The Supreme Court ruling invalidating DOMA, the Defense of Marriage Act, will likely have sociological implications for years to come. But what’s the immediate tax impact? Under new IRS guidance, a same-sex couple will be treated like a traditional married couple for federal income tax purposes if they were married in a state that permits such marriages, regardless of where they reside. Here’s a summary of several key issues.
Filing status. Under the new ruling, legally married same-sex couples must file joint federal income tax returns for 2013, unless they opt to file separately as married individuals. Thus, same-sex couples now face the same tax dilemmas as other married couples.
Marriage penalty. Same-sex couples filing jointly may effectively pay a “marriage penalty” in situations where the income of each spouse is similar. For instance, instead of each spouse paying a top tax rate of, say, 28%, their combined top tax rate could reach 33%. Conversely, if their incomes are disparate, the couple might benefit from a “marriage bonus.”
Deduction and credit limits. Again, the tax rules could work for or against a same-sex couple. For instance, tax breaks for higher education expenses are phased out above certain adjusted gross income (AGI) levels, thereby increasing or decreasing deductions or credits that were being claimed separately. Another example: Due to certain deduction “floors” based on AGI, the overall outcome may differ by using a combined AGI.
Amended returns. The IRS says that a same-sex couple may file an amended tax return for an open tax year – generally, 2010, 2011 or 2012 – but they aren’t legally obligated to amend returns for prior years. Thus, refund opportunities may be available.
There’s more to come. The IRS promises additional guidance in the near future.
David Compton is a Certified Public Accountant with offices in Meridian and Birmingham, Ala.