Hey there, this story refers to the 2011 tax year. For the most up-to-date information covering the 2012 tax year, check out How to Do Your Taxes if You're a Same Sex Married Couple.
It's been a banner year for gay rights, with New York State saying "I do," to same-sex marriages and Maryland and Washington following close behind.
But there's still a shadow hanging over these celebrations: In the eyes of the federal government, gay Americans are still single.
If you're gay and married, that means when you pay taxes, you're considered single. (And that's only the beginning. When it comes to Social Security survivor benefits and insurance benefits from your federally employed partner, you're also still single.)
There are two things you should know:
- This makes your taxes more complicated, and hence might require you to hire an accountant and/or pay more in fees for them to wade through the situation.
- According to an analysis by H&R Block, same-sex couples pay as much as $6,000 more in taxes than heterosexual couples.
That certainly shouldn't stop you from getting married. But you probably have questions about what else you need to know if you're a Mrs. and Mrs. during tax time. We'll walk you through how to do your taxes right:
Consider Hiring an Accountant
First, you might consider hiring an accountant. To decide, you can start with the free Ace Your Taxes Bootcamp, which has a quiz that will tell you whether you need an accountant. Unless the results of that quiz are that you definitely don't need one, you should consider getting one that is familiar with same-sex partnerships. There are several reasons why:
- They will be familiar with the intricacies of your state laws, which vary widely.
- If you live in California, Nevada or Washington, a new IRS rule allows registered domestic partners and legally married same-sex couples to split their income, which will have tax implications that a tax accountant can work through.
- You might be subject to the marriage penalty, where combining your finances would bump you into a higher bracket. An accountant can run the numbers for you and tell you whether to change your withholding for next year.
- An accountant can advise you on long-term concerns about special tax penalties related to shared finances and estate taxes, and how to avoid them.
Check Your State Laws
Some states recognize same-sex marriages, while some see them as civil-unions or domestic partnerships, and in others, of course, they are outright illegal. Here are the definitions:
- Civil unions are legal contracts between partners that are recognized as having all or some of the rights of marriage, but without the historical and religious connotations.
- A domestic partnership is between individuals who are living together but are not joined in any type of legal partnership, marriage or civil union. It recognizes the contribution of one partner to the property of the other.
Your exact state laws will affect a wide range of issues surrounding taxes, from what filing status you will use, to how your insurance benefits are taxed.
This handy chart provided by H&R Block tells you exactly how your state treats taxes:
|State||Type of Relationship||Allowed to file joint state tax return|
|Colorado||Designated beneficiary agreement||No|
|Delaware – Will recognize civil unions effective January 1, 2012|
|Hawaii – Will recognize civil unions effective January 1, 2012|
|Nevada||Domestic partnership||No state income tax|
|New Hampshire||Same-sex marriage||Yes (Dividends and interest income only)|
|New Jersey||Civil union||Yes|
|Registered domestic partnership||No|
|New York||Same-sex marriage||Yes|
|Rhode Island||Civil union||No*|
|Washington||Domestic partnership||No state income tax|
|Washington D.C.||Same-sex marriage||Yes|
*Rhode Island requires taxpayers to use the same filing status on the state return as the federal return.
One Couple, Four Tax Returns
If you're in a state that allows you to file jointly with your partner, the two of you will have to file four tax returns altogether:
- One federal tax form for you
- One federal tax form for your partner
- One "dummy" federal tax form together so you can reference it when you fill out ...
- One joint state return together
To find out more about what forms you need, read this.
How to Avoid Lying
Because the federal government does not recognize same-sex marriages, you will have to file as though you are single or face stiff penalties. But at the same time, you are not supposed to lie on your tax forms. What to do? Some accountants recommend that you check the single box, but put an asterisk next to it indicating you are in a legal same-sex marriage. Lambda Legal has also drafted a sample disclaimer you can attach to your return.
You Might Be Able to Claim Your Stay-at-Home Spouse
If you are working and your spouse is staying at home, or vice versa, the SAHS could qualify as a dependent member of your household, and you could take an exemption for her. To qualify, she must:
- Have earned less than $3,700 in gross income or unemployment benefits for the year 2011
- Have received more than half of her support from you, in the form of food, clothing, shelter, education, medical and dental care, recreation, and transportation
- Be a U.S. resident or citizen, or a resident of Mexico or Canada
For more on exemptions and how they work, read this.
If your spouse qualifies as a dependent, that also means you could qualify to claim education credits if you are paying for her education. To find out more, read this.
If You Share Assets
Like any married couple, you might share assets like a car, a home and financial accounts. But that makes things more difficult when it comes to taxes because of something called the gift tax. The gift tax kicks in when you gift someone cash or something worth more than $13,000. And because you aren't married in the eyes of the federal government, sharing all your assets like a brokerage or bank account, car or house could be seen as "gifting" them to each other.
Fortunately, there is currently a $5 million lifetime exemption, which allows you to gift someone up to $5 million over the course of your lifetime. The exemption is in place through 2013, but you'll still need to file a form declaring a gift more than $13,000. And the exemption might expire in 2013, leaving you back in a vulnerable position.
If You're Paying Mortgage Interest
If you own your home and both of your names are on the mortgage, you can share the mortgage interest tax deduction. You can split it in any way that fits you best, whether that's 50-50 or 0-100 or 75-25.
For more on what homeowners need to know about taxes, read this.
If You Have Children Together
If both you and your partner are legal parents (biological or adoptive) of the same child, either of you may claim the child as a dependent. You could even claim the "head of household" filing status, which has tax advantages over using the "single" filing status. You'll have to decide among yourselves which person will claim the dependent, but if you have two children together, you each may be able to file as a "head of household" by claiming one child as a dependent. If you do decide to do this, make sure you seek advice from a professional first, because this could trigger an audit from the IRS.
Read more about how to do taxes if you have children.
If You Provide Health Insurance for Your Partner
Because your state recognizes your marriage, you can provide insurance to your partner through your employer's plan and vice versa. But since the federal government doesn't recognize the marriage, they see that as an extraneous benefit. If you receive health insurance from your partner, you must declare the value of that health insurance benefit as taxable income from your partner's employer on your federal tax return.