The Defense of Marriage Act of 1996 was struck down by the Supreme Court in 2013 by majority decision. In August 2013, the Internal Revenue Service declared that legally married same-sex couples could refile tax returns jointly. These decisions have numerous effects on same-sex couples' taxes, and in many cases, rules and tax laws are still being defined to accommodate the rulings.
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Recognition of same-sex couples
While DOMA was in effect, the federal government, and thus the IRS, did not recognize same-sex marriage, so these couples were ineligible for more than 1,000 federal benefits for which straight couples may qualify. While it seems the DOMA ruling opens these benefits to all, there is still uncertainty regarding how the IRS will ultimately recognize same-sex marriages.
At the time of publication, the IRS looked to country or state law to determine the legality of a same-sex marriage. This means that same-sex couples married and residing in states that do not recognize same-sex marriage remain ineligible for federal benefits afforded married couples. However, if the couple was married in a state where same-sex marriage is legal but resides in a state where it is not, the IRS will recognize the marriage.
Tax filing status for same-sex couples
The DOMA ruling retained a section that allows states to determine the definition of a legal marriage, though this does not extend to domestic partnerships or civil unions, even if the state recognizes these.
States that do not recognize same-sex marriage force same-sex couples to file their federal and state tax returns with two different statuses. Federal returns can be filed using married status, while state returns cannot. Otherwise, conventional filing statuses are used by same-sex married couples. They can file as:
- Married filing jointly;
- Married filing separately;
- Head of household, meeting the conditions that apply to other married couples, regarding living apart and providing more than half the cost of maintaining the principal residence for dependent children.
The "marriage penalty"
The marriage penalty idea comes from comparing tax rates for two single people versus the tax rate if those two people were married. Tax brackets for married people are not double those of singles, so higher brackets kick in sooner when filing jointly. Even when you choose married but filing separately status, thresholds on some personal exemptions and itemized deductions do not return to single filing levels. Same-sex couples filing jointly would now be affected by these situations, but it is one side of the tax picture, based on partners with similar incomes, above the national household average. Tax advantages such as transfers of property between spouses, are now available to same-sex couples, offsetting effects of married couple tax brackets.
Advice for recently married couples
"As long as same-sex couples meet the IRS guidelines as a married couple, their tax situation will be subject to the same federal rules, claims and exemptions as any American married couple," says James Windsor, certified public accountant in Ann Arbor, Mich.
The IRS recommends that newly married couples notify the Social Security Administration, employers, the U.S. Postal Service as well as the IRS itself of any name and address changes resulting from marriage. Update tax withholding by filing a new form W-4 with your employer, so changes in your household income are reflected in payroll deductions.
Even if you chose the standard deduction in the past, it may now be more beneficial to you as a couple to itemize your deductions. When you use TurboTax to prepare your taxes, we can help you choose the best tax filing status and deduction method for your unique situation.