Same-Sex Marriage And Taxes

For proponents of same-sex marriage, the ability to enter into a lifelong union with a spouse regardless of gender, has always been seen as a basic civil right. In the past decade, the issue has been debated around the world, resulting in more same-sex unions to occur in many countries. In the United States, six states (Connecticut, Iowa, Massachusetts, New Hampshire, New York, Vermont) have passed same-sex marriage legislation, with New York joining that list in July of 2011.

To be sure, granting gay couples to marry was a social milestone that will never be forgotten. The decision of an individual state to acknowledge the love and commitment of a couple has been a tremendous victory in the history of gay rights. Yet in many ways it still remains a partial victory and at tax time that reality has a spotlight shone on it brightly.

Despite being legally married in the eyes of the state, the Federal Government does not recognize these unions when it comes time to pay Uncle Sam. Same-sex couples will file taxes jointly this year in New York State, but they face the burden of filing separate federal tax returns. This could have important ramifications for same-sex household.

The Federal Government backed out of the gay marriage game in 1996 when it passed the Defense of Marriage Act, which defines marriage as a legal union between a man and woman. Because of this decision, same-sex couples will face a multitude of federal tax implications:

  • Filing separate federal returns pushes individuals into a higher tax bracket
  • Same-sex couples must pay tax on employer provided medical/health insurance; traditional married couples do not

In the event of a death, a surviving spouse of same-sex marriage must pay federal and state inheritance tax; traditional surviving spouses do not need to pay an inheritance or gift tax.

These realities are harsh, but there are ways to deal with them.

I have counseled same-sex couples to seriously consider agreeing to a pre-nuptial agreement no matter their financial status because circumstances of division of property are different during a divorce.

If children are involved the stakes are even higher. When same-sex couples decide to have children, most often there is a biological parent and a non-biological parent. This makes it extremely important for the non-biological parent to adopt the child so parental custody is recognized in all states, even those that do not recognize same-sex marriages. In states where same sex marriage is ignored, the non-biological parent will not be able to provide consent for medical assistance if the child needs emergency medical care and does not have legal say in education decisions.

Many people, myself included, have applauded the decision of New York State to recognize same sex marriage. But there is a major legal component to marriage and all same sex couples need to explore all of their options, especially at tax time. It took too long for same sex marriage to become a reality. Don’t let the vagaries of tax law surprise you.

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