How New Same-Sex Marriage Laws Are Impacting Taxes

Same-Sex Marriage & Taxes
Same-Sex Marriage & Taxes

With more and more states legalizing same-sex marriage, many long-time partners can finally enter legally recognized unions. But many of these happy couples will find their tax returns looking a bit different (and perhaps more complicated) the next time they file. Here are some common tax questions answered for all the lucky newlyweds:

Is Our Marriage Recognized for Federal Taxes?

One complication of the piecemeal state-by-state legalization of same-sex marriage is that the federal government defers to state laws to determine whether a couple is married. So trying to file taxes as a married couple in a state that doesn’t recognize same-sex marriage won’t be accepted. But there’s some good news: if you get married in a state that does recognizes same-sex marriages, but move to a state that doesn’t, the IRS will still recognize your marriage as valid. The same is true for foreign jurisdictions, like if you got married overseas.

Should We File Separately or Jointly?

According to the IRS, “same-sex spouses generally must file using a married filing separately or jointly filing status.” What’s the difference? When spouses file jointly, their income is combined for tax purposes; filing separately keeps the incomes apart. Though filing jointly is the more common method and has several built-in benefits, there are some things to consider when deciding which way to file. For instance, some people file separately for privacy concerns, to keep their reported income down for deduction purposes, or simply because they prefer to keep their finances separate.

Deductions and Credits

Tax deductions and credits are complicated to begin with, and marriage adds a new set of rules to the equation. For instance, if one spouse itemizes their deductions, the other cannot claim the standard deduction if they file jointly. Taxpayers cannot claim the adoption tax credit if they adopt a spouse’s child. If parents file separately, only one may claim a child as a dependent. The IRS has a set of tiebreakers if both try to claim: first, the deduction goes to the parent the child lives with more throughout the year. If that time is equal, or if the child lives with both parents, then the parent with the higher adjusted gross income gets to claim the child as their dependent.

How Do Estate Taxes Work?

When a person dies, the IRS may levy an estate tax on what they leave behind. It doesn’t apply to most estates: In 2014, the first $5.34 million of an estate will be exempt from the estate tax. The bad news is that the estate tax is quite hefty—40 percent on everything over the exempt amount. However, couples can protect themselves from the estate tax through the marital deduction: all property is immune from the estate tax when it passes from a deceased spouse to the living one.

What About State Taxes?

According to a document published by the National Women’s Law Center, state taxes will get easier for some same-sex married couples, but will remain complicated for others. “If you live in a marriage recognition state, the process for filing your [tax return] will likely be much easier than it was in years past, because you now have the ability to file both your state and federal taxes using the same filing status,” the document reads. But states that do not recognize same-sex marriages may still require references to a federal return—one based on a same-sex marriage. The center recommends consulting your state’s Department of Revenue for advice in this situation.

If you’re concerned with how your marriage will affect your taxes in 2014 and beyond, consult with an experienced R&G Brenner tax professional who can help you sort through all the changes.