8 Things Same-Sex Couples Need to Know About Taxes (Updated for 2015)

It's tax season and for married same-sex couples, there’s much to navigate that’s new! Shortly after the Supreme Court struck down Section 3 of the Defense of Marriage Act (DOMA), the federal government began recognizing the marriages of same-sex couples for federal tax (and other) purposes.

Filing taxes is serious business so we have tried to answer the most frequently asked questions about the preparation and filing of your personal income tax returns. Unfortunately, there are still complications for same-sex married couples who live in states that do NOT recognize same-sex marriages. As we continue to fight for the freedom to marry across the country, here are some things you need to know.

1) We are married and reside in a state that recognizes our marriage. Do we have to file state income tax returns jointly as married? Do we have to file our federal income tax returns jointly as married?

2) We got married in a jurisdiction where same-sex couples can legally marry, but we reside in a state that does not recognize our marriage. How should we file our state income tax returns? Do we still have to file our federal income tax returns as married?

3) If we are married but live in a state that does not recognize our marriage, do we have to pay federal taxes on medical benefits paid by my employer for my spouse? What about state taxes?

4) We were married before the IRS began to recognize same-sex spouses in 2013. Can we re-file our federal taxes as a married couple for previous years? What is an amended return?

5) If we have a civil union can we file our state or federal taxes as married? Aren’t civil unions supposed to be treated the same as marriage?

6) If we had a civil union in a state that now has marriage equality, are we considered legally married by our state and/or the federal government?

7) Will I pay more federal taxes? What are the major changes to my federal tax filing?

8) Other than income taxes, how are my other taxes impacted?

1) We are married and reside in a state that recognizes our marriage. Do we have to file state income tax returns jointly as married? Do we have to file our federal income tax returns jointly as married?

If you were married in 2014 and continue to live in a state that recognizes your marriage, you should file both your state and federal tax returns as married. However, you may choose whether to file “Married Filing Jointly” or “Married Filing Separately.”

Your filing status is determined on the last day of the year. If you were married on the last day of the year, you will be considered married for the entire year. Likewise, if you were single on the last day of the year (for example, if you got divorced) you will be considered single for the entire year. There are a few exceptions to these rules.  If you have a question about your proper filing status, you should check with a tax professional.

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2) We got married in a jurisdiction where same-sex couples can legally marry, but we reside in a state that does not recognize our marriage. How should we file our state income tax returns? Do we still have to file our federal income tax returns as married?

The good news is that, no matter where you may now live, the IRS recognizes all legally valid marriages of same-sex couples.  So if you were married in 2014, for federal income tax purposes, your  marriage is valid and your proper tax filing status is “married.”  You may choose one of two “married” filing statuses - “Married Filing Jointly” or “Married Filing Separately.”

The bad news is that if you live in a state that does NOT recognize the marriages of same-sex couples, even though we believe that this is unfair and discriminatory, your tax filing status for state income tax purposes is most likely “single.” Some people choose to include a note or letter stating that they are legally married and object to filing their state income tax returns as “single.” Such a letter will not affect your state tax filing status right now.  However, it is a clear statement of your objection to be treated unfairly by the state in which you live and might be helpful if you are using your tax returns as proof of your finances for other purposes.

There are some exceptions where non-recognition states are allowing married same-sex couples to file their state taxes as “married” even though the specific state does not generally recognize the marriages of same-sex couples for other purposes. Some states have developed special tax procedures or instructions for same-sex couples who will be filing as “married” with the IRS but as “single” with their state government.  You should consult your state department of revenue or a tax professional with expertise in your state’s tax laws and procedures for more information.  You can also contact Lambda Legal’s Help Desk for more resources.

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3) If we are married but live in a state that does not recognize our marriage, do we have to pay federal taxes on medical benefits paid by my employer for my spouse? What about state taxes?

If your state does not recognize your marriage, you will probably have to pay state income taxes on these benefits.  You will not, however, have to pay federal income taxes.

In most cases where an employer provides group health insurance and premium contributions for its employees and their spouses, children and other dependents, the value of those benefits is not taxed by the federal government as “income.” When all of DOMA was still in effect, the IRS was not able to recognize same-sex spouses so this extra “imputed income” was taxed to the employee, resulting in married same-sex couples paying more taxes than opposite-sex married couples. The good news is that now that Section 3 of DOMA has been struck down, this federal income tax advantage is now also available to married same-sex couples.

If you were charged federal income taxes on this imputed income in the prior three tax years, you may be entitled to a refund.  For guidance from the IRS on refund claims or how to adjust for overpayments of certain taxes on benefits provided to same-sex spouses click here or here. You can also check out the instructions for IRS Form 1040X as well as IRS Publication 556.

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4) We were married before the IRS began to recognize same-sex spouses in 2013. Can we re-file our federal taxes as a married couple for previous years? What is an amended return?

Generally speaking, the IRS allows taxpayers to amend their returns up to three years after they were originally filed. If you were legally married during the 2011, 2012 or 2013 tax years, you may be able to file amended personal income tax returns reporting your filing status as “married filing jointly” or “married filing separately” for those years.

To make a refund claim for income taxes, an individual must complete an amended tax return for each tax year at issue and send it to the IRS with an explanation as to why the original filing was incorrect. The IRS has a precise process and required forms for amended returns. For more information, see the instructions for IRS Form 1040X, IRS Publication 556 and GLAD’s Tax Time and Preserving Your Federal Rights. Note that to recover Social Security taxes paid or taxes imputed on health insurance for a same-sex spouse, you have to specifically request that such amounts be refunded.

There is some question about the deadline for filing an amended return when a couple could not file a tax return as married but now can. Planning conservatively, you should file an amended return within three years of its original due date (as opposed to its extended due date). For example, for the tax year 2011 (where the return was originally due April 15, 2012), an amended return would have to be filed on or before April 15, 2015.

You should also consider the potential downside of amending your federal personal income tax returns, including an increased risk of audit and an increase in the total tax due.  A tax professional can help you determine the impact of amending your federal personal income tax returns from prior tax years.

Finally, if your spouse died before DOMA was struck down and you think you paid more in income, estate or gift taxes than you should have because DOMA precluded your status as a surviving spouse from being recognized (e.g., you were unable to claim an inherited IRA as a spouse), you should consult a qualified tax professional for advice.

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5) If we have a civil union can we file our state or federal taxes as married? Aren’t civil unions supposed to be treated the same as marriage?

No, marriages and civil unions (and marriages and RDPs) are two separate legal statuses.

If your state recognizes civil unions or RDPs, it may grant you all of the same state-level rights as a married couple such that you may be able to file your state income taxes jointly. You should carefully review your state tax instructions for information on how to proceed or contact a tax professional.

The IRS (and most other federal departments) only recognizes legally valid marriages. It does not recognize civil unions, RDPs or similar “marriage-like but not marriage” statuses from foreign countries. Federal law preempts state law such that your state has no control over the tax policies of the federal government. Even if your state has a law that says that civil unions must be treated the same as marriage, the federal government will not recognize your civil union as a valid marriage.  Your state law is only effective on the state (and more local) levels.

If you have an RDP or a civil union and are living in a state which has community property laws that are extended to those in RDPs or civil unions, you and your partner may be required to report your federal personal income tax status as “single” but be permitted to “income split.”   If you are in this situation or have further questions, don’t hesitate to contact our Help Desk or a local tax professional.

If you want to be able to file your federal taxes as married, you will need to get married.   Keep in mind, however, that getting married may affect your eligibility for federal benefits such as assistance based on need. While we cannot advise you whether or not you should get married, please don’t hesitate to contact our Help Desk for additional information.

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6) If we had a civil union in a state that now has marriage equality, are we considered legally married by our state and/or the federal government?

The answer to this question depends on the laws of your state! After achieving marriage equality, some states that offered civil unions or RDPs automatically converted those relationships into marriages. In other states, you are required to take affirmative steps to convert your civil union to a marriage. And in still other states, you have to affirmatively marry regardless of your prior civil union or RDP.

The states which automatically converted civil unions or RDPs performed in that state into marriages are: Connecticut, New Hampshire,  Delaware and Washington (provided that both members of the couple were under age 62 ½ as of June 30, 2013).

The states which require some additional, affirmative step to convert a civil union to a marriage are: Vermont, Rhode Island and Illinois (until June 1, 2015).

The states which require you to marry your civil union or domestic partner in order to be considered validly married  are: California, Hawaii, New Jersey, Oregon, Nevada and Colorado.

If you have any questions about converting your civil union or RDP to a marriage, please contact our Help Desk.

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7) Will I pay more federal taxes? What are the major changes to my federal tax filing?

In some instances, joint filing may result in higher taxes because of the so-called “marriage penalty;” there are other instances where joint filing may reduce overall tax exposure and provide opportunities for larger income tax deductions.

In some instances, joint filing may result in higher taxes because of the so-called “marriage penalty.”  There are other instances where joint filing may reduce overall tax exposure and provide opportunities for larger income tax deductions.

As a federally recognized married couple, you must choose between two separate tax filing statuses - “married filing separately” and “married filing jointly.”  By far the most common tax filing status selected by married couples (same-sex and opposite-sex) is “married filing jointly.” Generally, filing as “married filing jointly” is financially advantageous for couples with significantly varying incomes. If, for example, one person is a stay-at-home parent, while the other person supports the family with her employment, such a couple would “share” the income and the higher earner would effectively be taxed at a lower income level, while the lower earner stays in the same low bracket, for an overall gain for the couple. You can file jointly with your same-sex spouse even if one of you does not have any income or deductions for that year.

If, however, the couple is composed of two high-earners, a joint filing may result in the overall income landing them in a higher tax bracket - the so-called “marriage penalty.”  In this situation, the couple may want to utilize the more rare tax filing status of “married filing separately” which limits deductions and credits because it forces the couple to separate their tax liabilities and deductions.   “Married filing separately” is most useful if, for example, the couple is in the process of getting a divorce that is not yet final.

 If you are concerned about which filing status is best for you and your spouse (or have had a significant change in type or amount of income from one year to the next), we recommend that you discuss your filing status with a tax planner and ask him or her to “run the numbers” and compare the tax consequences of each filing status. Many online tax services and accountants will also give you the opportunity to “run the numbers” and compare the tax consequences of either type of tax filing.

Being treated as married by the federal government impacts other aspects of your overall federal income tax liability. Specifically, there are some deductions that may increase or change when filing jointly, including (1) the standardized deduction; (2) the sale of principal residence exclusion; and (3) if one person is on the other’s health insurance, a couple  filing jointly will no longer be forced to count that health insurance benefit as taxable income. Taxpayers may either take “itemized” deductions or a “standard” deduction, whichever is higher. For an individual taxpayer filing as “single” or as “married filing separately,” the standard deduction is $6,200. For joint filers, however, the standard deduction rises to $12,400.^[1]

Here is a sampling of how other itemized deductions add up for joint filing:

• Exclusion of gain from sale of principal residence: An individual filer may only take $250,000 for this exclusion, while a couple filing jointly may take $500,000.
• Qualifying Medical and Dental Expenses: If one spouse has a high amount of medical and/or dental expenses in a given tax year, those expenses may be used as a deduction for a joint filing (provided that the expenses exceed a certain percentage of the joint income).
• Adoption Tax Credit: Qualifying expenses incurred in the course of an adoption, which can be quite costly, may be offset with a tax credit of up to $13,190. This tax credit may be used by a parent who is seeking a second-parent adoption of a child born to their spouse. The dollar amount of the tax credit begins to phase-out with modified adjusted gross income of $197,880 and disappears entirely for taxpayers with modified adjusted gross income above $237,880.

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8) Other than income taxes, how are my other taxes impacted?

With Section 3 of DOMA struck down and the IRS broadly interpreting the Supreme Court’s ruling utilizing a “state of celebration rule,” other taxes beyond your income taxes may be affected. If your same-sex spouse died in 2014 and you are entitled to an inheritance from his or her estate, you will no longer be treated as a legal stranger for federal estate tax purposes.  You will be allowed to utilize the unlimited marital deduction from federal estate tax for all assets passing from your deceased spouse to you directly as a surviving same-sex spouse.  At the federal level, should you not have utilized all of your federal estate tax exemption (currently $5,430,000) on or before your death, your same-sex surviving spouse can continue to utilize the balance of your federal exemption during his or her lifetime.  This tax benefit, known as “portability,” is available to legally married couples with respect to their federal estate tax exemptions.  Some states have enacted a similar provision in their state estate tax laws.

Similarly, same-sex married couples no longer need to worry about incurring federal gift taxes when transferring assets between themselves during their lifetimes.  There is an unlimited marital deduction for gifts between spouses. 

You can learn more about potential consequences specific to your situation from a tax professional.

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