Same Sex Marriage: Far from Equal under the Tax Laws

Same Sex Marriage: Far from Equal under the Tax Laws

Now that the U.S. Supreme Court has delivered its rulings on same-sex marriage—jubilation has given way to frustration and complication as reality sets in. Practically, what does this ruling mean for gay couples? It means that the Administration is facing a giant dilemma over whether the states or the federal government should define marriage.

Some gay rights proponents contend that while it was a step forward, the Obama Administration’s first decision was a little non-committal; it granted spousal benefits to all gay and lesbian married federal employees despite their own state’s position on the issue. Couples in legal civil unions and domestic partnerships would not receive benefits. And according to an article in Bloomberg, the federal government is now lagging. Says author Anthony Infanti:

The Internal Revenue Service is being urged to apply the same standard, recognizing all same-sex marriages equally at the federal level, to all taxpayers. This seems like a simple and fair solution — quite an uncommon description for any part of the U.S. tax code. Unfortunately, the reality is that it won’t be simple or fair in practice. 

Same Sex Federal and State Tax Returns

Essentially if your state does not recognize same sex marriage, here is how a tax return filing would look. Married gay and lesbian couples would file their federal tax returns as married filing jointly or filing separately. But if the state that you live in does not recognize same-sex marriage, then the state returns would be invalid if filed that way. (Are you confused yet? This is more than complicated.) In those states, single or head of household state returns would be the protocol. Couples are still then recognized unequally under the tax laws.  And as Anthony Infanti states—citing that he is also a Gay American—this is unfair. He says:

This fair and simple solution actually increases the complexity of these couples’ taxes and…increases their risk for state audits because the couples’ federal and state returns would report inconsistent amounts of income, deductions and credits.

Also since the states don’t recognize marriage, they don’t recognize divorce since it’s not an option. So as an example, a once married gay or lesbian couple must file separate status because they are technically still married same-sex couples in states that refuse to let them divorce. Thus while the federal government recognizes same sex marriage regardless of the state’s position, it cannot recognize a couple as divorced unless there is a court order– not possible in states that don’t recognize the marriage in the first place. Thus under current tax law a couple is not considered ‘unmarried’ without a state sanction.

What does that mean for a separated, but not yet divorced same sex couple? They must file joint federal tax returns which ties them to the respective ‘spouse’s’ tax debt. Or they can file as married filing separately. However this means that the couple is then subject to higher tax rates than for those who file a joint return. Here is an example of the unfair treatment for same sex couples who find themselves in this predicament. Let’s say one partner is in business for himself and he files with itemized deductions, then the other partner is not eligible for the standardized deduction. Also if you file married filing separately, you are then not eligible for a myriad of benefits that otherwise would be available to you including, earned income credit, education benefits, and more.

My Dollar is Equal to Your Dollar

Essentially, if the Administration is going to continue to allow the states autonomy on same-sex marriage rights, then it should seriously consider the ramifications that will trickle down to the IRS in state returns all across the country. If states can’t uniformly get on the same page, then possibly the federal government could trump when it comes to the definition of marriage–at least when it comes to filing tax returns. Or better yet, why doesn’t the Administration just stop playing both sides and throw down the gauntlet. Isn’t it time we’re all recognized as equal under the law?


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