Tax Issues for Same-Sex Couples After the Windsor case
Learn how states and the federal government handle gay and lesbian couples for tax purposes after the Supreme Court's decision to strike down the Defense of Marriage ("DOMA").
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See the LGBT law area of Nolo's website for updates in this area, including the Supreme Court's ruling in the Obergefell v. Hodges case making same sex marriage legal in all states.
In United States v. Windsor, 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. In the aftermath of that case, the IRS ruled on August 29, 2013 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 recognized same-sex marriages. Here are the basics of how the federal government treat gay and lesbian couples for tax purposes after the Supreme Court's ruling in United States v. Windsor.
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
As a result of the Supreme Court's decision in the Windsor case, married gay and lesbian couples could 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. 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.
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 applied to all legally married same sex couples after the Windsor case.
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 or less per recipient per year (check for current amounts)
- 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.