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How the IRS ruling affects same-sex couples’ taxes

The recent ruling by the U.S. Supreme Court that the federal government has to recognize gay marriage is impacting a number of people, as well as policies.

Among the policies that are being affected by the DOMA ruling [3] are tax policies. Immediately after the ruling came down, there were questions about how the IRS would handle same-sex marriages at tax time. Recently, though, the IRS ruled on how it will proceed.

Any legally married couple, no matter the policy in the couple’s state of residence, will be considered married for tax filing purposes. However, only marriage will “count;” civil unions and domestic partnerships are not considered marriage for federal tax filing purposes.

Just because same-sex couples can now file jointly, does it mean they should?

Same-Sex Marriage and Filing Taxes

“Beginning with the 2013 tax year, same-sex married couples will no longer be able to file as single or head of household for federal tax purposes,” says Andrew Schwartz, a CPA with Schwartz & Schwartz, P.C., based in Woburn, Mass.

The IRS ruling means that if you are legally married, no matter where you live right now, you are required file as married, whether you are filing separately or jointly. If you live in a state where same-sex partnerships aren’t recognized, you will need to file your taxes differently for your state. This means that you need to pay attention to the paperwork before you file.

Making the decision about whether to file separately or jointly isn’t exactly cut and dry, however. While there are some instances where being seen as “single” [4] or filing separately can be more expensive, there is also concern about the so-called marriage penalty. Same-sex married couples now have to worry about this possibility if they decide to file jointly.

“Generally, married taxpayers benefit by filing a joint tax return when one spouse earns significantly more income than the other spouse,” says Schwartz.

Other situations, such as when same-sex partner health benefits provided by a company result in higher income for a spouse that had to file as single prior to DOMA, warrant filing an amended return.

“Those incremental wages would now be pretax,” Schwartz says.

It’s important not to automatically assume that it makes sense to amend a past return, though. In some cases, amending a past return could actually mean a higher tax bill.

“For example, if one spouse had claimed the adoption credit when adopting the other spouse’s child, that credit would need to be recaptured and would no longer be allowed if amending to a joint tax return if the couple’s combined income exceeds the applicable threshold,” Schwartz says.

Couples with similar incomes — especially if they have relatively high incomes [5] — don’t see much benefit from filing jointly. In fact, being forced to file “married” tax returns might actually result in a higher tax bill, Schwartz says.

“The result of filing jointly or married filing separate could have a significant adverse federal income tax impact for many same-sex married couples,” says Schwartz.

To avoid unpleasant surprises, same-sex couples should start checking up on their 2013 taxes now, Schwartz says.

“Same-sex married couples should project their 2013 tax liability based upon their new federal tax filing status in order to prevent year-end surprises,” Schwartz says. “Determining joint 2013 tax liability [however they file] now as opposed to next winter, will allow same-sex married couples to make any necessary adjustments to their federal income tax withholdings and federal estimated tax payments sooner rather than later.”

(Photo: Guillaume Paumier [6])