IRS Revolution for Same Sex Couples in Light of Windsor Case

TaxThe much-anticipated IRS rules have “come out” officially. Now married same-sex couples can file their federal tax returns as “married” regardless of what state they live in. This is really big, since the majority of states still do not recognize same-sex marriage.

All federal tax laws involving marriage may save same-sex couples thousands of dollars or require them to pay more on such things as: the value of their spouse’s health insurance, estate and gift taxes, and retirement plans.

This means that same-sex couples may be paying much less in taxes and/or receiving a refund from prior years. In terms of savings, it depends on the couple. Each spouse’s earnings, employment status, and other factors determine whether these couples will save or pay more in light of the IRS rules. Generally, a couple’s tax liability will be less if one spouse makes much less than the other or if they are unemployed. Couples where both spouses have high incomes will probably result in paying higher taxes if they meet a certain threshold.

Other benefits include retroactive refunds for couples that would have received a refund had they been able to file jointly. Same-sex couples where one spouse is covered by the other spouse’s employer’s health plan can claim a refund on the income taxes spent on the value of the coverage. They can also claim a refund on the portions they paid on the premium.

Additionally, like opposite-sex couples, married same-sex couples may defer paying federal estate taxes. Another key benefit is that the surviving spouse of a same-sex marriage will be the default beneficiary on all qualified retirement plans. Whether or not this will be retroactive has yet to be determined though.

Same-sex couples residing in a state that recognizes their marriage can file both a federal and state tax return jointly. Unfortunately, for those couples residing in non-recognition states this will be more complicated. First off, it is unclear depending on the state as to how states recognize any couple’s tax return. For example, some states require that a taxpayer’s state tax return mirror their federal tax return. This will lead to a more inconvenient process for same-sex couples in those states.

A person is wise to consult a tax professional to learn more about the implications of the IRS ruling. A family law professional can provide some guidance on the general ramifications of the recent same-sex marriage Supreme Court cases.