About 6 Weeks ago, my wife-to-be forwarded me an email from her work regarding the U.S. Treasury’s Recognition of Same Sex Marriage for tax purposes. I promptly threw it in a folder without reading it because – taxes are boring. However, being a grown up, and one who owns several businesses, I have since revisited the subject and it seems prudent to give the high points here for those who may benefit in the near future as that gay wedding date approaches.
More Federal Recognition for Same Sex Marriage
On August 26th, 2013 the Department of Treasury and the Internal Revenue Service (IRS) ruled that same-sex couples who were legally married in jurisdictions that recognize their marriages (sounds redundant), will be treated as married for federal tax purposes. This ruling applies regardless of whether or not the couple lives in a jurisdiction that recognizes same-sex marriage.
“Today’s ruling provides certainty and clear, coherent tax filing guidance for all legally married same-sex couples nationwide. It provides access to benefits, responsibilities and protections under federal tax law that all Americans deserve,” said Secretary Jacob J. Lew. “This ruling also assures legally married same-sex couples that they can move freely throughout the country knowing that their federal filing status will not change.”
The Good, The Bad…
The decision was actually prompted by the U.S. Supreme Court’s ruling overturning DOMA, and provides a uniform policy for the IRS with regards to same sex marriage. In these cases, the state where the marriage took place now trumps the state of residency when it comes to federal tax status for same-sex married couples. Also under the Treasury’s new policy, all federal tax provisions where marriage is a factor, including filing status, employee benefits, IRA contributions, earned income, child tax credits, and income, gift and estate taxes, will apply to same sex couples regardless of where they live.
Unfortunately, on the other side of the coin, gay couples will now get their fair share of what is called the “marriage penalty”, in which some joint filers incur a higher tax burden than they would if filing as singles. The ruling means legally married same-sex couples may choose to file their federal taxes as married filing jointly or married filing separately. Before this ruling, same-sex married couples had to declare themselves as “unmarried” on federal tax returns. This ruling does not apply to those in registered domestic partnerships or civil unions.
“With today’s ruling, committed and loving gay and lesbian married couples will now be treated equally under our nation’s federal tax laws, regardless of what state they call home,” said Human Rights Campaign President Chad Griffin. “These families finally have access to crucial tax benefits and protections previously denied to them under the discriminatory Defense of Marriage Act.”
Retroactive Benefits for Same Sex Couples
Been married awhile and feel that this could have benefited you? No problem. You can actually go back and file amended federal tax returns to change your filing status for the tax years 2010, 2011 and 2012 to seek possible tax refunds. Also, the Treasury Dept and IRS plan to issue procedures for employers that wish to file refund claims for payroll taxes paid on previously taxed health insurance and fringe benefits provided to same-sex spouses. They also say that they intend to issue further guidance on cafeteria plans and on how qualified retirement plans and other tax-favored arrangements should treat same-sex spouses for periods before the effective date of this revenue ruling.
What About State Tax Returns in “Those” States
While the ruling brings clarity and relief for many on the federal side, it is likely to cause a great deal of confusion for state returns filed by gay married couples in states that do not recognize their marriages. This is because many states require taxpayers to “refer to federal tax returns” when it comes to filing status and calculating federal taxable income. How this will shake out is anyone’s guess right now.
I can tell you that I’m glad that I understand this more thoroughly but am not looking forward to paying higher taxes after getting married, which is what I suspect is going to happen for us. Regardless of whether we file jointly or separately, the knowledge that we now have a choice in the matter is comforting and that we are afforded many more equal protections under the law than we had just a few short months ago is a blessing for marriage equality. So much progress.