It’s been a whirlwind couple of years for gay marriage. Since the Supreme Court struck down portions of the Defense of Marriage Act, Federal judges all over the country have been ruling state gay marriage bans unconstitutional. While some judges are upholding bans, by and large gay folks are seeing the ability to marry in a number of new states.
As tax season approaches, it’s important for gay couples to understand some of the implications that come with a new tax filing status. Here are 5 things gay married couples need to know about filing taxes:
- You have to file as “married” on your federal tax return
If you are legally married, the federal government requires you to file as married on your tax return. This means that you need to choose between “married filing jointly” and “married filing separately.” It’s important to understand that married filing separately is not the same as filing singly, and that some of the tax brackets and available breaks are different.
Your requirement to file as married on your federal tax return applies whether or not you live in a state that recognizes your marriage. If you were married in a state that recognizes your marriage, even if you don’t live there, the federal government requires you to file as married.
- You may have a different filing status for your state
“Once you are married, you must file as such for federal tax purposes,” says Carol Berger, a Certified Financial Planner with Halcyon Wealth Management. “If you live in a non-recognition state, though, you may have to file individually.”
Remember that you have a state tax return as well as a federal tax return. If your state of residence doesn’t recognize your marriage, it means that you will have to file individually on your state taxes, but as married for your federal taxes. It’s important to understand this. It may add a layer of complexity to your taxes, but it’s the way things are right now.
- You might be able to amend past tax returns
In most cases, the IRS allows taxpayers to amend tax returns for up to three years. So if you were married before the IRS began recognizing same-sex marriages for tax purposes, you might be able to amend past returns to change your filing status to married, either filing jointly or separately.
If you and your partner have widely divergent incomes, it can make sense to go back and amend your returns if you can. You might be due a refund. Consult with a tax professional ahead of time to ensure that you are approaching your situation in the correct way, and to double-check that changing your filing status would be of use.
- You might be subject to the so-called “marriage penalty”
Now that same-sex couples are seeing their marriages more widely recognized, they face some of the same issues that heterosexuals have long grappled with. One of these issues is the so-called “marriage penalty.”
Current tax law favors couples with wide disparities in income. So, if one of you stays home, or works part-time instead of full-time, you receive an advantage by filing jointly. However, if you make similar incomes, especially if you are both high-income earners, there is actually a penalty for marriage.
Additionally, Berger points out, there are issues that come when married partners both have high incomes. “They could lose exemptions, and their itemized deductions could be restricted,” she says. “Gay couples could also end up subject to the Alternative Minimum Tax.”
This is something to be aware of if you are married. The tax situation for two high earners who marry is usually not as favorable for the same high earners if they remain single. Once again, a tax professional can help you sort out your situation.
- A civil union isn’t viewed as a marriage
Finally, gay married couples should understand that civil unions aren’t the same thing as marriages in the eyes of the IRS. If you have a civil union, it’s not going to be viewed as a marriage for federal tax filing purposes, so you will still have to file as single.
Check with your state, though, because you might have a specific filing status for your state taxes if you have a civil union rather than a marriage. It’s important to understand that these are viewed as different types of relationships for tax purposes, and that federal benefits, as well as IRS recognition, might not be the same if you have a civil union as they would be if you had a marriage.
Before you file your taxes, make sure you review your filing status, and make sure that you understand the implications of your newly-recognized marriage. You might be surprised at the impact your situation has on your tax bill.