June 07, 2013
Nanette Lee Miller, West Coast Partner-In-Charge of Assurance Services, Featured in Bankrate.com Article "Tax Treatment of Same-Sex Married Couples"
By Kay Bell
Gay and lesbian couples want relationship equality -- and are hoping to get that treatment with an upcoming U.S. Supreme Court ruling on the Defense of Marriage Act, or DOMA. If the high court strikes down the law, same-sex marriage would be legal in the eyes of the federal government.
When it comes to taxes, such equality could work in their favor. Or it may make things worse.
"From the perspective of tax equality, no one wants to pay more in taxes," says CPA Nanette Lee Miller, partner in the San Francisco-based accounting firm Marcum LLP." But with tax equality, everyone would be subject to the same rules."
Twelve states and Washington, D.C., recognize the marriage of same-sex couples. California could be added to that list, depending on the high court's ruling in a separate same-sex marriage case, which was heard in March, the day before the DOMA arguments.
On the federal level, however, DOMA defines marriage as a legal union between one man and one woman. And that makes a big difference in how some tax laws are applied. Following are some issues of same-sex marriage and how the income tax laws differ for conventional married couples.
Filing a federal return
A legally married same-sex couple cannot file a federal married-filing-jointly 1040 tax return or even a married-filing-separately 1040 tax return.
These couples must file two returns, with each partner sending the Internal Revenue Service a Form 1040 as a single taxpayer or, if children are part of the family, with one designated partner filing as a head-of-household taxpayer.
Because the 10 percent and 15 percent federal income tax brackets for married joint filers are double that of single taxpayers, the filing differences don't make that much difference to taxpayers whose total income falls in these lower brackets. This relatively recent change to tax law was made to ease the marriage tax penalty, which occurs when a couple filing jointly pays more than they would if the spouses each filed returns as single taxpayers.
"If one partner makes more, there's no benefit of graduated tax rates," says Miller. "There's no averaging of income where a couple would typically pay a lower tax rate if one makes substantially more than the other partner because the lower earnings of one spouse would pull the higher-earning partner's income down."