In 2013, the Supreme Court struck down Section 3 of the Defense of Marriage Act (DOMA) in U.S. v. Windsor. The decision has broad tax implications.
For one, same-sex married couples can file joint federal income tax returns. It should be noted, however, that joint returns aren’t always beneficial. If both partners in a same-sex marriage have high taxable incomes, filing a joint return could result in more taxes being paid.
For example, the modified adjusted gross income threshold amounts for calculating the net investment income tax is $200,000 for taxpayers filing as single, $250,000 for couples filing joint returns, and $125,000 in the case of a married taxpayer filing a separate return.
The IRS has clarified that, for federal tax purposes, if a same-sex couple is married in a state where it is legal to perform same-sex marriages, the marriage is recognized for federal tax purposes regardless of where the married couple lives (i.e., whether or not they live in a state that recognizes same-sex marriages). However, individuals (whether of the opposite sex or the same sex) who have entered into a registered domestic partnership, civil union, or other similar formal relationship recognized under state law, but not denominated as a marriage under the laws of that state, are not treated as being married for federal tax purposes.
Another result of the Supreme Court decision is that tax-free employer provided benefits to married same-sex partners that were previously includible in income under federal law are now excludible from income, so refunds can be claimed on this basis as well.
Also, the estate of a partner in a same-sex marriage is entitled to the marital deduction, which means the partner’s estate passes tax-free to his or her spouse. Other benefits of the Court’s decision include married same-sex partners being eligible to receive federal benefits if their partner is a federal employee, as well as married same-sex partners being eligible for social security survivor benefits upon the death of a partner.
Thus, as you can see, the Supreme Court’s decision presents financial and tax planning opportunities.
Please contact the office of Don Fitch Accountancy at (760)567-3110 or Email Don.Fitch@CPA.com if you have any questions or would like additional information.
DON FITCH, CPA
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Palm Desert, CA 92260
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(Updated 03/27/2021 320-142)