When the Defense of Marriage Act (DOMA) was ruled unconstitutional by the Supreme Court in 2013, the U.S. government was compelled to recognize at the federal level same-sex marriages from any state where they’ve already been legalized. Nevertheless, no matter if you live in a state where same-sex marriage is recognized, partially recognized, or illegal, taking on the challenge of tax returns can be difficult. From the filing process itself to understanding how your benefit plans, insurance, and other aspects of your life affect your taxes, the challenge to file correctly and on time can be a formidable one. The following are a few tidbits of information that may help you solve this enigma and make filing your taxes much easier. However, with same-sex marriage heading for a historic judgment by the U.S. Supreme Court this Summer, these “special rules” could be simplified, or made even more complex:
With the repeal of DOMA, one of the most valuable changes for same-sex couples is the ability to file their taxes jointly. For many couples, this could mean a difference of thousands of dollars compared to individual returns. Unfortunately, some same-sex couples are not guaranteed to acquire these benefits; unless they live in a state where same sex marriage is recognized, they will still need to file individually.
For same-sex spouses who are married but filing separately, either parent may file the child as a dependent, but not both. If both parents file the child as dependent, the IRS will side with the parent who the child spends more time with during the year in question. If the child resides with both parents for the same amount of time, the IRS will treat that child as qualified for the parent with the higher gross income.
If same-sex couples were married before DOMA was struck down, these individuals may be able to go back to amend their returns as married filing jointly with the IRS. This can often translate into additional refunds. Anyone interested in seeing if filing an amendment would be beneficial should contact a tax professional. Remember that all normal statute of limitations apply to same-sex amended filings.
The repeal of DOMA also means that same-sex couples are now also able to make use of employee-sponsored benefit plans on a tax-free basis. For example, if your spouse works for an organization that provides dental care coverage, you may also be eligible for that coverage. For many people, this can make it possible to discard multiple plans covering the same issues, which saves money.
Same-sex couples can also give their spouse an unlimited quantity of tax-free gifts. Initially this might seem like a benefit only for high earners, enabling the spread of expensive gift items without a tax penalty. However, these rules also apply to assets. For example, an IRA can be transferred without taking on a tax penalty. You can check out the eight criteria to determine if your gift is eligible for deduction at the official IRS site.
Unfortunately, benefits from the Social Security Administration are only available for those who reside in states where same-sex marriage is currently legal. The standard may be applied retroactively if the laws change in other states, allowing couples who had benefits which were paid out to be compensated at a later time.
Getting into specific tax scenarios can be incredibly complicated. The tax code that is already esoteric when applied to traditional marriages can become even more nebulous in the realm of same-sex marriages. You should consider consulting with an R&G Brenner tax professional anytime you have a question concerning your tax scenario.