April 2, 2023

Gay Marriages Get Recognition From the I.R.S.

It is the broadest federal rule change to come out of the landmark Supreme Court decision in June that struck down the 1996 Defense of Marriage Act, and a sign of how quickly the government is moving to treat gay couples in the same way that it does straight couples.

The June decision found that same-sex couples were entitled to federal benefits, but left open the question of how Washington would actually administer them. The Treasury Department answered some of those questions on Thursday. As of the 2013 tax year, same-sex spouses who are legally married will not be able to file federal tax returns as if either were single. Instead, they must file together as “married filing jointly” or individually as “married filing separately.”

Their address or the location of their wedding does not matter, as long as the marriage is legal: a same-sex couple who marry in Albany, N.Y., and move to Alabama are treated the same as a same-sex couple who marry and live in Massachusetts.

“Today’s ruling provides certainty and clear, coherent tax-filing guidance for all legally married same-sex couples nationwide,” Treasury Secretary Jacob J. Lew said. “This ruling also assures legally married same-sex couples that they can move freely throughout the country knowing that their federal filing status will not change.”

Gay and civil rights groups praised the ruling. “Committed and loving gay and lesbian married couples will now be treated equally under our nation’s federal tax laws, regardless of what state they call home,” said Chad Griffin, the president of the Human Rights Campaign. “These families finally have access to crucial tax benefits and protections previously denied to them under the discriminatory Defense of Marriage Act.”  

But the Treasury decision could have ramifications for many gay couples’ tax liabilities, said Roberton Williams of the nonpartisan Tax Policy Center in Washington. Couples with similar incomes often pay the “marriage penalty,” with their tax liability as a couple being much higher than it would be if they were single.  

At the same time, same-sex couples will also be able to file amended returns for certain prior tax years, meaning that many couples might be eligible for refunds. Couples do not have to file amended returns if they do not want to, a senior Treasury official said, meaning that couples who might pay the marriage penalty would not owe back taxes.

But the ruling creates complications for same-sex couples who live in any of the 37 states that do not recognize their marriages. Previously, such couples filed federal and state tax returns as individuals. Now, they will have to file their federal returns as other married couples do, but may be required to file their state returns as individuals.

“There’s going to be a cumbersome workaround,” said Nanette Lee Miller of Marcum L.L.P., a public accounting firm. She sees it as a paperwork bother more than a financial issue.

States might also respond to the federal ruling with changes of their own. “Most state income tax regimes begin with federal taxable income as the starting point,” Marvin Kirsner, a tax lawyer at Greenberg Traurig, said in an e-mail. “These state taxing authorities will have to figure out how to deal with a same-sex married couple who file a joint income tax return for federal tax purposes.” He added,

“We will need to see guidance from each nonrecognition state to see how this will be handled.”

The rule change is likely to provide a small increase for federal revenue, as more same-sex couples pay the marriage penalty, Mr. Williams said, describing it as a “rounding error.” But it would be partly offset by new federal spending on benefits for same-sex spouses.

The ruling applies to all legal marriages made in the United States or foreign countries. But it does not extend to civil unions, registered domestic partnerships or other legal relationships, the Treasury said.

The Treasury ruling is one of many that are starting to emerge from all corners of the federal government as Washington changes regulations to conform with the Supreme Court decision.

Separately, the Health and Human Services Department said Thursday that Medicare would extend certain key benefits to same-sex spouses, “clarifying that all beneficiaries in private Medicare plans have access to equal coverage when it comes to care in a nursing home where their spouse lives.” 

But federal agencies are not moving in lock step. Instead, they are creating a patchwork of regulations affecting gay and lesbian couples — and may be raising questions about discrimination and fairness in the way that federal benefits are distributed.

Medicare and Treasury officials have said they would use a “place of celebration” standard for determining whether gay couples are eligible for benefits. That means same-sex couples would receive benefits as long as they are legally married, regardless of where they live.

But the Social Security Administration is now using a “place of residence” standard in determining spousal benefits, and a gay couple in Alabama might not receive the same benefits as a gay couple in New York until final determinations are made or Congress acts. The Obama administration has pushed federal agencies to ensure the Supreme Court’s ruling is carried out quickly and smoothly.

“It would be nice if they were consistent,” Ms. Miller said. Creating federal regulations is a process and could change, she said.

Tara Siegel Bernard contributed reporting from New York.

Article source: http://www.nytimes.com/2013/08/30/us/politics/irs-to-recognize-all-gay-marriages-regardless-of-state.html?partner=rss&emc=rss

Bucks Blog: Same-Sex Marriage and Personal Finances: Further Reading

Edith Windsor, the plaintiff in the Defense of Marriage Act case, appeared on the steps of the Supreme Court after the ruling.Christopher Gregory/The New York Times Edith Windsor, the plaintiff in the Defense of Marriage Act case, appeared on the steps of the Supreme Court after the ruling.

The Cost of Being Gay

A look at the financial realities of same-sex partnerships.

Today’s Supreme Court decisions on gay marriage raise new questions about the expansion of rights and benefits to same-sex couples. Tara Siegel Bernard, in her series on this blog and in Your Money columns, has examined the complicated personal finance issues surrounding gay marriage and Social Security, income and estate taxes, health insurance and other factors that will change along with marriage laws. We have gathered the most relevant articles and blog posts here.

Continuing coverage is also available on the Bucks blog as part of the series “The Cost of Being Gay.”

Article source: http://bucks.blogs.nytimes.com/2013/06/26/same-sex-marriage-and-personal-finances-further-reading/?partner=rss&emc=rss

Bucks Blog: Credit Eased for Stay-at-Home Spouses and Partners

Stay-at-home spouses and partners may find it easier to get credit cards under a regulation revised by the Consumer Financial Protection Bureau.

The change, first proposed by the bureau last fall, lets spouses and unmarried partners who are 21 or older and don’t work outside the home, apply for credit based on shared income.

“Stay-at-home spouses or partners who have access to resources that allow them to make payments on a credit card can now get their own cards,” the bureau’s director, Richard Cordray, said in a prepared statement.

The move was made to fix an unintended consequence of the Credit Card Accountability Responsibility and Disclosure Act, known as the CARD Act, which became law in 2009. The law requires credit card issuers to evaluate an applicant’s ability to make payments before opening a new credit card account. Generally, under current regulations, card issuers may only consider the individual applicant’s independent income or assets.

The requirement was meant, in part, to protect students from getting into trouble with credit card debt, but it also ended up making it difficult for others to get credit cards. The bureau said data from the credit card industry suggested that otherwise creditworthy applicants were being denied cards and that a “significant number” of them might be stay-at-home spouses or partners. (Comments from the industry noted that military spouses were particularly affected.)

Under the revised rule, applicants who are 21 or older can rely on other income, including that of the working spouse or partner, if the applicant has a “reasonable expectation” of access to it. The bureau said it considered more than 300 comments from the public and industry before deciding on the revision.

Since same-sex marriage is recognized in just a handful of states, the inclusion of “partners” in the rule change is significant for gay couples. The rule applies to all applicants, regardless of marital status, the bureau said.

The bureau noted that Census data indicates that more than 16 million married people do not work outside the home, meaning roughly one out of every three married couples may now have easier access to credit.

The amendment has been submitted for publication in the Federal Register, the bureau said, and becomes effective upon publication. Card companies have six months after publication to comply with the new rule.

Do you think the change makes sense? Could this affect your access to credit?

Article source: http://bucks.blogs.nytimes.com/2013/04/29/credit-eased-for-stay-at-home-spouses-and-partners/?partner=rss&emc=rss

Bucks Blog: Gay Couples May Want to File a Protective Tax Refund Claim

The recent decision by a federal appeals court regarding the Defense of Marriage Act suggests gay couples may want to file something known as a protective refund claim with the Internal Revenue Service in the event the Supreme Court overturns the law, according to accounting experts.

The Court of Appeals for the Second Circuit in New York struck down the law’s definition of marriage as a union between a man and a woman as unconstitutional. The decision was the second by a federal appeals court striking down DOMA, as the law is known. The law’s constitutionality is expected eventually to be considered by the United States Supreme Court.

If the high court invalidates DOMA, legally married same-sex couples will be able to file claims for refunds of federal tax overpayments, said Janis Cowhey McDonagh, a partner at Marcum LLP in New York and a specialist in the firm’s national LGBT and non-traditional family practice.

Currently, same-sex marriage is recognized by six states — New York, Connecticut, Iowa, Massachusetts, New Hampshire, Vermont — and the District of Columbia.

Patricia Cain, a law professor at Santa Clara University and an authority on legal issues faced by same-sex couples, said others might want to consider filing a protective claim, too.

For instance, she noted that an additional nine states, as well as Washington, D.C.,  recognize “marriage equivalent statuses” for same-sex couples, like domestic partnerships or civil unions. While most people presume those relationships aren’t marriages, she said in an e-mail, “there’s a good argument that absent DOMA such relationships should be treated as marriages for tax purposes.”

In light of such uncertainty, she said, some details may end up being settled by further litigation. “I actually would advise anyone who would benefit from joint filing to file an amended return as a protective claim for refund if they are married (no matter where they live) or in a marriage equivalent status.”

Ms. McDonagh said couples should file a protective refund claim now because there is a three-year statute of limitations on tax refund claims. By filing a claim now, couples will have standing for overpayments dating to 2009, while DOMA wends its way through the court system. The claim applies to income taxes, estate taxes as well as gift taxes, she said.

It’s possible, Ms. McDonagh said, that if the Supreme Court voids the law, the I.R.S. could waive the three-year statute of limitations. That would seem the fair thing to do, she said, but there isn’t any precedent for the agency doing so. So to be safe, filing a protective claim makes sense.

Couples should consult their accountants for advice about filing a protective claim, which essentially involves filing an amended tax return, she said.

The case decided earlier this month was brought on behalf of Edith Windsor of New York City, who married her longtime partner, Thea Clara Spyer, in 2007 in Canada. When Ms. Spyer died in 2009, Ms. Windsor inherited her property. Because the I.R.S. was not allowed, under the Defense of Marriage Act, to consider her as a surviving spouse, she faced a tax bill of $363,053 that she would not have had to pay if the marriage had been recognized.

Do you intend to file a protective claim?

Article source: http://bucks.blogs.nytimes.com/2012/10/31/gay-couples-may-want-to-file-a-protective-tax-refund-claim/?partner=rss&emc=rss

Bucks: Tax Changes for Gay Married New Yorkers

The Cost of Being Gay

A look at the financial realities of same-sex partnerships.

Chang W. Lee/The New York TimesA couple waiting to be married in Brooklyn on July 24.

Now that gay marriage is legal in New York, legally wed couples will be subject to new state tax rules, which affect everything from income and sales taxes to estate planning.

While New York recognized same-sex unions performed elsewhere before the state started issuing marriage licenses of its own last month, that recognition did not extend to tax matters. Now it does.

The new tax rules, in fact, apply to all legally married gay couples who are living in New York, even if they were married outside the state.

Of course, since the federal government does not recognize same-sex unions, that equal recognition still does not apply for federal tax purposes. So couples will need to maintain a double identity of sorts: one for the state, another for the federal government.

So how will couples’ tax lives change? And what do they need to do differently? The state tax department recently issued guidance for these couples, outlining some of their rights and responsibilities. The changes went into effect on July 24 as part of the broader marriage equality law.

Income Taxes Married couples must now file their state income tax returns using a married filing status, even though they must continue to file as either singles or heads of households on their federal returns.

As a result, same-sex couples are likely to spend more time — and money, if they hire an accountant. That is because they are going to need to fill out their federal return twice: They must file their official return as individuals, but they must also complete a dummy federal return as if they were married so that they can compute their New York taxes.

Couples who were married as of Dec. 31, 2011, will be considered married for the entire year, which means they must file their 2011 returns as married. That said, the law is not retroactive, so you can’t amend a prior year’s return, or file a 2010 return that is on extension, using a married filing status (even if you were married at the time).

Going forward, gay couples may also want to consider changing the amount of state tax that is withheld from their paychecks in light of their new filing status. To make any changes to withholding, members of same-sex couples can file a new state withholding allowance form (known as IT-2104) with their employers.

But they should run the numbers before they do. Married couples who earn more than $75,000 each and plan on filing a joint return may want to continue to keep their “single” withholding so that they don’t end up owing the state money in April because of the marriage penalty, said Tina Salandra, a New York accountant with expertise in same-sex couples’ issues. The penalty causes married couples to owe more money than if they filed their returns separately.

There is a loophole that may allow couples to avoid being pushed into the higher bracket, however. Same-sex spouses can file their state tax returns using “married filing separately” status, which uses the same tax rates as if they were single, Ms. Salandra said.

“Married heterosexuals cannot usually file as separate unless they also file this way on their federal tax return,” she said, noting that federal tax brackets for married filing separately status is the costliest way to file. “Consequently, until the federal government recognizes same-sex marriage, there may be a tax advantage in New York State for married same-sex taxpayers.”

The same advantage exists for same-sex couples in New Jersey and Connecticut, she added.

Health Insurance Taxes Workers with same-sex spouses are taxed on the value of their partner’s health benefits because the federal government does not recognize their unions. But legally wed gay couples will no longer owe that tax at the state level, so they should be sure to provide proof of their marriage to their employers so that the companies can stop withholding those taxes and recognize the new spousal status.

Sales Tax Certain family members don’t have to pay sales and use taxes if they sell a car to a relative. So starting on July 24, the sale of motor vehicles between same-sex spouses, or between a same-sex spouse and his or her spouse’s child, are exempt from sales and use taxes, according to the state tax department’s Web site.

To claim this exemption, complete this form and submit it to the New York State Department of Motor Vehicles when registering the vehicle.

Estate Taxes Opposite-sex married couples can transfer an unlimited amount of assets to each other during life and after death, all without tax consequences. Now, married same-sex couples will gain some of those benefits, at least at the state level.

Under the new state law, surviving spouses can inherit an unlimited amount of assets without having to pay state estate taxes, which are typically owed on assets that exceed $1 million (This applies to same-sex spouses who died on or after July 24, whether or not a federal estate tax return is filed.)

Of course, these rules still don’t apply at the federal level. So if an estate exceeds the $5 million federal threshold, a surviving same-sex spouse may owe federal estate taxes. And if the couple gives each other large gifts, there may be federal gift tax implications.

But the new state tax law provides a big benefit. When calculating the size of an estate that belongs to a same-sex spouse, the survivor will now be able to use the same deductions and valuations as if their marriage were recognized for federal purposes, which can help reduce the size of the estate. Even though the spouse is entitled to inherit an unlimited amount of assets free of state estate taxes, a smaller estate can help them — and any additional heirs — in other ways.

For instance, if the couple had property that they held jointly, only half of the property’s value will be included in the estate. If that reduces the size of the estate below the $1 million threshold, that means the surviving spouse will not have to file an estate tax return. “If the gross estate is under $1 million, then there’s no tax and also no filing — a considerable savings of time, effort and attorney/accounting fees,” said Ron Meyers, an estate planning lawyer in New York.

It can also help in situations in which the deceased person wanted to leave property to someone other than a spouse.  Let’s say Adam and John jointly own a $1 million home. Only half of that will be included in the surviving spouse’s estate, reducing the overall size of the estate. That could lower the amount of assets that are subject to taxes, as well as the overall tax rate. So any gifts passed on to a niece, for instance, are likely to be subject to less tax.

In addition, when computing the size of their estate for state tax purposes, same-sex spouses are also entitled to engage in what is known as “gift splitting,” something that married couples are allowed to do on their federal estate tax returns.

The big advantage of gift splitting for opposite-sex married couples is that it allows them to give away twice the amount of money that they could give as individuals — all while avoiding federal gift tax implications. Normally, individuals are allowed to give up to $13,000 a year to as many people as they want. As married couples, they could give away $26,000 to each person. (New York State does not have a gift tax.)

Even though the federal law does not recognize same-sex marriage, surviving spouses will be able to apply those rules when calculating the size of their estates for state purposes. This could help shrink the estate’s size, and perhaps any taxes owed on gifts left to heirs other than the spouse.

First, some background: individuals are currently allowed to give away up to $5 million while they are alive. Any gifts that exceed the $13,000 per person exemption eat into that amount. And any portion of the lifetime exemption that is used is subtracted from your estate tax exemption (now $5 million) after you die.

So here’s how gift-splitting will help same-sex spouses: If Adam gives his nephew $23,000, that means that $10,000 of that gift will eat into his $1 million lifetime exemption. If Adam is married to Steve, that means he can split half of this gift to his spouse, using only $5,000 of his lifetime exemption.

“That works nicely if Adam is wealthier, because it uses up less of his exemption, while using up more of Steve’s, which would otherwise be an unused resource,” Mr. Meyers added.

Now that their marriages are recognized at the state level, same-sex couples with substantial assets will require less complex estate plans. But that does not mean they can ignore these matters altogether.

“Complex analysis is still necessary, due to the disjunction of New York law with federal and other states’ laws,” he added. “But the marital exemption is a greater tax break, achieved by the mere act of marriage, more than any of the more complex structures that would have been necessary before.”

How will the new tax rules affect your financial life?

Article source: http://feeds.nytimes.com/click.phdo?i=96455ae87e6fb3f729300aac1db1f2d2

Bucks: Same-Sex Spouses in New York Will Get Health Insurance

What if You're Gay - Your Money - Bucks Blog - NYTimes.com

Getting health insurance should become easier for gay couples who decide to marry and live in New York, which recently became the sixth state to legalize same-sex marriage.

Couples that marry will gain a variety of other legal and financial benefits as well, but the ability to add a spouse to an employer’s plan may be one of the more significant. When we calculated the extra costs that gay couples incur because of their inability to marry, health care expenses were certainly among the most onerous — not all employers offer domestic partner insurance, for instance. And even when they do, workers are often taxed on the value of those benefits.

Though the legalization of same-sex marriage in New York won’t entirely level the playing field with opposite-sex married couples, it will certainly help matters. Not only will the same-sex spouses of state workers be eligible for spousal coverage, but the same goes for many employees who work for private employers. According to the state insurance department, an employer that provides coverage to spouses must now also extend that coverage to same-sex spouses who were legally married in New York.

In fact, since New York State already recognized same-sex marriages performed elsewhere, gay couples who were married have been eligible for spousal coverage for some time. The New York State Insurance Department issued guidance in 2008 clarifying its position, noting that same-sex spouses were indeed to be treated as spouses for health insurance purposes (and other insurance matters as well).

Still, there could be some instances were spouses may not be eligible for coverage. Employers who don’t contract with an insurance company but instead pay for health benefits out of their own assets — so-called “self-insured plans” — are not subject to the state’s insurance laws. Instead, the plans are governed by a federal law, the Employee Retirement Income Security Act, known as Erisa, which is likely to rely on the federal definition of marriage (one man and one woman).

So an employer with a self-insured plan could choose to cover same-sex spouses, but it’s not required, said Todd Solomon, a partner in the employee benefits practice at McDermott Will Emery and author of “Domestic Partner Benefits: An Employer’s Guide.”

And since the federal government still doesn’t recognize same-sex marriage, workers with same-sex spouses will continue to owe federal income taxes on the value of their spouse’s benefits, unless they’re considered a dependent. (Heterosexual married couples aren’t subject to the taxes because they’re viewed as an economic unit in the eyes of the federal government.) While more employers have begun reimbursing their workers for those extra costs, it’s still a relatively small number that do.

But now that same-sex marriage is legal at the state level, employees will no longer owe state income taxes on the value of those benefits, according to a spokeswoman for the state department of taxation.

Do you know of any employers with a self-insured plan that do not cover same-sex spouses? And how much extra do you have to pay for health coverage since same-sex marriage is not recognized by the federal government?

Article source: http://feeds.nytimes.com/click.phdo?i=b42cd40c5ec8b70e4a6e49ae06e69f97