Something new, exciting and a bit scary is coming this tax season for some same-sex couples across the country: For the first time, they will file as “married” on their federal return.
This new policy will simplify the process for preparing federal taxes, but it may boost some couple’s total tax liability.
Here’s the new IRS policy: If you were legally married in any state or foreign country on the last day of 2013, you are married for tax purposes. The rules only applies to couples who are legally married. The IRS does not consider domestic partnerships or civil unions to be marriages.
“This is regardless of where you now live,” said Jonathan Horn, a CPA in Manhattan and chair of a tax panel at the American Institute of CPAs. “You must file as married in 2013, even if you live in a state that does not recognize same-sex marriage.”
There could be some benefits to filing this way: deductions or credits that can now be claimed. But because of the so-called “marriage penalty” — something straight couples know all about — you may wind up paying more.
“As a general rule, if there are two partners with a high income, they’ll probably see a slightly higher tax liability,” said Bob Meighan, a vice president at TurboTax. “Whereas, if one is in the low-income range and the other is the high range, they’ll probably see some benefit.”
Gregory Hullender and Eric Wong live in Seattle and work in the computer industry. They were married in November of 2013. They realize they might pay a bit more this year, but they’re not really worried about it.
“There is something exciting about this; it makes the process complete,” Hullender said. “We will file one return this time and can stop attempting to track who owns what assets.”
And then there are state income taxes
Same-sex marriage is not legal in a majority of states. If a gay couple was married in one state but lives in or moves to another that does not recognize their marriage, each spouse may have to file a “single” state income tax return.
“It’s a patchwork of rules out there right now,” Meighan said. “If you’re in a state that recognizes same-sex marriage, that’s good news. If not, are they going to honor the federal requirement for joint-filing or are they going to require the partners to file separately?”
Each state gets to make up its own rules for filing state income taxes, and in some cases, those rules are still in flux. Some states have created new forms for same-sex couples to use if they file a joint federal return.
“I see a tremendous amount of confusion,” said Janis Cowhey McDonagh, co-leader of the LGBT Practice group at the accounting firm Marcum, LLP. “People don’t understand what their state requires, even if it recognizes their marriage. And things keep changing, so there’s a lot to keep up with.”
For example, a federal judge recently overturned Utah’s ban on same-sex marriages. A later ruling blocked that decision until it could be appealed by the state. Between those two rulings, more than 1,000 same-sex couples married in Utah.
Last week, Utah’s governor sent out a memo that said, “State recognition of same-sex marital status is ON HOLD until further notice.”
But U.S. Attorney General Eric holder said the federal government will recognize those marriages, so those Utah couples married by December 31 will file as married on their federal return.
Taking a look at past returns
Couples who have been married in a state that recognized gay marriages before 2013 should look at their prior returns to see if they should refile them.
“You’re not obligated to amend prior returns, but some couples might find that it’s beneficial. You can do that for three years,” explained Annette Nellen, director of the graduate tax program at San Jose State University. “For example, if two years ago, one spouse had a big capital gain and the other had a big capital loss, they can amend that year's returns — to change to a joint return — and use the loss against the gain.”
- American Institute of CPAs: Domestic Partners and Same-Sex Couples
- IRS: FAQs for Individuals of the Same Sex Who Are Married Under State Law
- Marcum’s Top Tax Tips for Same-Sex Married Couples