By Jon Hamilton
Late last week, the IRS issued Revenue Ruling 2013-17 which clarifies the Treasury Department’s handling of legal same sex marriages for federal tax filing purposes after Section 3 of the Defense of Marriage Act was ruled unconstitutional by the United States Supreme Court. As expected, the IRS will recognize all legal same sex marriages for federal tax purposes. It is a major victory for equality under the law, but such recognition may save or cost you tax dollars depending upon your unique circumstances and facts.
Following is a bullet point list of items I felt important to convey to my clients:
- Your marital status will be based upon the Laws of the State where the Marriage is initially established. If you are legally married in one of the states where Same Sex Marriage is permitted, you will file your 2013 tax returns as Married filing Joint or Married filing Separately.
- Residing in or relocating to a state which currently does NOT recognize same sex marriage will NOT affect your federal filing status or obligations.
- Registered Domestic Partnership or Legal Civil Unions will NOT be considered as married for federal tax purposes.
- Couples legally married prior to these rulings ARE permitted to amend prior federal tax returns for years 2010, 2011 & 2012 as applicable.
Overall this is great news but it does carrying a few caveats:
- It might cost you more in taxes! Yep, the “marriage penalty” is alive and well in the tax code. The tax brackets for married filing jointly ARE NOT double the single status for incomes surpassing the 15% tax bracket. For instance, the Single 25% tax bracket is $36,250 to $87,850, whereas the MFJ 25% bracket starts at $72,500 but ends at $146,400. The difference is more pronounced in the 28% bracket which ends at $183,250 for a single filer but just $223,050 for a MFJ filer. Example: (2) single filers with 100K of taxable income each would pay $21,293 or a combined $42,586 in federal taxes. But if they get married then their tax bill increases $879 to $43,465.
- Tax preparation will cost more since Indiana does not recognize same sex marriages. Even though a single joint tax return will be required at a federal level, dummy single federal returns will have to be created to e-file individual Indiana returns. This could be problematic for Indiana as the IRS shares tax files with the state, which will no longer match to the “single” filing status Indiana will require.
- Means Tested Benefits – Be very cautious if you have a partner who receives means tested benefits such as assistance for HIV medications. If you legally marry, then your spouses’ income may be included to determine future eligibility.
- Estate Taxes – This is why the DOMA law was overturned. The lack of federal recognition for a legally married same sex couple forced the surviving spouse to pay hundreds of thousands of dollars in estate taxes. There is an unlimited spousal deduction for transfers to your spouse upon death.
- Tax Free Fringe Benefits – If you receive medical and other fringe benefits via your spouse/domestic partner they will no longer be considered taxable to the employee. Previously those benefits were subject to tax since the federal government did not recognize the marriage.
If you would like me to study the specific ramifications for your individual tax situation, please let me know.
0 comments:
Post a Comment