Taxes can be a dreaded task for most couples regardless of sexuality, but for same sex couples, it is even more complex especially if the Defense of Marriage Act (DOMA) is overturned.
Let’s talk about the numbers. According to the 2012 Census, the median income of households in the United States is 50,000. (US Census Bureau). Couples who make 50,000 and file “married filing jointly” are typically taxed lower than if they do “married filing separately”. This is a “marriage bonus” until the couple increases their gross income significantly. (Bankrate)
Presently under DOMA, same-sex couples are not allowed to file a joint federal tax return or allowed any of the exclusions and exemptions given to heterosexual married couples.
Two lovely friends of mine recently got married. They are both professionals, a doctor and a lawyer. Since they are not legally married, they can only file separate tax returns which is probably a benefit to them since their combine income is over six figures and they have no kids. However, there are other deductions that they cannot take since they are not married. The estate tax is particularly a problem especially for older same-sex couples. The Internal Revenue Code (IRC 2056) states that the estate tax marital deduction provision allows for unlimited tax-exempt estate transfers to a surviving spouse. Not having this provision can possibly bankrupt a surviving spouse.
Both the IRS and LGBT couples stand to gain if DOMA is overturned. According to Harper’s the estimated amount by which federal tax revenue will increase is $35,000,000. If DOMA is overturned, people can take advantage of the right to make prior period adjustments going back three years which means tax savings going back to 2009.
I talked to Gina Noy, a CPA based in New York City and she said:
Filing jointly is a double edge sword – couples with similar incomes filing jointly will not necessary see the same tax benefits as couples whose incomes differ significantly. High earner who is able to shift income onto to their partner’s bracket may be able to see tax savings, while couple whose incomes are roughly similar will not realize those benefits. Many married couples, whether same-sex or not, learn what ‘Marriage Penalty’ means the first year they file jointly. Now that DOMA has been overturned couples who do benefit from filing separately can amend returns going back up to three years.
The downside of DOMA being overturned is that depending on you and your mate’s income, you may get the luxury to encounter the infamous marriage penalty. When two individuals marry, their income tax liability as a married couple may exceed their combined income tax liabilities as singles. This additional tax burden resulting from marriage is referred to as a “marriage penalty”.
This information I presented here is only for federal income tax filing. State income taxes will vary greatly depending on state revenue codes. If DOMA is overturned, couples may want to consult with a tax accountant. Tax software like Turbo Tax and H&R Block may not have updated their software to reflect changes if they happen. The bottom line is that the possible overturn DOMA could affect your wallet as well as your legal marital status.