complicated tax issues that married heterosexual couples did not. With the IRS ruling in 2013 that all legally married same-sex couples will be treated as married for federal tax purposes, things have gotten easier for same-sex couples.

This article discusses the basics of how states and the federal government treat same-sex couples for tax purposes. But keep in mind that many factors can affect your tax situation -- from the state you call home, to how much money you make, to how much property you expect to own when you die. If you can afford it, it’s smart to consult a tax pro who can help you find your way through the tax laws in your state and the particular issues that affect you and your partner.

Filing Federal Income Tax Returns

Effective starting with all 2013 tax returns, if you and your partner are legally married under the laws of any state, the District of Columbia, a U.S. territory, or a foreign country, you must file your federal tax return as a married couple—either married filing jointly or married filing separately. This is the result of a Treasury Department and IRS ruling stating that all legally married same-sex couples will be treated as married for federal tax purposes, regardless of whether or not the state where they reside recognizes same-sex marriage. This ruling came in the aftermath of the Supreme Court’s decision in the Windsor case striking down key provisions of the Defense of Marriage Act (“DOMA”) and requiring the federal government to recognize same-sex marriages.  The federal tax same-sex marriage recognition does not apply to registered domestic partnerships, civil unions, or similar formal relationships recognized under state law.

If you and your partner have a child, you can claim that child as a dependent when you file your federal return. You might also qualify for the child tax credit -- currently $1,000 if your gross income is less than $75,000. In addition, if you provide more than half of the child’s support, you can file as head of household, which will usually lower your tax bill. A qualified tax professional can explain your options.

Filing State Income Tax Returns

For same-sex couples, the rules for filing state tax returns depend on where you live.

States That Recognize Same-Sex Partnerships. If you live in a state that recognizes your same-sex marriage or marriage-equivalent registration, you must file state tax returns as a married couple, following all the tax rules that apply to marriage.

States That Don’t Recognize Same-Sex Partnerships. In states that don’t recognize same-sex marriage or offer domestic partnerships or civil unions with marriage-like benefits, you must file your state taxes as single individuals.

Estate Tax

Only very wealthy couples need worry about federal estate tax. The federal government imposes a tax on your estate only if it is worth more than $5.25 million when you die (2013; this amount is adjusted for inflation each year). For those estates that are subject to this tax, however, the financial hit is significant. Under federal tax law, all property left to a spouse passes tax-free, as long as the spouse is a U.S. citizen. Under the IRS and Treasury Department ruling recognizing all legal same-sex marriages, this rule now applies to all same-sex married couples.

Gift Taxes

As with estate taxes, married couples are exempt from federal gift tax rules. This now applies to all legally married same-sex couples.

Employment Benefits

When spouses and their children receive health benefits through one spouse’s job, the value of the benefits is exempt from federal taxes. Now legally married same-sex couples will also enjoy this tax benefit under the new IRS rules passed in 2013.

For More Information

This is just a summary of some of the tax issues affecting same-sex partners. For more information, we recommend that you read Making It Legal: A Guide to Same-Sex Marriage, Domestic Partnerships & Civil Unions, by Frederick Hertz with Emily Doskow (Nolo).

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