The issue of same sex marriage is filled with passionate opinions on both sides, and although that side of the debate is for others to address, in money and finance, the numbers don't lie: same sex couples pay more in federal taxes. Why is that?
SEE: 6 Ways Marriage Can Improve Your Finances
According to CNN, 12 states grant partial or full marriage rights to same sex couples, but because of the 1996 Defense of Marriage Act, the Federal government does not give same sex couples any legal right to marry. In 2004, Massachusetts became the first state to grant same sex marriages, and since then the issue has been hotly debated in many other states. Many of these debates have resulted in numerous court challenges.
According to proponents of same sex marriage, the issue is much more than a matter of principle. For the 38 states that grant no marriage rights, same sex couples have to file separate tax returns and for states that do, couples may have to prepare up to four different returns to satisfy state and Federal requirements. This often comes at a high expense as they hire tax professionals to navigate the sometimes confusing maze of tax laws that surround the issue.
Same sex families are paying as much as $6,000 more in taxes compared to heterosexual couples, according to an analysis by H&R Block. Much of this stems from their inability to combine income and deductions that often results in a lower tax rate. Most tax deductions and benefits phase out faster for single filers compared to couples who are able to file a joint tax return. This, along with the tax disadvantages of filing as head of household, makes the tax bill for same sex families higher. The only exception is the so-called marriage penalty that occurs when both people in a heterosexual couple have high salaries. These couples may pay more in taxes than if they were single.
When a heterosexual couple is married, the spouse can receive benefits like health insurance from the other spouse without having to pay taxes on the gain. Next, if one spouse passes away, the surviving heterosexual spouse can roll any tax advantaged retirement accounts in to their own without paying taxes. Same sex couples do not have that option, and it often results in taxes being owed as the account is distributed to the willed partner.
Finally, gift and estate tax laws allow legally married couples to make unlimited gifts to each other without paying taxes. Plus, if a spouse passes away, the surviving spouse doesn't have to pay taxes on the estate. Same sex couples, because they aren't recognized as legally married under Federal tax law, aren't afforded the same estate and gift tax advantages. The surviving spouse may be left with a hefty tax bill if their partner passes away.
To make it even more difficult, the IRS publishes a question and answer document addressing the tax treatment of same sex couples, but they caution that the document only applies to California, Nevada and Washington. Depending on the state, other laws may apply.
The Bottom Line
For heterosexual couples who discount the financial value of marrying instead of living together; the same tax treatment that same sex couples are protesting also applies to heterosexual couples living together. Thus, a federal government-recognized marriage undoubtedly has tax advantages.
Marriage possesses an intrinsic value for couples: it represents a commitment to a partner for life, a validation of a couple's love and is recognition of two individuals becoming one unit. Although the political and moral debate of whether or not same sax marriages should be recognized will surely continue into the future, the fact remains: without the option to marry, gay and lesbian couples face higher taxes when April rolls by.