Milestones & Mountains – the LGBT “Financial Playing” Field

In Honor of the 40th anniversary of the San Diego Pride Festival this weekend, I offer an update about “Financial Equality” for the LGBT community, with whom I celebrate the financial victories that have been achieved since we celebrated this festival last year. 

Last year, we had 2 huge U.S. Supreme Court 6/26/13 decisions to celebrate:

  1. The Defense of Marriage Act (DOMA), section 3, was declared unconstitutional
  2. Proposition 8 defenders lacked “standing” which cleared the way for Legal Gay Marriage in CA

We also celebrated because Same-Sex Marriages (SSM) had just been allowed to resume again after a long break between 11/5/2008 through 6/27/2013.

This year, we have many reasons to celebrate, let’s call them “milestones achieved”.

We still have some mountains left to climb before the SSM “playing field” matches the “playing field “ of married opposite-sex couples.

Perspective:

The right to SSM is important for many reasons. For example, Wells Fargo issued a study in June 2014, in which the top 3 rights and benefits were listed for those surveyed:

  • Healthcare decision making rights 61%
  • Insurance and healthcare coverage 58%
  • Inheritance rights 56%

Health care decision-making can affect the quality of life. Insurance, healthcare coverage, and inheritance rights, all have a significant effect on the “financial equality” of life.

These rights and many others are becoming available to those that can legally marry their same-sex partner.  T

Today, SSM rights and benefits look more like a patch-work quilt across the United States as compared to those enjoyed by opposite –sex married couples who begin to enjoy their benefits, often as soon as they say, “I do”.

There has been tremendous progress and numerous changes since we celebrated San Diego Pride last year. Milestones to celebrate now include:

Same-Sex Marriage is fast becoming a reality for more people:

  • 19 states & the District of Columbia have Legal Same-Sex Marriage and 31 states have Same-Sex Marriage Bans
  • 12 states have had gay marriage bans overturned and appeals are in progress
  • 8/29/13 All Legal Same- Sex Marriages will be recognized for federal tax purposes as per the U.S. Department of Treasury
  • 9/16/13 effective date for Revenue Ruling 2013-17 which reads: “that for federal tax purposes, the Service adopts a general rule recognizing a marriage for same-sex individuals that was validly entered into a in a state whose laws authorize the marriage of two individuals of the same-sex even if the married couple is domiciled in a state that does not recognize the validity of same-sex marriages.”
  1. This opened the door to file original returns, amended returns, and claims for credit or refund for any overpayment of tax, provided that the applicable limitations period was still open under section 6511
  2. Couples can “pick and chose”, by year, which return, if any, they chose to amend, as long as the window is still open. Big return? Amend. Owe? Skip it.
  3. The window to amend the 2010 return, generally, expired on 4/15/14
  4. The 2011 1040 return can be amended until 4/15/15
  5. The 2012 1040 return can be amended until 4/15/16

Earlier this week, I attended an IRS DOMA seminar, which was introduced to about 300 tax professionals as “DOMA is about money, it has nothing to do with sex”.

SSM, is partially about money. The Windsor  (DOMA) case was about inheritance rights between spouses.

  • Federal tax law allows a deceased spouse to leave their assets, including a home, to the other spouse, without incurring estate tax. The Estate Tax Rate is 40%.
  •  The DOMA ruling resulted in Windsor being owed an IRS refund of $363,053 for the estate tax she had paid

The Estate Tax is a tax on your right to transfer property at your death.

  • Beginning January 1, 2011, estates of decedents survived by a spouse may elect to pass any of the decedent’s unused exemption to the surviving spouse. This election is made on a timely filed estate tax return for the decedent with a surviving spouse
  • 6/20/14, the Social Security Administration issued guidelines on eligibility for spouse-based retirement and survivor benefits, Medicare, and SSI benefits
  • 7/16/2014, the Connecticut Supreme Court rules that a Lesbian Widow has legal rights that predate Marriage Equality in the state.

Mountains:

  • SSM couples are unable to receive Social Security Spousal Benefits if they were married in one of the states that allow same-sex marriage but live in a restrictive state (reference Bankrate Retirement Blog 7/1/14)
  • Veterans benefits also are restricted for those living in states that do not allow same sex marriage (same reference as above)
  • The right to inherit pension benefits could fall under the “it depends” category. A recent 6/2/14 article about the Bayer Corporation provides some insight
  • Family Medical Leave Act does not cover same-sex spouses. Some employers grant this right to their employees and kudos to them.
  • Nationwide, there is not a federal law against LGBT workplace discrimination. A bill to accomplish that goal, the Employment Non-Discrimination Act, passed the Senate last year but has not yet been taken up by the House

In closing, as an American, I believe that all American’s should have the same rights and protections, under federal law.  The financial “playing field” should be the same regardless of whom you love and where you live in the United States.

Discrimination should be something all citizens do not have to fear or endure.

My name is Deb Fox and I am the proud sister of two gay brothers and multiple LGBT friends. I am an advocate and an ally. I believe in equality and am trying to do my part to make a difference, here now, today, and tomorrow.

Deb Fox is working to make a difference in peoples lives, hearts, and wallets. Although she earned her CPA in 1997, she is not currently practicing as a CPA. She does use her knowledge to help others protect their financial health and is available for side-by-side, remote, or mobile appointments.

 

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.