Married, Filing . . .
Jointly, separately, or confused?
by Karen Derr
Even though your marriage isn’t recognized by the state of Texas, the June 2013 repeal of the Defense of Marriage Act (DOMA) means that if you traveled to another state to be legally wed, and then returned home to the Lone Star State, you are now also legally married in the eyes of U.S. federal government and the Internal Revenue Service (IRS). If this describes your situation, you must file your federal income tax as either “married filing jointly” or “married filing separately.”
Houston certified public accountant Gary Gritz explains that although this is still an evolving issue, for many same-sex couples (just like their married straight friends), filing as “married” will probably mean a savings on income tax.
To clarify, if a couple has been legally married in any state, they can no longer file as single on their federal income tax. It’s a bit counterintuitive for those of us living in a state that still constitutionally forbids same-sex marriage, but when filing your federal income tax, you don’t get to pick and choose whether filing single or married is more beneficial for you.
For the vast majority of same-sex married couples, filing as married is a long-awaited benefit that lowers their taxes. This is especially true where one spouse makes less than the other or does not have income. However, for some married couples where both spouses are high-income earners, their taxes may actually be higher. Gritz, who is licensed in Texas, New York, and Florida, says higher taxes have been a reality for some of his clients experiencing the so-called “marriage penalty.” Are clients consulting with Gritz before marrying to anticipate any negative impact? He says not really. “The benefits of marriage usually outweigh any negatives.”
Same-sex married couples are finding that there are many other aspects to their newly obtained legal status to consider. According to Gritz, other opportunities worth exploring in the wake of the DOMA ruling include marital gifting, estate tax planning, IRA rollovers, and Social Security survivor benefits. Same-sex couples will be able to set up co-marital trusts as well. He adds that several rules were changed in 2013 that affect spousal benefits, including those of same-sex marriages. “It’s subject to all the good and the bad that filing jointly brings about,” Gritz says. He recommends his clients also talk with their human resources department, especially if they work for a large company, to make sure their benefits packages reflect their married status.
In states that have state income taxes, it gets a little more complicated, and those states that don’t recognize same-sex marriages are handling state tax returns in various ways. Some require you to file a pro forma federal return as single, just for the purpose of calculating your state tax. Some states are currently allowing same-sex couples to choose whether to file as married or single. The state of Missouri has gone a totally different route and allows
couples to file as married, even though the state does not otherwise recognize the marriage.
Couples who realize filing jointly will allow for savings can also amend their federal income tax back to 2010, or to the date they became legally married. However, Gritz confirms that couples are not currently required or mandated by the IRS to amend returns. He does not anticipate any further legislation to require high-income same-sex couples who might experience the marriage penalty to amend past returns. “For most couples, re-filing is more of an opportunity than a detriment,” Gritz says.
Commodity consultant James Oxford, a longtime Houstonian now living in New York City, says, “We were married in 2011. That allowed us to re-file for 2011 and 2012. Of what we had already paid on our federal taxes, we received about 15 percent of that back.” Of course, Oxford and his husband didn’t have to amend their state income tax return because New York allowed them to file jointly for those years already.
It should be noted that although some states treat civil unions and registered domestic partnerships the same as legal marriages for the purposes of state income tax, the IRS does not. Also, in light of the fact that there are now 14 countries worldwide that have legalized same-sex marriages, consideration must be given to same-sex couples marrying outside the country as well. As state and federal departments proceed with applying laws written long before same-sex marriages were legal, Gritz believes it is conceivable that couples may even be required to assign themselves the titles of “husband” and “wife” in the future. “This is an evolving issue,” he reiterates. It seems that only time (and politics) will tell how the state laws will sort out, and how current rules regarding an array of issues will translate from husband-and-wife marriages to same-sex marriages.
For more information, contact Gary Gritz at garymgritzpc.com, [email protected], or 713.784.3030.
Karen Derr is a Houston-area Realtor and the founder of Boulevard Realty. She writes and speaks about home and small-business topics.