The Complete Guide to 2014 Tax Filing for Same-Sex Married Couples

In June 2013, the U.S. Supreme Court struck down the Defense of Marriage Act, otherwise known as DOMA. This decision revolutionizes tax-filing for married, same-sex couples. (Who thought taxes could be so revolutionary?)

First, some background.

In 1996, both houses of the U.S. Congress and President Clinton passed DOMA, a federal law that allowed states to refuse to recognize same-sex marriages performed in other states.  

What does that mean? Well, for example, if an opposite-sex couple gets married in Massachusetts, all 49 other states are required to recognize the marriage, as is the federal branch of the U.S.

But under DOMA, if a same-sex couple got married in Massachusetts, no other state was required to recognize those vows. More importantly (for tax purposes), the federal government didn't need to acknowledge it, either. Federal entities didn't need to recognize same-sex marriages for the purposes of granting Social Security benefits, insurance benefits, immigration status, or tax-filing status.

That changed last June, when the Supreme Court ruled DOMA unconstitutional in a 5-4 vote. This means we're now in the middle of an unprecedented tax-filing season: For the first time in our nation's history, some married same-sex couples must fill out their tax forms as "married filing jointly" or "married filing separately," whichever they choose.

Does your marriage qualify?
To qualify to file taxes as a married couple, you and your partner must be "legally married in jurisdictions that recognize their marriages," according to a press release jointly issued by the IRS and U.S. Treasury Department. To be clear: That means you and your partner can't simply be members of a same-sex civil union. You must be legally wed in one of the 17 states (or District of Columbia) that will perform the marriage. 

That doesn't mean you need to live in one of those states; you simply need to perform the marriage ceremony within those jurisdictions.

Should we file jointly?
You can now choose whether to file taxes jointly or separately, just as opposite-sex married couples choose. This is a key benefit.

However, you may not want to file jointly. This decision should involve a conversation with your tax advisor.

If one partner earns a high income (and is in a high tax bracket) and the other partner earns a lower income (and is in a lower tax bracket), you may benefit from filing taxes jointly. But if both of you are high-income earners, you may (or may not) pay a smaller tax bill by filing separately.

 

(Of course, "married filing separately" raises several other complications. For example, the upper income limit for contributing to a Roth IRA in tax year 2013 is $183,000 for "married filing jointly" but only $10,000 for "married filing separately.") 

Your precise recommendation will depend on your income, deductions, and other individual considerations, so talk to a CPA (preferably one who is experienced at managing same-sex issues.) 

The bottom line, though, is that the choice is now yours.

What other benefits do you have?
Beyond capitalizing on a potential opportunity to shield some of your income within a lower tax bracket, though, the downfall of DOMA offers plenty of other benefits:

  • Did you purchase health insurance through your employer for your same-sex spouse? Did you pay for these premiums with after-tax dollars? If you answered "yes" to both questions, you can now deduct those premiums.
  • Does one partner earn the majority of the income, while the other is a stay-at-home spouse? If so, the breadwinner can claim the other spouse as a tax dependent.
  • Does only one spouse collect "earned income?" If so, you're now eligible to open a Spousal IRA for the other partner, based on your joint household earned income. 

Furthermore, you're now eligible to claim child tax credits, joint itemized deductions, personal exemptions, the earned income tax credit, and joint retirement benefits.The establishment of federally recognized same-sex marriage also opens an entire new world of immigration claims. 

There's also a time-sensitive component you should know: If you were legally married within the last three years (in 2010 or later), you can file an amended tax return in order to retroactively claim any benefits that you would have been eligible to receive if you had filed as a married couple. 

For example: Let's assume you've been married since 2010. You've been paying out of pocket for health insurance premiums for your spouse for that entire time. Your spouse stays at home with the children and doesn't collect an income. Under this scenario, you may be eligible to file an amended tax return to claim your spouse as a dependent, deduct your health premiums, and contribute to a spousal IRA.

But hurry -- the statue of limitations on your amended tax return is three years from the date the return was filed or two years from the date the tax was paid, whichever is later. 

Again, please consult with a CPA who specializes in working with same-sex married couples.

DOMA was a tax ruling
One final tidbit of history: Did you know that the strikedown of DOMA was a tax ruling?

Thea Spyer and Edith Windsor were together for 40 years. They officially married in Canada in 2007, and they resided in the state of New York, which recognized their marriage. But when Spyer passed away, Windsor was hit with a $336,000 federal estate tax bill -- which she wouldn't have received if the IRS recognized her marriage.

 

Windsor filed a lawsuit against the IRS, seeking a tax refund. The suit claimed "differential treatment compared to other similarly situated couples without justification." 

Her tax-refund request changed the world.

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Read/Post Comments (3) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 08, 2014, at 5:35 PM, alphazip wrote:

    This article states: "To be clear: That means you and your partner can't simply be members of a same-sex civil union. You must be legally wed in one of the 17 states (or District of Columbia) that will perform the marriage." THIS INFORMATION IS INCORRECT. To file as married, you must be married in a JURISDICTION, domestic or foreign, that conducts same-sex marriages. For example, Edie Windsor, who won the DOMA case in the U.S. Supreme Court was married in Toronto, Ontario, Canada, NOT a U.S. state.

  • Report this Comment On March 09, 2014, at 3:29 PM, foolery wrote:

    @alphazip -- That's exactly what the article says. The article correctly states that "you simply need to perform the marriage ceremony within those jurisdictions." -- i.e., within jurisdictions that conduct same-sex marriages.

    You cannot qualify for the tax benefits with a civil union. You can only qualify to file as a married couple if you get married within a jurisdiction that conducts same-sex marriage. The article is very clear about this.

  • Report this Comment On March 12, 2014, at 1:38 PM, alphazip wrote:

    Thanks @foolery, but your post doesn't really address the specific quote from the article with which I disagree.

    The article states that to qualify to file as married, a same-sex couple has to be legally married (and I quote): "IN ONE OF THE 17 STATES (OR DISTRICT OF COLUMBIA) THAT WILL PERFORM THE MARRIAGE."

    Well, is Canada a state? How about the Netherlands, Belgium, South Africa, etc.?

    Therefore, the article is NOT correct. Although a couple DOES have to be legally married, that marriage does NOT have to have taken place in a "state". Otherwise, Edie Windsor (married in Canada) won her case for nothing.

    Moreover, marriages that occurred in Utah (before the Supreme Court issued a stay) are also recognized by the IRS. Utah is not one of the "17 states" referred to in the article.

    In summary, my objection has nothing to do with civil unions, only the statement that a marriage must take place in one of "17 states" (or DC) to qualify.

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