There's a social and psychological cost to being treated differently, and for many same-sex couples in America, there has long been a hefty financial cost, as well.
After a string of recent legal victories, it appears that our nation is moving rapidly toward full equality for gay and lesbian Americans. Still, when it comes to financial matters and the tax consequences, we're not there yet. The Internal Revenue Service has a page devoted to FAQs for same-sex couples who are married under state law. Here we highlight IRS tips and a few of our own for same-sex couples.
7 Tax Tips for Same-Sex Couples
The right to marry -- or even have an existing marriage recognized -- is still denied in many states, but the federal government announced in August that all legally married same-sex couples may now file federal tax returns jointly, even if they live in a state that does not recognize their marriage. Actually, if you're in a same-sex marriage, you must file your federal tax return with a married status. You can choose either the married-filing-jointly or married-filing-separately status, like all other married couples. This can save couples a lot of money and hassle.
The striking down of the Defense of Marriage Act also saves married same-sex couples money by treating them as married for all other tax-related purposes, such as estate taxation. The case of 84-year-old plaintiff Edith Windsor (pictured) brought down DOMA, as Windsor had had to pay $363,053 in estate taxes after the death of her wife -- while a spouse in a heterosexual marriage would not have owed any estate taxes at all.
Same-sex couples who have been married awhile should consider amending previous year tax returns. Couples with a big difference in their incomes stand to benefit from filing jointly, while those with similar incomes may not benefit much or at all. Those who were legally married in 2010, 2011 or 2012 can file amended returns jointly now, possibly earning a refund by doing so. The deadline to amend a 2010 return is April 15, 2014 (and April 15 in 2015 and 2016, for 2011 and 2012 returns, respectively).
Two people in a same-sex marriage can now generally give each other unlimited gifts without tax consequences. If one member of a same-sex marriage dies, his or her Individual Retirement Account and qualified retirement plan balances can be rolled over to the surviving spouse's IRA without triggering taxation.
The Social Security Administration is now paying benefits to many same-sex spouses. But there's still a rule (that the SSA is aiming to change) that denies these benefits to those living in states that don't recognize same-sex marriages. The SSA has advised claimants to not delay filing for these benefits because of where they live. Once the rules are changed, payments will likely be made retroactively to when they were applied for
If you are in a same-sex relationship and not married, but your names are both on the mortgage which you both pay, you can divide the mortgage interest deduction. It doesn't have to all go to one of you.
Until recently, if your employer covered health insurance for your same-sex spouse, that was considered a taxable financial benefit to you. Now, though, your spouse is seen as any other spouse in the eyes of the IRS, and you'll no longer be taxed on this benefit.
Since there is so much complexity in the tax code, same-sex couples (and all taxpayers, really) might want to consult a tax pro.