WASHINGTON — Even though an increasing number of states are legalizing gay marriage, same-sex married couples still won’t be able to file joint federal tax returns this year.
The federal Defense of Marriage Act defines marriage as “a legal union between one man and one woman,” and that’s what the Internal Revenue Service follows when it comes to federal income taxes.
“Same sex couples are not recognized for federal tax purposes,” said Mark Luscombe, the principal federal tax analyst for CCH, a consulting firm based in Riverwoods, Ill.
And that can make tax season a challenge for same-sex couples.
“We’re absolutely hearing from folks. It’s a major concern because of the range of tax issues,” said Brian Moulton, legal director at the Human Rights Campaign, the nation’s largest advocacy group for the lesbian, gay, bisexual and transgender community.
Even though same-sex couples may be able to file jointly on state tax returns, they will have to file as individuals or — if there is a qualifying dependent — heads of household on their federal returns. But here’s the catch: the other spouse in a same-sex marriage does not qualify as a dependent for head of household filing status.
As a result, married same-sex partners may end up filing as individuals for their federal returns and jointly for their state taxes in those states that have legalized gay marriage. Since many states require taxpayers to use their federal return to fill out the state one, they may have to fill out a “dummy joint federal return to figure out what you put on your state return,” Luscombe said.
Nine states and the District of Columbia have legalized gay marriage. Of the 41 states that haven’t, 30 have constitutional bans on gay marriage.
In his inaugural address Monday, President Barack Obama gave a boost to gay rights and marriage. “Our journey is not complete until our gay brothers and sisters are treated like anyone else under the law, for if we are truly created equal, then surely the love we commit to one another must be equal as well,” he said.
The U.S. Supreme Court last month agreed to take up the issue of gay marriage, considering both California‘s constitutional ban on gay marriage and provisions of the Defense of Marriage Act pertaining to federal benefits, including taxes.
Moulton said the federal tax issues goes beyond filing status and estate taxes, which is the basis of the DOMA case before the Supreme Court. Also at issue is the tax treatment of company-provided health benefits. “If the person is not a spouse or dependent under federal law, that is treated as taxable income,” he said.
“It’s a very complex and cumbersome practice for gay married couples to prepare tax returns,” said Kathy Pickering, executive director of The Tax Institute at H&R Block.
Since spouses in gay marriages have to file federal taxes separately, each can decide whether to itemize deductions or take the standard deduction, depending on which is more advantageous. The standard deduction for 2012 is $5,950 for individuals.
Then, there’s the issue of dependents.
Article continues belowMarried same-sex parents will have to decide who will claim the children as dependents for tax purposes. One can, but not both. If both do, they’re essentially leaving it up to the IRS to decide who gets to claim the children. The IRS says it will first look at who the kids lived with longest during the year. If the period is the same, the person with the higher adjusted gross income usually will get to claim the children.
How will the IRS know if both members of the couple try claiming the child? You have to report the Social Security number of qualifying dependents of your tax return.
If a child was adopted, each parent in a same-sex union can claim the adoption credit for the individual expenses incurred, but the total cannot exceed $12,650, the maximum credit.
What if a person is adopting the child of the same-sex partner?
“The law does not allow taxpayers to claim an adoption credit for expenses incurred in adopting the child of the taxpayer’s spouse,” the IRS says. “However, this limitation does not apply to adoptions by same-sex partners because same-sex partners, even if married for state law purposes, are not treated as spouses under federal law.”
Because same-sex couples aren’t legally married in the eyes of the federal government, they don’t get the favorable treatment for estate taxes that a heterosexual couple would.
That is one of the issues before the Supreme Court.
In a case involving a woman, Edith Windsor, who faced a $363,000 federal estate tax bill after the death of her same-sex spouse, the U.S. 2nd Circuit Court of Appeals in New York ruled that the Defense of Marriage Act deprived her of the equal protection guarantees in the Constitution.
“Either way the Supreme Court rules on DOMA, there will be federal tax questions,” National Taxpayer Advocate Nina E. Olson said in a 2012 report to Congress.
A key question would be retroactivity if the court finds the law unconstitutional, according to the advocate’s 2012 report. “Could same-sex spouses amend their returns to file jointly? Conversely, would same-sex spouses who had avoided federal marriage penalties be held harmless? What would be the federal filing status of same-sex spouses legally married in one state but residing in a different state that does not recognize their marriage?”
The report called on the IRS to provide comprehensive guidance, beyond what it has already put out for same-sex couples. “Failure to render guidance on the fundamental question of the taxable unit of more than 1 million individuals impairs tax administration,” the report said.
FAQ’s for Same-sex couples (IRS website)
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