The repeal of the Defense of Marriage Act in 2013 has paved the way for same-sex couples to file their tax returns using the Married Filing Jointly or Separately status. This statute also allows these couples to file amended returns for up to three years prior, going back to 2010. The tax rules for married same-sex couples are largely identical to those for couples of opposite genders, but because the IRS looks to state laws to determine marital status, there are some additional stipulations for these couples that do not apply to traditional married couples.
Who Can File Jointly
For same-sex couples to file a tax return using the Married Filing Jointly or Separately status, they must have been married in a state that legally permits same-sex marriages. This requirement only pertains to the location where the actual marriage ceremony took place and not to where the couple currently lives. Same-sex couples who live in jurisdictions that prohibit same-sex marriage can still file jointly if the aforementioned condition is met.
The majority of the tax rules that apply to married couples of opposite gender who file either jointly or separately remain unchanged for same-sex couples. The list of major provisions that fall in this category includes:
- Retirement savings contributions – Married couples of the same sex have the same contribution limitations and income thresholds as opposite sex couples for traditional and Roth IRAs and qualified plans.
- Dependency exemptions – Same-sex couples must obey the same set of rules pertaining to claiming personal and dependency exemptions. Taxpayers are not allowed to claim spouses as dependents for either type of couple, regardless of the amount of support that was provided or length of residence. Same-sex couples with a qualifying child who file separately must choose which spouse can claim the child; the child cannot be claimed by both filers.
- Property division – The laws for community versus common law property that vary by state apply in exactly the same way to same-sex couples who file either jointly or separately.
- Head of Household status for separated couples – Married same-sex couples who are physically separated for the last six months of the year can file using the Married Filing Separately or Head of Household filing status. Those who use the latter status must support a qualified child or other dependent.
- Adoption credit rules – When one spouse of a same-sex marriage adopts one or more children of the other spouse, the adoption credit is disallowed just as it has been for couples of opposing gender.
Miscellaneous Issues and Amendments
Although the majority of tax provisions are identical for same and opposite sex couples, there are a few areas where same-sex couples may need to file amended separate returns. Employees who are in a same-sex union are permitted to file an amended tax return that excludes the income that was previously reported for providing health benefits to the employee’s partner. They can also recover taxes paid-including those for Social Security and Medicare for after-tax premiums that they paid into an employer-sponsored cafeteria plan on their partner’s behalf.
However, same-sex couples who may be able to recover money in these areas need to carefully research the tax laws to be sure they will actually get a refund. “Many same-sex couples who are eligible to file amended returns will discover that they will owe additional taxes rather than get a refund once they run the numbers,” according to Mark Huff, a CPA and regional manager for several Jackson Hewitt tax preparation franchises located in the western portion of the Kansas City metro area. “Their inability to claim the Adoption Credit for expenses incurred to adopt their partner’s children as well as the forfeiture of Head of Household status for one of them will usually more than offset any gains that they get from any reimbursements they would receive for taxes paid on health insurance expenses. The rules that prohibit same-sex taxpayers from claiming these credits or filing individually as single or Head of Household after they were married will also apply to prior-year returns.”
Huff also advises married couples who work in one state and live in another to be prepared for some additional bureaucratic hurdles in order to file their dual state returns correctly. “This can be a very complicated process in some cases. Normally, married filers who file in more than one state will prepare their home state return first and then calculate the taxes owed for all other states and carry those amounts back to the home state return. But since not all states recognize same-sex marriages, this cannot always be done using the normal method. For example, Missouri acknowledges same-sex marriages per the tax law, but they [same-sex marriages] are prohibited in Kansas. A couple who lives in Kansas and works in Missouri will therefore not quite be able to follow the normal procedure when they prepare their returns, since they cannot file as a married couple in Kansas. First they will prepare a joint federal return in the usual manner. But since they cannot carry the joint information onto their Kansas return, they will have to begin the state filing process by preparing a nonresident return for Missouri. They will then have to create two dummy federal returns that break out their income and expenses individually for each spouse and use those to create two Kansas returns. They may both file as single or one of them may be able to file as Head of Household for Kansas if they have qualifying dependents. They will also have to break out any tax paid to Missouri on each return in a similar manner. But they will not be able to file their Kansas returns electronically, because they will not match the joint federal return that they file electronically with their Missouri return. They will instead have to mail paper returns in with a paper copy of their joint federal return. This process would be done in reverse for same-sex couples who live in Missouri and work in Kansas.” The proper filing procedures will of course differ according to the states that are involved and their rules for same-sex marriages.
The Same-Sex Advantage
The difference between the federal return and the state returns can go beyond filing procedures in some cases. If a married same-sex couple files jointly with the IRS and lives or works in one or more states that does not recognize same sex marriages, then their state tax bills may differ from those of traditional marriages in those states. For example, if one spouse adopted the other's kids during the past year, then the adoption expenses may still be deductible or count towards a credit at the state level, since the couple is not considered to be married, but this credit will be disallowed by the IRS at the federal level. And couples who file as single may end up in a lower tax bracket than traditional married couples who can file jointly and are required to aggregate their incomes.
The Bottom Line
The majority of provisions in the federal tax code are identical for same-sex couples as for traditional married filers, as long as those in the former group were married in a state that legally recognizes same-sex marriages. Those who wish to file amended returns need to be sure that doing so will be financially beneficial. For more information on the tax rules for married couples of the same gender, visit the IRS website or consult your financial advisor.