Taxes

The most common tax surprises for same-sex couples

March 8, 2014 at 7:54 AM ET

Same-sex married couples might need to consider new rules for everything from filing tax returns to planning inheritances and gifts.
Jacques Brinon / AP
Same-sex married couples might need to consider new rules for everything from filing tax returns to planning inheritances and gifts.

For some same-sex spouses, love and marriage are giving way to paperwork and planning.

The Supreme Court ruling that struck down a key provision of the Defense of Marriage Act means that from now on, the Internal Revenue Service will treat legally married same-sex spouses as married for federal tax purposes.

That could mean couples have to follow new rules for everything from filing tax returns to planning inheritances and gifts.

These aren’t new issues for tax experts and estate planners, but experts say it can be a steep learning curve for same-sex couples who for years handled things differently.

“These are all things we have done for years for opposite sex couples,” said Marci Flanery, an accountant who runs a tax practice in Seattle. “It’s not really new ground — it’s new ground for same-sex couples.”

Flanery said some same-sex couples she works with have kept their finances largely separate. They can still do that, but they’ll need to calculate some information jointly for tax purposes.

Others have set up other legal workarounds to allow them to own property jointly or leave an inheritance to one another. Now, some of those arrangements may need to be reworked because of the federal recognition of their marriage.

Few people revel in delving into financial paperwork or learning about tax law. But Pan Haskins, a tax accountant in the San Francisco Bay Area, said most same-sex spouses she works with are not too bothered by a little added work, or even a higher tax bill than before.

“I’m finding that they’re just so happy to be able to get married,” she said.

Video: Same-sex couples who took a trip to the altar this year, or are just filing a joint federal return for the first time, will have a host of new issues to deal with, reports CNBC's Allison Linn.


Still, Haskins said many same-sex couples may be so happy about the emotional part of being married that they haven’t considered what they should be doing to make sure they have their financial plans in order.

“It’s the things they’re not asking,” she said.

Here are some common tax and financial issues same-sex spouses should be considering.

Marriage penalty or bonus: Before the Supreme Court ruling last June, many same-sex spouses had to go through a rigorous process of filing their state taxes jointly and their federal taxes individually.

Now that they can file their federal taxes jointly, some are finding that it’s a financial boost because their overall taxes go down, creating a marriage bonus.

Others are getting hit with what’s called a marriage penalty. That’s most likely to happen when two people have similar earnings, bumping them into a tax bracket that is higher overall than if they were single. Some of the nation’s biggest earners may end up paying a higher marriage penalty this year, because of relatively new tax provisions.

Other tax provisions: Experts say same-sex spouses who are filing jointly for the first time will want to make sure they are correctly accounting for a host of tax provisions, including retirement plan contributions, child tax credits and the earned income tax credit.

The IRS has a list of frequently asked questions to help same-sex couples correctly navigate rules that may be new to them.

Wills and inheritances: The Supreme Court case that struck down the Defense of Marriage Act was based on a dispute over inheritance taxes. Edith Windsor inherited her wife’s estate and argued that she shouldn’t have to pay a steep tax bill when a heterosexual couple wouldn’t.

Experts say same-sex couples should make sure their wills and inheritance plans are organized to make sure spouses are taking advantage of the favorable tax laws that now apply to them because they are recognized as married. The review should include things like 401(k) retirement plans, which usually require the investor to name a specific beneficiary.

Real estate: Some same-sex spouses may have set up things like joint tenancy agreements so they could co-own property together. Now, experts say they may want to revisit those plans to reflect that they are legally married.

Allison Linn is a reporter at CNBC. Follow her on Twitter @allisondlinn or send her an e-mail.

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