Supreme Court’s DOMA ruling could mean married gay couples file jointly next year — or maybe not, depending on where they live
Gilbert Castillo and his partner Jon Chester, who have been together for more than 20 years, own Sterling’s Bookkeeping and Tax Service.
Like most LGBT people, Castillo and Chester would love to see the Defense of Marriage Act struck down by the U.S. Supreme Court. However, even if DOMA is ruled unconstitutional,
Castillo said the couple has no plans to get married, because they would be required to file jointly and end up paying higher income taxes.
“It’s extremely punitive for married couples,” Castillo said.
It sounds counterintuitive, since the DOMA case heard by the Supreme Court in March involved a $365,000 tax bill that Edie Windsor would not have owed had her spouse been male. But that was inheritance tax.
Income tax law was written to benefit the 1950s TV sitcom family — dad works while mom stays at home with the kids. The law rewards a couple with one higher-income breadwinner and one non-working or lower-income spouse.
When both partners have relatively equal incomes, filing separately is usually cheaper. This is commonly referred to as “the marriage penalty.”
Same-sex couples aren’t subject to the marriage penalty because DOMA prevents the federal government from recognizing their relationships. So gay and lesbian couples must file separate federal income tax returns.
As this year’s April 15 tax deadline approached, experts said it could be the last year under the current rules for same-sex couples.
If the Supreme Court rules DOMA unconstitutional, tax inequality could end, and married same-sex couples might be required to file jointly. Or they might not, depending on where they live.
Ken Upton, Lambda Legal supervising senior staff attorney in Dallas, said for tax purposes, the federal government has always recognized marriage based on state of residency.
For benefits such as Social Security and Medicare and immigration rights, Upton said he’d expect the federal government to treat all marriages equally. But he pointed to a friend-of-the-court brief in the DOMA case filed by former cabinet members that relates to how the government historically handled marriage and income tax.
Upton said if DOMA falls, same-sex couples might fall into three categories — those who are married and live in marriage-equality states; those who are legally married but live in non-marriage-equality states with state income tax, such as Oklahoma or New Mexico; and those who are married but live in states without state income tax, such as Florida or Texas.
Married same-sex couples who live in marriage-equality states would file joint federal and state income tax returns.
Married same-sex couples in states like Oklahoma, where they must file state income taxes separately, would also file federal income taxes separately.
Upton thinks married couples in Texas would be handled like couples living in marriage-equality states. Because there’s no state income tax, he said, Texas wouldn’t have a stake in the fight.
Although the Texas attorney general might prefer to deny same-sex couples federal recognition, he’d just have to live with the satisfaction of knowing those couples mostly would pay higher taxes.
Local CPA Ron Allen said he thinks that if DOMA is struck down, the IRS will recognize all same-sex marriages and require couples to file joint income tax returns. He said the indication is in a recent IRS ruling relating to California and Washington state.
“Both states are strong community property states,” Allen said. “And income is joint community income.”
He said in 2008, the IRS ruled that people with registered domestic partnerships in those states must total their incomes and deductions, split them in half and file identical individual returns.
He said since the IRS is already recognizing some state laws in non-equality states relating to how same-sex couples file, he thinks the IRS will recognize same-sex marriages across the country, no matter what the state of residency.
Human Rights Campaign spokesman Michael Cole-Schwartz said estate tax isn’t the only tax inequality same-sex couples endure. Partner benefits offered by most large companies come at a steep price when paying income tax.
On its website, HRC illustrates the tax liability of healthcare benefits for gay and lesbian couples that heterosexual couples receive tax-free.
Gay and lesbian employees earning $32,000 who put their partners on health plans costing $6,800 annually would pay more than $1,500 in additional income tax. Straight married employees would incur no additional liability on the same plan. Some companies are “grossing up,” or paying the DOMA penalty for their married same-sex employees. So striking DOMA would also benefit these companies.
“We’re preparing for a post-DOMA world,” Cole-Schwartz said.
HRC is identifying all areas of federal tax and benefit inequality to be ready to advocate for LGBT people should DOMA fall, he said.
But how would a couple from Texas know whether to file joint or separate returns?
Cole-Schwartz said the Supreme Court’s ruling should be illustrative but could leave as many questions as answers.
So, should same-sex couples expect a ruling from the IRS this summer on how to figure their income taxes next year if DOMA falls?
Allen said don’t count on it. It took three years before the IRS issued a ruling on community property for those with domestic partnerships in California and Washington.
This article appeared in the Dallas Voice print edition April 12, 2013.