Marriage equality plays a huge role in federal taxes, benefits, health care
The Internal Revenue Service is emerging as the hero of the marriage equality movement.
After the fall of “don’t ask, don’t tell,” the Defense Department allowed gays and lesbians to enlist and service members to serve openly, but it’s still debating benefits. Four years after repeal, same-sex couples still don’t receive all the benefits opposite-sex couples receive.
But after the United States v Windsor decision in June 2013, the IRS moved more quickly. Because the federal government was allowed to recognize same-sex marriage, the agency ruled that couples with a valid marriage license had to file their federal income taxes as a couple — either jointly or as married filing separately.
In addition to its swift ruling just months after Windsor, the IRS’ additional rulings have all favored recognition of same-sex couples.
As of Jan. 1, 2015, pension funds had to recognize married same-sex couples and offer equal benefits to all married couples. The Dallas Employee Retirement Fund came into compliance this week. Fort Worth’s employee pension fund change its policy in January. The Dallas Police and Fire Pension refused to fix its benefit program and is out of compliance, jeopardizing its tax-exempt status.
Fort Worth tax accountant David Mack Henderson, who is also president of Fairness Fort Worth, said that along with the benefits of marriage come responsibilities.
In 2014, getting married became a lot easier for Texans. First neighboring New Mexico began issuing marriage licenses and in October, Oklahoma became a marriage equality state. A couple that’s married must file jointly or as married, filing separately.
CPA Ron Allen said that if you get married, “most of the time you’re going to pay more” in federal income taxes.
He said the only time to file as married, filing separately is while going through a divorce. That category has the highest tax rates.
Henderson said he advises couples to have an open discussion about their finances before getting married.
“I’ve never encouraged someone to marry or not get married because of taxes,” he said.
Henderson said a couple should get a picture of what the couple is combining. For those with more complicated finances, sit down with a financial planner before getting married to understand the consequences.
He said it’s important to do this before marriage because, “there are some things you can’t undo.”
Some actions may be better to take before marriage.
For the purpose of Social Security and Medicare benefits, place of residence is written into the law rather than place of celebration.
When a spouse who earned higher social security benefits dies, the survivor is eligible to continue to receive that higher amount, Allen said.
Applications from same-sex couples in states with discriminatory marriage laws are currently being placed on hold until the Supreme Court rules on marriage equality. If the Supreme Court rules that all states must allow same-sex couples to marry, those applications will be processed.
The Windsor case was about inheritance tax.
“There’s a huge advantage to being married if there’s a large estate,” Allen said.
Parkland and ADAP
If one spouse gets HIV meds at Parkland or AIDS Arms through the federal AIDS Drug Assistance Program or ADAP, check to see if combining incomes through marriage will affect receiving benefits, Allen advised.
Federal programs generally treat marriage by place of celebration, so income should be reported as a couple if already married out-of-state.
Because of the change in income, the spouse that had been relying on Parkland because Texas didn’t expand Medicaid coverage may now qualify for insurance. Not purchasing a policy may result in a penalty.
Affordable Care Act
Beginning this year, uninsured individuals pay a penalty under the Affordable Care Act. In states like Texas that did not expand Medicaid, those with low incomes may qualify for an exemption, according to information on healthcare.gov.
The penalty is paid either as a flat fee or a percentage of income, whichever is higher.
If uninsured for more than three months but not the entire year, pay 1/12 of the penalty per month uninsured.
The flat fee for having no coverage in 2014 is $95 per adult and $47.50 per child with a maximum of $285 per family.
Households with higher income pay 1 percent of household income. The maximum penalty is the national average premium for a bronze plan. According to IRS.gov, that amount is $2,448 per person up to $12,240 for a family of five or more.
On 2015 taxes, the amount increases.
The flat fee will be $325 for an adult and $162.50 per child up to a family total of $975.
The percentage of income increases to 2 percent with a cap of the national average of a bronze plan.
After this year, the flat fee increases to $695 per person or 2.5 percent of income.
The fee is paid on the federal income tax return for the year without coverage.
This article appeared in the Dallas Voice print edition February 20, 2015.