IRS releases guidance on application of DOMA ruling
The June 26th Supreme Court ruling, invalidating Sec 3 of DOMA (the one that prohibited any federal agency from recognizing same sex marriages) but upholding Sec 2 (the right of a state to prohibit gay marriages) had left a significant number of couples up in the air. What if they had been married in one state (say, CA) but lived in (or moved to) a state that prohibits recognition of gay marriage (such as AZ).
TODAY, the Internal Revenue Service released guidance (link below) that clearly states that a marriage legally performed in ANY state will be recognized in ALL states, for federal tax purposes. (This includes not just income tax, but also gift and estate taxes.)
What this means: If you are legally married in ANY state, you will be filing your 2013 FEDERAL return as MARRIED ... either jointly with your spouse, or separately. (You can NOT file as Single, because you aren't.)
For earlier years (in which you were also married, as of 12/31 of that year), such couples have the OPTION of amending their returns to file as married. At this point, that is generally available for years 2010-2012.
But what about state returns? Each state will likely provide specific guidance, but the assumption (not covered in the IRS release) is that - if the state has a valid law not recognizing same sex marriage - your filing status for state filing will continue to be Single. That can cause some confusion in many states, where state returns might start with federal figures; couples may need to prepare a "dummy" Single federal return, just to get the numbers needed for state filing.
More info to follow.
"SHOULD I marry my partner, so we can file jointly?"
Not if that is the only reason, obviously.
Note that filing as a married couple may not result in a lower combined tax. To the contrary, the majority of couples likely will pay somewhat MORE if married, because of the way federal tax rates work ... the so-called "marriage penalty." Those NOT likely to pay more: Combined incomes under $85K or so, OR one of you makes almost all of your combined incomes. If your income is higher, if you both have capital losses, if you have a rental property that loses money, or if one of you collects Social Security, it is far more likely your combined federal taxes will increase.
What if you file (married filing) separately? Usually a bad idea, as this subjects you to the HIGHEST passible tax rates, and takes away lots of allowances and credits. If one of you itemizes, you both must, even if the other has almost no deductions. In a community property state, likely you'll have to split incomes between the two returns.
I have student loans I incurred before being married. I don't make much money, husband is the breadwinner. My student loans are in income-based repayment status. Each year I send them my tax form and, because I make so little, repayment is delayed. We were married this year in NY.
If we file jointly, and then I submit that tax return to the federal student loan people, will they make me start repayment based on my husband's salary? Will it matter that the loan debt was incurred years before we married?
R2, generally, federal refunds from a joint return can be taken for federal debts of either spouse. HOWEVER, there is a procedure in which you can file a Form 8379 - Injured Spouse Allocation, to safeguard your partner's share of the joint refund from being seized.
You said you got married in NY, which is not a community property state. But if you LIVE in a community property state, this can also enter into the calculation of what the feds can take (whether OR NOT you file jointly). In a nutshell, half of his income is technically yours, so it is subject to seizure for your debts. If that is your situation, make sure you consult with a knowledgeable professional come tax time.
[quote]Those NOT likely to pay more: Combined incomes under $85K or so
nearly everyone I know
R2: Don't be a fucking deadbeat. Pay your student loans!
I intend to, R5, when I find more than a part-time position. But it seems absurd to essentially penalize my husband for debt I incurred well before we were married. It's my debt, I want it paid with my money.
TaxTrollEA @ R3, I live in a separate property state. Is that better for me? And thanks for your response.
Taxation without representation?
Word to the wise, filing jointly is always a financial loser with two income households. My married friends bitch about it loudly every April.
I, as the sole breadwinner in the relationship, am thrilled!
I also saw in the news today that HHS declared that married same-sex couples will be granted equal Medicare rights. I'm not sure what that entails, but there was something about nursing homes.
I wish same-sex married couples could get Social Security benefits regardless of what state you live in.
TaxTroll, don't forget about this:
Spouses and employers who provided health insurance or other benefits for same-sex spouses can now treat the amounts paid for that coverage as pre-tax and excludable from income, just like opposite-sex married couples have always been able to do.
[quote]Spouses and employers who provided health insurance or other benefits for same-sex spouses can now treat the amounts paid for that coverage as pre-tax and excludable from income, just like opposite-sex married couples have always been able to do.
That is true, R11 ...
But the impact - for past syears - depends on exactly how you treated that on original returns.
For example, let's say my partner and I file as Single for 2012. Since my employer provides medical insurance oreniuns to my partner (for which they charge me as wages, and withhold Social Security and Medicare tax) ... BUT I provide more than half of my partner's support, so I considered him my dependent for medical purposes, allowing me to deduct the premiums on my Sch A. If I amend, I have to reduce my medical deduction on Sch A, but I can also claim a reduction in wages for the amount that was added in. I can also apply through my employer to be refunded the Social Security and Medicare taxes withheld on their value (The procedure for this has also been released, and employers should have access to it.)
This seems like a HUGE refund coming back with an amended return. But remember that my spouse's income will now be added to mine, and could be taxed at a higher rate than it was on his Single return. This is something that you need to look at, before you amend previous years' returns.
Anyone in this situation AND have your 2012 return on extension through Oct 15? You can file married (joint or separate), under the new guidance.
However, if you prefer to file as Single for 2012 (which is allowed under the guidance), be aware that your return must be filed (e-filed and accepted, or postmarked with proof) no later than SEPTEMBER 14, 2013, or you are REQUIRED to file as married! This is a little blurb seomwhat burried in the FAQs povided by the IRS today.
For returns filed Sept 16, 2013 or later, same-sex couples married under the laws of any state must file as MARRIED for federal purposes.
Got a call from a client who married his partner in Canada, wanting to know if this applies to them. The answer is YES.
The federal government recognizes any marriage performed legally in any state OR in a foreign country that allows such marriages between people who are not citizens or residents of their country.
Another client asked about being an RDP in CA, now living in AZ. NOT married. Has to actually get married in order to file as such.
Tax Troll: We are married in NY. I have to pay imputed income to buy my spouse's insurance on an after tax basis. Will I know be able to get it pretax like married straights?
If two people married, and one comes into the marriage with a past tax debt not paid, or back tax years not yet filed, is the other spouse then legally responsible in ANY way?
Thanks for the help.
[quote]If two people married, and one comes into the marriage with a past tax debt not paid, or back tax years not yet filed, is the other spouse then legally responsible in ANY way?
The answer is essentially the same as the one above, in which someone was worried if they can go after the joint refund for a defaulted federal student loan.
The answer is: It isn't your spouse's liability, before or after the marriage. However, your JOINT federal refund can be seized for debts of either spouse, UNLESS you file an Injured Spouse Allocation (Form 8379), which essentially tells the IRS how much they can take (based on your income and federal tax payments.)
Also, if you live in a community property state, it may be possible for the IRS to take up to HALF of any refund (federal or state), since that law makes half of your combined incomes subject to such seizure.
My advice would be to get the delinquent returns filed ASAP. And then work out an installment agreement to pay what may be due, which can make it less likely refunds will be seized.
Article in today's Arizona Republic. Also includes a link to a video on Huffington Post talking about the IRS ruling.
Note: Link may only be active for a few days.
[quote]We are married in NY. I have to pay imputed income to buy my spouse's insurance on an after tax basis. Will I know be able to get it pretax like married straights?
(FOLKS: If you ask a question like this, it helps if you specify if you LIVE in a state that recognizes gay marriage or not. Would completely change the answer.)
Assuming your state does not recognize same-sex marriages, the employer may be entitled to exclude samne-sex spouses from sposal benefits provided.
However, IF the benefits ARE provided, the new IRS guidance makes it clear that the TAX implications can't differ from that of heterosexual spouse coverage. That is, you should no longer be taxed on such benefits, and can amend past returns to take a deduction for any such amounts you included in income and DID NOT DEDUCT ON SCHEDULE A. You can also apply for a refund of Social Security and Medicare tax paid on the benefits, through your employer.
Tax Troll -
Thank you. I love and appreciate you, as I'm sure others do. You're a rare, good example here on old DL.
As you might imagine, this ruling has created a mess for many states' revenue departments, at least for those where the states have laws that specifically prohibit gay marriage. Those laws will have no impact on the ability of a same sex couple (married in another state) from living there and filing as married on federal returns.
In my state (AZ), a DOR spokesperson has confirmed we'll pretty much be doing what I had assumed will happen: we file married on fed, but as Single on Arizona. This will likely involve either a "dummy" federal return (as single) be prepared for AZ purposes, or some kind of schedule to make the adjustments needed for such filings.
A colleague in Virginia (also a "no gay marriage" state) forwarded me a response from their tax authority, which points out that Virginia tax law mandates that the filing status must be the SAME on state as on federal. So he concludes that such couples will file as married on VA too. However, he adds, since that isn't allowed under VA law, "we'll have to correct it." Huh? Looks like folks there will be in for LOTS of fun! :)
Article linked below in Bloomberg points out the likely state filing problems that same-sex married couples will face, in states that don't acknowledge gay marriages.
In most cases, likely the couple will file married on federal, but have to prepare separate "dummy" federal returns as unmarried just to get the info needed to file their state returns as Single.
One state, Wisconsin, so far is the only one to address this issue, and has released a schedule that can be used to reconcile the state to the joint federal return.
There are other outstanding issues as well .. such as whether a community property state (such as AZ, my state) that doesn't recognize same sex marriages will require community property splits on state returns (and federal, if the couple decides to file Married Filing Separately.) Since CP laws are a hodgepodge of confusing rules between states, that will be perhaps the biggest obstacle yet to climb.
Contrary to what many people assume, the fact that gay married couples can now file jointly does NOT necessarily mean they will pay less in taxes. To the contrary, it is more likely their combined tax federal income tax liability will increase, rather than decrease.
The current federal tax rates equate married and unmarried couples only in the lowest tax brackets, and the "marriage penalty" is alive and well for those starting in the higher end of the 25% bracket (about $140K in combined AGI). Such two-earner couples are likely to see an increase in their combined tax.
A study by th Congressional Research Service, which came out earlier this week, quotes a previous study that estimates federal tax revenue will go up at least $20-40 MILLION a year, now that gay married couples have to file as married.
As a reference in case you ever need one, here's an alphabetical list of states that currently marry same-sex couples, and the date such marriages started.
California (6/17/08-11/4/08, then again starting 6/26/13)
New Hampshire 1/1/10
New York 7/24/11
Rhode Island 8/1/13
Washington DC 3/9/10
- Source: Thomspm Reuters/Practitioners Publishing Co.
At the risk of stating (what I thought was) the obvious: Marriage isn't retroactive.
I have now had more than a half dozen calls from newly married couples (since the DOMA ruling) wanting to make an appointment to amend their 2010-2012 returns as married. Uh, you weren't married until 2013, so you can't do that.
"But that is the LAW'S fault! We would have been married if it was legal!"
Would have / could have / should have. The fact of the matter is YOU WERE NOT MARRIED until 2013.
IMPORTANT INFO ABOUT DIVORCE. Nobody gets married thinking it could happen, but it is always a possibility. And, for us, it is a LOT more complicated.
For example ...
I have a client who recently informed me she got married in MA a couple of years ago. She never thought to tell me, since neither the IRS nor our state (AZ) recognized the marriage as legitimate. And she split up with her spouse, and has no idea where she is.
Uh ... problem.
If you are married (as of the last day of the year), you (including same sex couples, effective in 2013) MUST file as Married on your federal tax return .. either jointly with your spouse or Married Filing Separately (which has the HIGHEST tax rates possible!)
The problem: Unlike the situation for heterosexual couples, AZ doesn't recognize any same-sex marriage as legitimate ... so it won't issue a divorce. They have to get a divorce from the state where the marriage was performed.
If she had married in CA, it would be a fairly simple matter to have her local attorney file for an extension in CA. It takes time (about six months, I am told), but it can be done.
Just about all of the states that have same-sex marriage will allow non-residents (from states that don't recognize same-sex marriage, such as AZ) to marry there. But EXCEPT for California, Minnesota, Delaware and the District of Columbia, they WON'T grant you a divorce, unless at least ONE of you ESTABLISHES RESIDENCE there. In the case of Massachusetts, residency of ONE YEAR is required, before you can file for divorce. So my client has to stay married ... or more to Massachusetts!
All. Mighty Tax Troll! My partner and I are tossing around the marriage thing ( since now recognized in NJ)... But my concern is that I am self employed and the major bread winner...I take all of the big deductions ( mortgage interest, home office allowance, etc) since schedule C is my best friend. He has a fairly low paying job that he usually gets a refund from even without extra deductions...he does real estate on the side so there is that sometimes...my question is will marriage thwart this arrangement where I can take the lions share of deductions or will things be more equalized which will up my tax liability for sure....thanx for reading if u have read this far!
R27, being married shouldn't have any effect on your ability to deduct a home office. Assuming you will file jointly (which is definitely a better idea), you're still (together) claiming the house, etc.
If you mean that you used to pay the entire mortgage and deduct all of the interest and taxes (between the business and the personal part on Sch A), while he claimed the standard deduction, yes, this could mean you will pay more in tax as a couple. It is the "price" we have to pay for marriage equality, unfortunately.
I suggest you seek out a local knowledgeable tax professional, familiar with same sex marriage issues, and find out what a difference you can expect. Hopefully, that won't be the definitive reason why you decide to marry or not, but it is certainly something to be considered.
An experienced tax pro may also offer some suggestions for tax planning, such as hiring your spouse to do some contract work for your business (bookkeeping, receptionist, etc.) Another thing to look at is your health insurance which, if paid through the business, may be able to provide a tax benefit by deducting his AND your insurance on the front page of Form 1040. Lots of possibles ...
Thanks TAXTROLL! I pay my own health....his is thru work...it is not the only reason to marry or not...we are starting our 16 th year together and in our minds married already...just want to be able to keep the best scenario we can...i like the hiring him thing....nice idea...my accountant is gay also...will see what he has in mind for me!hanks again!