Congratulations Same Sex Married couples; The IRS – Post DOMA – Ruling is effective 9-16-13

 

This recent IRS ruling could have a major impact upon your finances. Don’t be caught short by an unexpected surprise.

This recent IRS ruling could have a major impact upon your finances. Don’t be caught short by an unexpected surprise.

Effective Monday September 16, 2013 all Same Sex Married (SSM) couples can file their Federal tax return as either Married Filing Separate or Married Filing Joint.  Filing as single is no longer an option.

The change was announced in an 8/29/13 IRS Press Release:

  • All Same-Sex Married (SSM) couples must file as married even if they are living in a state that does not recognize their marriage
  • Couples can evaluate returns filed in 2010, 2011, and 2012 to see if amending their return results in an overpayment and money back to you
  • Amending returns is an option and is not required

From a tax standpoint, SSM couples have incurred a lot of financial change since the DOMA ruling.

The 2012 Federal Tax filing season is almost over and SSM couples were granted the right to file their Federal return as married on 8/29/13. How will this change affect you? Is there “money in the IRS Treasury bank” or do you need to put money in the bank to pay tax obligations that you just incurred?

To help you get started evaluating how all this change could affect you, create a chart similar to the following for each of the tax years that could be amended to see if filing an amended return for Married Filing Joint (MFJ) saves you money as a couple.

Specific rules are available for each year on the IRS website. It is important to pay attention to credits, deductions, and related phase out amounts. For example, for 2012

  • The $2,500 maximum deduction for interest paid on student loans begins to phase out for married taxpayers filing a joint return at $125,000 and phases out completely at $155,000

The following chart shows TP#1 using the Standard Deduction and TP#2 using the Itemized Deduction. Hypothetical dollar amounts are not included because they would not be relevant to you.

2012 –Filed:

Prior to DOMA

Taxpayer #1 Taxpayer #2 MFJ Amended after 9-16-13
Adjusted Gross Income
Standard Deduction $5950. $0.00
Itemized Deduction 0 ?
Personal Exemption $3800 $3800.
Taxable Income
Tax Due


To see what the 2013 tax year looks like for Married Filing Joint:

  • List your combined income and Federal Tax withheld or paid to date
  • Determine if you are going to use the Standard or Itemized Deduction
  • Use the IRS Withholding Calculator to check your withholding amount
  • File a new W-4 to adjust your holding if needed

The American Taxpayer Relief Act of 2012 includes the following rules for 2013:

  • A new tax rate of 39.6% for individuals over $400,000 and $450,000 for Married Filing Joint
  • The Personal Exemption is $3900; this is phased out beginning with incomes of $250,000 and $300,000 for Married Fling Joint
  • Itemized Deductions are limited for Individuals over $250,000 and $300,000 for Married Fling Joint
  • The Alternative Minimum Tax Exemption is $51,900 ($80,000 for Married Fling Joint).

In closing, I understand that this is a lot of information to absorb, research, and evaluate to determine your financial situation.  Do-It –Yourselfers could be ready to go while others prefer to get help and spend their free time doing something enjoyable. Understandable. For now, just know that the IRS ruling could have a major impact upon your finances. Don’t be caught short by an unexpected surprise.

Benjamin Franklin said, “An investment in knowledge pays the best interest”.  May your investment produce a positive return for both your time and for your money.

Defense of Marriage Act is Dead. Now What?

Credit: Getty Images

Credit: Getty Images / SAN FRANCISCO, CA – JUNE 28: Supporters applaud as same-sex couple Sandy Stier (2R) and Kris Perry (R) prepare to get married at San Francisco City Hall by California Attorney General Kamala Harris on June 28, 2013 in San Francisco, California.

My name is Deb Fox and I am a CPA and this is my first blog post. As a CPA I was aware of the financial inequalities created by the Defense of Marriage Act (DOMA) and I felt that it was wrong. I was elated to learn that the Supreme Court of the United States agreed with me.

I have the unusual blessing of having not one, but two gay brothers. One is my younger brother; he and his partner have been together for 13 years and they live in San Diego. The other is my older stepbrother; he and his partner have also been together for many years and live in Orlando, Florida.

Our parents are in their early 80’s and have been great role models for all of us. They have always been accepting of my brothers and their relationships. Our family is very close and we enjoy our time together as much as possible. We are fortunate to be blessed by loving and supportive relationships. This post is dedicated to my brothers and to all those that celebrate this victory with me.

A brief history of DOMA & a glimpse into what it means now for the 130,000 same-sex couples that are legally married living in the current 13 states and in the District of Columbia:

DOMA History:

  • In 1993, the Supreme Court of Hawaii, ruled that the state needed to show a “compelling state interest” in disallowing gays and lesbians from marrying
  • The case turned marriage into a possibility of obtaining the same rights of partnership as heterosexuals
  • In 1996 DOMA was signed into law, which restricted federal law from recognizing any unions between two persons who were not a man and a woman. The rule also said that no state had to accept any other states definition of marriage
  • On 6/26/13, the U.S. Supreme Court declared DOMA (section 3) unconstitutional .The federal government cannot discriminate against married lesbian and gay couples for the purposes of determining federal benefits and protections
  • States can still define marriage (section 2). The IRS will provide guidance about what happens if you are in a non-same sexed marriage recognition state

By striking down DOMA this now means that same-sex couples who are married in the 13 states and DC where same-sex marriage is legal are now “qualified” (spouse related) to receive:

Federal Benefits:

  • Receive Social Security, Medicare, & Disability Benefits
  • Receive Veterans & Military Benefits
  • Receive Cobra health insurance benefit continuation for your spouse
  • File Married Filing Joint or Married Filing Separate if you are married on 12/31/13

Employment Benefits:

  • Not be taxed by your employer for the health care benefits provided for your spouse
  • Take Family Medical Leave for your spouse
  • Receive wages and retirement plan benefits for deceased spouse

Gift/Estate Tax:

  • Make unlimited tax-free gifts to each other as long as the receiving spouse is a U.S. citizen
  • Leave your assets to your spouse without incurring estate taxes (Edie Windsor)

Congratulations to those that have been married for years & have not had the rights or the benefits as those heterosexual couples that obtained them when they spoke “I do”.

There is a lot to be considered with this recent decision by the Supreme Court which is why I have limited this initial post to the 2013 tax year. The IRS will soon let us know if we need to consider the tax implications retroactively – 3 years back or not.

But for now my friends, this is the time for you to:

  • Enjoy the 1,138 spousal benefits provided by the federal government – if you are in a same-sex marriage and living in a location that recognizes your marriage
  • Consider changing your W-4 from single to married.  You need to make sure that you are “withholding” enough to prevent being accessed a penalty
  • Know that the United States tax is a “pay as you go” tax system, which means that tax must be paid as you receive or earn your income. See IRS Topic 306 – Penalty for Underpayment of Estimated Tax
  • Celebrate – it is Pride week here in San Diego! Maybe, I will meet you there?

Happy Pride and Congratulations on a long fought battle.