If you are part of a same-sex couple, April 15th can be a daunting date. However, things have gotten simpler for IRS federal tax purposes. On August 29, 2013, the IRS ruled that same sex couples who are legally married in any state will be treated as married for federal tax purposes, regardless of whether or not the state where they reside recognizes same-sex marriages.
Currently, sixteen states and the District of Columbia recognize same-sex marriage. These states are California, Connecticut, Delaware, the District of Columbia, Hawaii, Illinois, Iowa, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New Jersey, New York, Rhode Island, Washington, and Vermont. (This is a rapidly changing area of law so check that this is the most up-to-date information.)
Here are the basics of how various states and the federal government treat gay and lesbian couples for tax purposes. But remember, since so many variables can affect your tax liability -- what state you live in, how much money each spouse earns, how big your estate is likely to be upon death, to name just a few -- it's often wise to consult with a tax professional who is well-versed in tax considerations for same-sex couples in your particular state.
Filing Federal Tax Returns
The Supreme Court struck down certain provisions of the federal Defense of Marriage Act ("DOMA") and ruled that the federal government must recognize same-sex couples who are legally married under state laws. As a result, married gay and lesbian couples now can file a joint federal income tax return or file as married filing separately and get other tax benefits provided to married couples. In the aftermath of the Supreme Court decision, the IRS ruled that same sex couples who are legally married in any state will be treated as married for federal tax purposes, regardless of whether or not the state where they reside recognizes same-sex marriages.
If you and your spouse have a child, then you can claim that child as a dependent on your joint federal tax return or one of you can claim the child if you file separately. You may also be eligible for the child tax credit ($1,000 if your gross income does not exceed $75,000). If you provide more than 50% of the child's support, you can file as head of household, which usually allows you to pay fewer taxes than if you filed as single. If a couple has two children, each might be able to claim one child as a dependent and file as head of household on their federal tax return. Check with a tax professional to understand your options.
Filing State Tax Returns
If you're part of a same-sex couple, how to complete your state tax return depends on where you live.
If you live in a state that does not recognize same-sex marriages or treat civil unions or domestic partnerships as marriage-like for tax purposes, you and your spouse must fill out your return as a married couple for federal purposes and follow federal tax rules that apply to married couples. For state taxes, you must file as single people and follow state tax rules that apply to single people.
If you live in a state that recognizes gay and lesbian marriages or treats those in civil unions or domestic partnerships as spouses for tax purposes, you must fill out your return as a married couple for state and federal purposes and follow tax rules that apply to married couples.
Federal Gift and Estate Tax
Legally married couples are exempt from almost all federal taxes that are levied on transfers of property or money between them, whether made during life or at death. These rules now apply to all legally married same sex couples.
What is the gift and estate tax? This federal tax is levied on the estate of someone who has made very large gifts. Every person may give a total of up to $5 million (adjusted annually for inflation) in taxable gifts and bequests (gifts at death) without owing tax. If you surpass that limit during your lifetime, all further taxable gifts, and anything you leave at death, are taxed. The estate tax exclusion amount is indexed and goes up every year; check the IRS website for the current amount.
Some gifts, however, are not taxable; they do not count toward your exemption amount. Nontaxable gifts include:
- gifts of $14,000 (2014) or less per recipient per year
- gifts to tax-exempt charities
- gifts or bequests from one spouse to another, no matter what the amount, as long as the recipient spouse is a U.S. citizen.
(To learn more about how the gift tax works, see Nolo's article Estate and Gift Tax FAQ.)
Taxes on Employment Benefits
When an employee, their heterosexual spouse, and their children receive health benefits through a job, the value of those benefits is exempt from tax by the federal government. This benefit now applies to spouses in legally recognized same sex marriages.
These are just a few of the tax issues that affect same-sex couples. To learn more about tax and estate planning considerations for same-sex couples, get Making It Legal: A Guide to Same-Sex Marriage, Domestic Partnership & Civil Unions, by Frederick Hertz and Emily Doskow (Nolo).