Gay Marriage Case: Financial Benefits At Stake
by Blake Ellis, CNN Money
NEW YORK (CNNMoney)—A Supreme Court decision striking down the federal ban on gay marriage would bring dramatic changes to the financial lives of the country’s 120,000 married same-sex couples.
On Friday, the court announced it will hear a case challenging the Defense of Marriage Act—a 1996 law known as DOMA that defines marriage as between a man and a woman.
If DOMA is found unconstitutional, same-sex couples married at the state level will become eligible for the same federal treatment as opposite-sex couples when it comes to financial matters like taxes and Social Security benefits.
The court’s ruling is expected by the end of June. The justices also took up Proposition 8, a California measure banning gay marriage in the state.
Gay marriage is legal in nine states and Washington, D.C. More than nine other states grant civil unions or domestic partnerships, but couples in those states are unlikely to be impacted, said Judi O’Kelley, deputy director of development at nonprofit Lambda Legal.
Some of the biggest changes would be seen in tax bills. To start, couples would be able to file their taxes jointly. This would reduce many couples’ tax liability by as much as thousands of dollars a year—especially when one spouse earns significantly more than his or her partner.
The tax that many same-sex couples must now pay if one partner is covered by the other’s health insurance plan would also disappear.
Adele Hoppe-House, who is 45, said she and her wife, Jennifer, would save between $3,000 and $4,000 a year on health insurance taxes if DOMA is overturned.
The couple, who married in 2008 and live in Los Angeles, would also be able to trim about $1,000 per year from their income tax bill by filing jointly, since merging their incomes would allow them to qualify for a lower tax rate. Of course, filing jointly won’t help in some cases—typically where the two incomes are similar.
Couples can file protective refund claims with the IRS to someday recoup taxes if DOMA is overturned. The Hoppe-Houses, for example, hope to receive a refund of more than $13,000 for the extra income tax and health insurance tax they paid over the past three years.
“[DOMA being overturned] would be further confirmation that we are no different from anyone else and that we shouldn’t be treated differently,” said Adele.
Rochelle, a 56-year-old from California who asked that her last name not be used, expects that she and her wife will save at least $2,400 in income tax per year if DOMA is overturned. Rochelle is semi-retired, while her wife still works full-time. Since there is such a disparity in their income, filing jointly would enable them to take advantage of a lower tax rate and two exemptions.
The two met 28 years ago when they were both enlisted in the military and stationed overseas, and they married in 2008. If DOMA is overturned, they could receive a refund of more than $7,000 for the extra income tax paid over the past three years—money they would use to start an emergency fund.
Currently, estate taxes can also hit same-sex couples hard.
Surviving spouses in heterosexual marriages don’t have to pay taxes on their deceased spouse’s estate, while same-sex widows must pay a 35 percent estate tax on anything in excess of the $5 million exemption.
If DOMA is overturned, same-sex spouses would no longer have to pay this tax. And those who paid taxes on their deceased partner’s estate in the last three years could amend their returns and be refunded the money.
In the DOMA case before the court, Edith Windsor of New York sued to get back more than $363,000 she paid in estate taxes when her partner died.
Other benefits are also at stake.
Same-sex spouses would no longer have to pay tax when giving their partners gifts. They would get easier access to spousal pension plans and health care benefits and become eligible for Social Security survivors benefits.
Federal workers in same-sex marriages would be granted a large number of spousal benefits that they currently aren’t eligible for, and military and veterans benefits would become available. COBRA, the federal health insurance program, would cover the family of a same-sex spouse who loses his or her job.
“Right now, same-sex couples are operating in a world where they have to have a belt and suspenders and hold on tight to make sure nothing falls,” said O’Kelley. “If DOMA is struck down there will be a safety network in place for them in the same way it is in place for different-sex couples.”
CNN’s Bill Mears contributed to this report.