Same-Sex Couples Face Discrimination At Tax Time
Posted: Tuesday, April 14th, 2009 at 3:54 pm
Proponents of same-sex marriage are angered that the U.S. Internal Revenue Service expects those who are legally married to same-sex spouses to check “single” as their filing status, despite the fact that they have also sworn to the following statement by signing underneath the following oath printed on each tax return: “Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and belief they are true, correct, and complete.”
Nancy Mathis, an IRS spokesperson, says that under federal tax law, same-sex marriages are not recognized because of the Defense of Marriage Act (DOMA) and therefore same-sex spouses have to file as single, rather than married, taxpayers.
Massachusetts and California—the two states which have made same-sex marriage legal, although California later repealed it—both offer extensive, easily-navigable guides for same-sex married couples filing state taxes. The IRS, however, addresses the issue with only one sentence: “For federal tax purposes, a marriage means only a legal union between man and a woman as husband and wife.”
The number of married same-sex couples who might experience inequities when filing a federal tax return is increasing. Such couples numbered approximately 10,000 in Massachusetts last year, while figures for 2009 are expected to exceed 16,000. In California, it was estimated that 18,000 couples wed between June and November of 2008, before the passage of Proposition 8 forced the state to perform or recognize same-sex couples.
The Defense of Marriage Act (DOMA), claim advocates for gay and lesbian marriages, render GLBT people second-class citizens by denying the legitmacy of their marriages and forcing them to pay more taxes, even when wed.
GLAD attorney Nima Eshghi, part of the legal team that filed a federal lawsuit challenging DOMA this month, explained five disparities:
1)Tax-free estate transfer: In a legal heterosexual marriage, when one spouse dies, the surviving spouse often receives the full value of their estate and assets. The surviving spouse does not have to pay tax on that gain, which can amount to hundreds of thousands, or even millions, of dollars. With same-sex marriages, if a spouse dies and leaves all the estate and assets to the other spouse, that surviving spouse has to pay taxes on the value above $1 million.
2)Tax-free gifting: Any time a gift is made – of cash or cash equivalent – over $12,000, tax must be paid on that gift unless the gift is made between heterosexual spouses. If a heterosexual individual who puts his or her spouse on the title of a house, there’s no tax owed. But if a same-sex spouse is the recipient of such a gift, however, then he or she must pay the gift tax on the value of half the house minus $12,000.
3)Tax-free health coverage: Employers often pay all or part of an employee’s health insurance coverage, including family plans that cover a spouse and children. For tax purposes, this is not considered part of the employee’s income, unless the spouse is a same-sex one and therefore not considered a spouse by federal law. In that case health coverage is considered additional income, and is therefore taxed.
4) Shuffling down the tax rate: In relationships, one spouse often earns more than the other. When a married couple files jointly, the income is considered to be split, and the lower income is considered the one taxed. Same-sex married couples, however, are not granted the ability to file jointly, and therefore pay more than straight spouses in similar situations.
5)Spousal IRA deduction: For married couples who jointly file their taxes, the tax code allows one spouse to contribute up to $5,000 to an Individual Retirement Account for the other spouse. Limits do apply, but it is not an option at all for gay couples.
Same-sex couples who file joint state returns, additionally, must complete a second set of federal tax forms as married. Federal tax forms supply information to the individual states, which then use that information to calculate the amount of state tax owed. Conceivably, couples can sidestep this problem by filing separate returns at the state level as “married, filing separately,” but often at a financial disadvantage.