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Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Monday, February 11, 2013

NY Times: A Doubly Trying Tax Season for Same-Sex Couples

New York Times:  A Doubly Trying Tax Season for Same-Sex Couples:

For same-sex couples across the United States, an offshoot of being married is a dizzying set of complications in computing taxes. Although nine states and the District of Columbia have approved same-sex marriages — two others recognize marriages conducted elsewhere — the federal 1996 Defense of Marriage Act prohibits such unions from being recognized by the federal government. ...

Tax issues for same-sex married couples are numerous and often require expert advice to navigate. Because same-sex couples are not permitted to file federal returns jointly, they cannot combine incomes and deductions to take advantage of lower tax rates and the benefits that can accrue, say, from balancing profits and losses in financial transactions. Issues also arise when same-sex couples have children or other dependents, because they cannot file joint tax returns and may not both be legal parents. That complicates exemption claims and child care benefits, including education tax breaks.

Perhaps most significantly for couples with major assets, DOMA prevents same-sex couples from taking advantage of estate tax exemptions, about $5.1 million for 2012 — but double that for couples — after indexing for inflation. If one member of a same-sex couple dies and leaves a spouse $5 million, those assets would be taxed. For heterosexual couples, there would be no tax. ...

Not having a marriage recognized for tax purposes can actually be an advantage, and the repeal of DOMA could cost some same-sex married couples some money. Just as many married couples are hit with the so-called marriage tax, many same-sex couples save money by being forced to file separately. “I think a lot of same-sex married couples in high income ranges have no idea that once their marriage is recognized they will be paying a lot more in federal income tax because of the marriage tax penalty,” said Patricia Cain, a tax law professor at Santa Clara University, who is herself in a same-sex marriage. “I just ran the figures on a couple in the $2 million range, and in 2013 they’ll be paying $35,000 more in federal tax filing jointly.”

Still, she said, both for social-equity reasons and because of the contradictions, ambiguities and holes in the current tax system, the repeal of DOMA cannot happen too soon. The confusion applies not just to marriage but to its dissolution as well, she said. “We need to have marriage recognized, so we can know how to do divorce,” she said.

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Instead of granting same-sex couples the status of marriage, wouldn't it make more sense to get rid entirely of the IRS recognition of marriage and treat every taxpayer as single?

Posted by: Jimbino | Feb 11, 2013 2:09:32 PM

Gay unions are a "doubly trying" issue for agency budgets, too.
DoD Giving Benefits To Same-Sex Partners Creates Costly 'New Class of Beneficiary'

Posted by: Woody | Feb 11, 2013 8:20:15 PM

As usual the East Coast media ignore the doubly trying problem for same-sex couples in community-property states, who must follow state law and split incomes on federal returns, even when married filing status is not allowed.

Posted by: Bob | Feb 12, 2013 7:23:25 AM