Saturday, August 31, 2013
Law - "Gay and Married Couples in New Land of Taxation "
Must-read, lengthy, clip and file article by Tara Siegel Bernard, personal finance reporter for the NY Times, detailing precisely how the new IRS rules will impact you, your clients, your employees. A sample from the introduction:
The Internal Revenue Service this week set down the rules that will cost or save a particular couple money. That will depend on how much they earn, whether both spouses are working, and whether, together, they earn too much to claim the same sort of tax-saving deductions and credits they did when they were filing as singles (many of which phase out as income rise).Later in the article:
The rules also begin to clarify how couples residing in the 37 states that do not sanction same-sex marriages will fare. (Warning: Filing state returns won’t be easy, but not so bad that you’ll consider moving.)
Gay couples can now plan for how their financial lives will change when it comes to federal taxes, even though big questions remain about benefits like Social Security and veterans’ benefits. The ruling applies to a broad range of tax rules where marriage comes into play, and some will result in major savings. Some couples will no longer have to pay thousands of dollars in taxes on the value of their spouse’s health insurance, something their opposite-sex peers did not have to pay. Individuals can inherit a spouse’s retirement account and other assets without any extra tax implications. Nonworking spouses will be able to open an I.R.A. on their spouse’s earnings record. And the list goes on.
WHAT ABOUT STATE TAX RETURNS? If you live in a state that recognizes your union, your life just got much easier. Couples residing in places like California, Massachusetts or New York can file a joint federal tax return as well as a joint state return, just as opposite-sex couples do.Re civil unions:
But it’s not entirely clear what will happen in each of the states that do not recognize same-sex marriage, experts said, since some states require that a taxpayer’s state return filing status mirror their federal return. “I love that state taxing authorities are having to wrestle with this,” said Patricia Cain, a professor at Santa Clara University School of Law and an expert on sexuality and federal tax law. “It does remain to be seen, but it is likely that you won’t be filing jointly at the state level” if your state does not recognize your union.
If that’s the case, filing your state tax return will become more cumbersome. Each spouse will probably need to fill out a dummy federal return as if they were filing on their own (either as single or head of household) and then transfer the information on that return to their state return, which also must be filled out as single or head of household, according to tax experts. “It will be awkward, it will be time-consuming, but not necessarily difficult,” said Nanette Lee Miller, who leads the lesbian, gay, bisexual and transgender practice at Marcum, an accounting firm.
OTHER TYPES OF UNIONS Couples in civil unions or domestic partnerships are not viewed as spouses in the eyes of the federal government, and they cannot file a joint federal return, even if their state permits them to file jointly, according to senior Treasury officials. If you live in a state that permits civil unions but not same-sex marriage, for instance, you need to get legally married to be treated as a spouse for federal tax purposes.
Posted by Marcia Oddi on August 31, 2013 08:38 AM
Posted to General Law Related