March 1, 2024

Bucks Blog: How Supreme Court Decision Affects Gay Couples

The Cost of Being Gay

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

Now that the Defense of Marriage Act, the federal law that defined marriage as a union between one man and one woman, has been dismantled, many same-sex couples will gain access to a long list of federal benefits that were previously only available to their opposite-sex peers.

An article in print and on The Times’s Web site outlines how same-sex couples will be affected. Here are more details.

Federal income taxes. As the story notes, married couples living in states where same-sex marriage is legal will be able to file joint federal returns. That should save some couples money, especially when one person earns much less than the other or does not work at all. High-income couples with two working spouses will probably pay more.

That said, filing jointly can make even lower-income couples ineligible for certain tax savings, like the earned-income tax credit. Ultimately, the tax consequences will depend on where couples live and what their income and particular circumstances are.

Couples who would have saved significant sums by filing jointly might want to consider amending their recent tax returns. Such amendments have been permitted for the last three tax years, according to Patricia Cain, a professor at Santa Clara University School of Law and an expert on sexuality and federal tax law. That means many taxpayers can refile for tax years 2010, 2011 and 2012. The three-year clock started on April 15 for people who filed on or before that date, she said, but those who received a filing extension have three years from the date they filed.

A married same-sex couple in which one spouse earns $100,000 and one stays at home with their child could save nearly $4,200 in federal taxes by filing a joint federal return, according to Pan Haskins, an accountant in Oakland, Calif., who works with gay couples. But domestic partners in community property states, where they already had the benefit of splitting income between their returns, would pay about $600 more than they do now.

Same-sex couples with high incomes will hit the top tax bracket of 39.6 percent faster when filing jointly. Individuals do not reach the highest bracket until they earn $400,000, but couples begin paying that rate on joint earnings above $450,000, Professor Cain said. People who think they are likely to reach that threshold can submit new W-4 forms with their employers to increase tax withholding.

What remains unclear is whether same-sex couples married in states where gay unions are legal could file joint federal returns after moving to a state where they are not. “There has been a lot of discussion about whether the I.R.S. could recognize someone married in Massachusetts but living in Georgia,” Professor Cain said. “I think they have the power to do that, but no one seems to think they will do that. I think they will wait for guidance from the White House.”

The other big question is whether same-sex couples in civil unions and registered domestic partnerships can file joint returns. The I.R.S. typically looks to the taxpayer’s state of residence to determine whether someone is married. But a letter from the office of the chief counsel of the I.R.S., written in 2011, states that an opposite-sex couple in a civil union in Illinois should be treated as married for federal tax purposes. “The I.R.S. would have the power to interpret the word spouse,” Professor Cain said, adding that the Internal Revenue Code does not define it.

Medicaid. Having a federally recognized marriage can help or hurt an individual when it comes to Medicaid programs, “or perhaps even some of both,” said Vickie Henry, a senior staff lawyer at Gay and Lesbian Advocates and Defenders. The fact that both spouses’ incomes will be used to determine eligibility may hurt some couples. But if one spouse is in a nursing home or other long-term care institution, the couple may benefit from Medicaid’s “spousal impoverishment” provisions, which shield some of the household’s combined assets from the program’s reach so that the healthy spouse can continue to tap those resources.

Medicare. Individuals may be eligible for free Part A coverage, which generally covers hospital services and nursing homes, based on a spouse’s earning record, according to the Medicare Rights Center. Married people may also be able to delay enrolling in Part B coverage, which covers things like preventative visits to the doctor, while a spouse is still working and for up to eight months afterward. Before, individuals who were on a same-sex spouse’s plan but did not sign up for Medicare in the year they turned 65 had to pay a penalty for every year they were not covered by Part B or insurance as a result of their own work.

How will the decision affect you and your family?

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Bucks Blog: Corporate America Weighs In on Treatment of Gay Couples

The Cost of Being Gay

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

Gay couples face a host financial and legal complications because of the federal law that bans same-sex marriage. As a result, they often end up having to pay more for a host of things — tax preparation, health benefits and estate planning, among other things.

So it’s not terribly surprising that the law complicates things for same-sex partners’ employers, too, especially when a couple’s union may be recognized in a particular state, but not in the eyes of the federal government. Not only does that leave plenty of room for error in the administration of employee benefits, it also forces employers to treat their employees differently simply because of their sexual orientation.

As a result, more than 200 companies — among them giants like Citigroup, Apple, Mars and Amazon — as well as city governments, law firms and others, are arguing that the law that bans same-sex marriage imposes serious administrative and financial costs on their operations. The companies filed a supporting brief with the Supreme Court on Wednesday, urging it to overturn a section of the Defense of Marriage Act that denies federal benefits and recognition to same-sex couples.

“It puts us, as employers, to unnecessary cost and administrative complexity, and regardless of our business or professional judgment forces us to treat one class of our lawfully married employees differently than another, when our success depends upon the welfare and morale of all employees,” they wrote in the brief.

We’ve documented these inequities and complications as part of the “Cost of Being Gay” series on Bucks. For instance, gay employees who add their partners to their health benefits are taxed on the value of that coverage (if the partner is not considered a dependent) since their unions are not federally recognized. Opposite-sex married couples are not subject to the tax, so some employers have attempted to equalize the playing field by covering the extra costs for same-sex employees. We’ve tracked these efforts on a chart, which can be found here.

We’ve also written about the errors that can arise when organizations have to keep track of those extra taxes, including Yale University‘s failure to withhold the proper amount of income for a group of workers.

Then, there are the variety of questions that are easily answered for married employees with opposite-sex spouses, but not so straightforward for gay employees: If I get married, can I automatically add my spouse to my health insurance outside the annual “open enrollment” period? Will my partner even be covered? What about our children?

What other administrative and benefit-related issues do same-sex couples face in the workplace? Please share your thoughts in the comment section below.

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Economix Blog: When $250,000 Isn’t Actually $250,000

Binyamin Appelbaum and I have an article in Friday’s paper about President Obama’s proposal to raise marginal income tax rates for married couples earning “more than $250,000.”

As we note, there are lot of couples earning more than $250,000 whose tax liability would not be affected.

There are two main reasons: inflation, and the very narrow way income is defined in this proposal.



Dollars to doughnuts.

First, the thresholds that Mr. Obama originally staked out – $250,000 for married couples filing jointly and $200,000 for single taxpayers – referred to policies he wanted to take effect in 2009, and he has been indexing most of them to inflation so that they’re higher today. The adjusted thresholds for 2013 are $266,100 and $212,850, according to the independent Tax Policy Center. Mr. Obama uses $250,000 as shorthand for the higher-income taxpayers the increases are aimed at — perhaps for consistency’s sake, and perhaps because $250,000 is a nice round number. (The White House declined to comment on why the president still uses the $250,000 number.)

Second, the thresholds refer to a specific accounting term called adjusted gross income, or A.G.I., that excludes a lot of categories of income.

Now, if you ask people how much they make, they probably don’t respond with their exact A.G.I. Instead they probably think about their salary, wages, pension income, and maybe a bonus and investment income if those categories brought in substantial money.

That rough mental accounting for how much you make would include some money not counted in A.G.I. (and exclude some money that is part of A.G.I.). In other words, a lot of people might have more than $266,100 flowing into their bank accounts during the year but still have an A.G.I. below $266,100.

A.G.I. includes wages, salaries, investment income and bonuses – the categories mentioned earlier that might be part of a quick mental accounting of how much you make. But it can also be reduced by subtracting items like certain business expenses; health savings account deductions; some moving expenses; contributions to some retirement accounts like an I.R.A.; alimony paid; most Social Security benefits; some income earned overseas; tax-exempt interest on municipal bonds; and college tuition, fees and student loan interest, subject to limits.

On the other hand, there are some categories in your A.G.I. that you might not think to include if someone asks how much you make. These include rents; royalties; income from operating a business; alimony received; share of income from partnerships and S-corporations; income tax refunds; and the ever-popular gambling winnings.

For example, a married couple might make $300,000 annually in salaries and investment income, but after subtracting health savings account deductions, alimony paid and I.R.A. contributions, they might have an adjusted gross income of about $270,000. That means they would probably not be affected by the tax increases aimed at “high income” people even though they are indeed near the top of the income distribution.

To make things even more confusing, note that some of the tax increases intended for “high income” people (using Mr. Obama’s stated $250,000 and $200,000 thresholds from 2009) will actually apply to even fewer people than this analysis so far suggests.

Those whose income exceeds those thresholds would be affected by new taxes created by the Affordable Care Act, including additional taxes on both their earned income and their investment income. (And here the thresholds are actually $250,000 and $200,000, with no indexing. All the other taxes aimed at “high income” individuals are indexed; for some reason the Affordable Care Act taxes were not.)

But many at those income levels will not be affected by the expiration of the Bush marginal income tax cuts for upper-income people. That’s because the Bush tax cuts refer to an even narrower measure of income called taxable income, which is basically a subset of adjusted gross income that many high earners can reduce substantially with the help of a skillful accountant.

Taxable income is calculated by subtracting personal exemptions and deductions (either itemized or standard) from adjusted gross income. Itemized deductions include things like home-mortgage interest payments, health expenses, state and local taxes, and charitable contributions. While subject to limits, those deductions can bey large. Generally the reason to go through the hassle of itemizing deductions, after all, is to reduce your taxable income by much more than the standard deduction would.

Mr. Obama has defined all the thresholds for whose taxes he wants to raise in terms of A.G.I. But again, tax rates are based on taxable income. Mr. Obama’s method of translating his A.G.I. cutoffs into taxable income cutoffs is to take the A.G.I. threshold and subtract the minimum amount a family is entitled to exclude: one standard deduction and two personal exemptions for married couples, totalling about $20,000.

So when Mr. Obama promises he won’t raise tax rates for married couples with a 2013 A.G.I. of $266,100, the policy translates to taxable income thresholds of about $246,000.

Those are conservative calculations for how much taxable income people with these levels of A.G.I. will report. Usually people at those A.G.I. levels choose to itemize their deductions, which reduces their taxable income.

If you have a lot of deductions and personal exemptions, you might end up reducing your taxable income by so much that you no longer fall into a tax bracket whose marginal tax rate Mr. Obama proposes to raise. (You might still be subject to the alternative minimum tax – a parallel tax system that basically says you have to pay at least a given share of your income, regardless of how many deductions you take – but you will not be hit by the higher marginal tax rates on earned income that Mr. Obama is proposing.)

For example, a married couple earning $300,000 in A.G.I. might have itemized deductions of about $50,000 and a child, which means three personal exemptions. This comes to a total of more than $60,000 in deductions and exemptions, meaning this couple would have taxable income below the president’s threshold for higher tax rates. In fact, about 70 percent of all couples in the $250,000 to $300,000 A.G.I. range in 2013 would be unaffected by Mr. Obama’s proposal to raise taxes on those earning over $250,000, according to Citizens for Tax Justice, a liberal advocacy group.

Remember that all these higher tax rates refer to marginal rates – the escalating rates on each successive tier of income – not average rates.

That means that even if you do earn enough in taxable income to be affected by the higher tax rates, not all of your income would be taxed at higher rates. Only the income above the thresholds would be subject to a higher tax rate under Mr. Obama’s plan. The first couple of hundred thousand dollars would be taxed at the same rates that now apply.

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Bucks: Teach for America Equalizes Health Costs for Domestic Partners

What if You're Gay - Your Money - Bucks Blog -

Teach for America is the latest organization to ensure that its employees with same-sex partners get the same treatment as opposite-sex married couples when it comes to health care costs.

Gay people who are fortunate enough to work for employers that extend health benefits to their same-sex partners are still at a disadvantage: they must pay an extra tax on the value of those benefits that heterosexual married couples do not pay.

After Teach for America became aware of this issue through the Bucks blog, it decided to adopt the policy known as “grossing up,” where employees are reimbursed for these extra costs.

“We were inspired to make this important policy change, ensuring that all of our employees in domestic partnerships (whether same or opposite sex couples) don’t feel the burden of this unfair tax,” Aimée Eubanks Davis, chief people officer at Teach for America, said in an e-mail. “We are currently retroactively reimbursing affected employees as of Jan. 1, 2011.”

Over the course of the last year, a number of companies have adopted similar policies. Google began covering the costs last year, and, shortly thereafter, several other companies, including Barclays, Facebook and Apple, followed suit. We’ve been keeping track of the changes at various companies on this chart. Even though the effort has been gaining speed in recent months, some organizations, including Cisco, Kimpton Hotels and the Gates Foundation, already had the policy in place.

Under federal law, employer-provided health benefits for domestic partners are counted as taxable income if the partner is not considered a dependent. The tax owed is based on the value of the partner’s coverage that the employer pays for. Heterosexual married couples are not subject to the tax.

While many companies only reimburse gay employees with partners since their unions are not recognized by the federal government, Teach for America is covering the costs for all employees with domestic partners.  Employees will receive the reimbursements in their semimonthly paychecks.

“It was clear to us that it was the right thing to do for our staff members,” said Ms. Davis of Teach for America, “and we were in a position to do it, so we did.”

Do you know of any companies that have recently adopted a similar policy? If so, please drop us a note in the comment section below.

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You’re the Boss: Is Now the Time to Give Away the Business?


In my last post, I discussed whether it might be a good idea to sell your business before (or after) 2013 — a complex decision that is looking even murkier. What seems crystal clear, on the other hand, is that now is a fantastic time to give shares of a business to family members.

At the end of 2010, Congress increased the lifetime gift tax exemption to $5 million, from $1 million, for individuals and to $10 million, from $2 million, for married couples. These changes, however, are set to expire in 2013, creating a two-year window of opportunity for business owners to keep more of the family business in the family and less of the business from going to Uncle Sam in the form of federal estate and gift taxes. “We are in the prime transfer tax situation,” said Rebecca Hurst, a tax and estate planning lawyer with Friday, Eldredge Clark in Fayetteville, Ark.

But before you rush out and start bequeathing stock to your progeny, it’s worth noting that not everyone in the business community gets warm and fuzzy when it comes to passing shares of a business to subsequent generations. While it may seem like both a loving gesture and a way to ensure the longevity of the enterprise, gifting can be the worst possible option for both the business and the family that owns it.

“How many times do I have to watch this bad movie?” asked Tom Deans, author of “Every Family’s Business” and a critic of what he calls “the longevity myth” that surrounds family-owned businesses. Mr. Deans says that giving away a business is both dangerous and corrosive. In fact, he says, no family business should be given away. He estimates that roughly 30 percent of family businesses make it from the first to the second generation, while only about 3 percent make it to the third. “Family businesses,” he said, “are not built to last.”

Having worked with a number of family-business owners over the years, I wondered how Mr. Deans’s message was received on the speakers circuit, where he currently spends most of his time. “Ten percent of them won’t hear it,” he said. “They believe they are different or special, that they can beat the street.” He added that advisers to business owners frequently assume that the business is not for sale and consider the topic taboo. “It’s a no-fly zone,” he said.

In the case of Mr. Deans’s family — with a history of business ownership going back four generations — the opposite was true. “When I joined the family business,” he said, “my father gave me the same choice that his father gave him. I could either raise the capital to buy the company from him, or I could help him sell the business to an outside buyer, for which I would be well paid.” Being given the business was never an option.

The family has an impressive track record. Mr. Deans’s paternal grandfather started a chemical company in the 1950s that he sold in 1997 for $118 million. Mr. Deans’s father started a plastic sheet manufacturing company in 1973. After almost a decade as president and chief executive, Mr. Deans helped his father sell the company in 2007 to a billion-dollar European competitor. While he can’t divulge the final sales price, he said that it was an all-cash deal for a multiple of 10 times earnings.

“It’s not about denying the next generation anything,” Mr. Deans said. Rather it’s about preserving what he considers to be the family’s true legacy — not the business itself but the two most precious things that the business creates: substantial personal wealth and the values required to nurture the next generation of entrepreneurs.

“The family, the idea at the center of all that is good, is an institution that consistently and predictably pulls itself apart in its attempt to perpetuate its business,” Mr. Deans wrote in a recent blog post. “Building great families is often at odds with building great businesses. Family and business work in equal but opposite directions, with family thriving on fairness, and business thriving on decisive control and leadership.”

Regarding the latter, Mr. Deans suggests that leadership of the family business should be determined by the child or children who express an appetite for risk and hard work, as well as a clear understanding that the family business is something that will require change and innovation. “Those are qualities that are hard to find in most traditional family businesses that end up being gifted,” said Mr. Deans. “It has always been hard to change a gift — and even more difficult to sell one.”

Barbara Taylor is co-owner of a business brokerage, Synergy Business Services, in Bentonville, Ark. Here is her guide to selling a business.

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Bucks: Married Gay Couples ‘Refuse to Lie’ on Tax Forms

Courtesy of Equality Florida The “Refuse to Lie” campaign was created gay activists who believe that the federal government should acknowledge same-sex marriage.

What if You're Gay - Your Money - Bucks Blog -

Some same-sex married couples are refusing to file their federal tax returns separately this tax season, as part of a movement demonstrating that they’re no longer content to quietly comply with the federal law that does not recognize same-sex marriage. And in some cases, these taxpayers will pay Uncle Sam more when they do so.

Same-sex couples who have married, or who have a legal status equivalent to marriage in certain states, must still file separate federal returns because the government — and therefore the Internal Revenue Service — defines marriage as a legal union between a man and a woman.

Using that definition, federal tax returns ask taxpayers to check one of five options under their filing status: single, married filing jointly, married filing separately, head of household or qualifying widow(er) with dependent child. Married same-sex partners typically file their own federal returns either as single or, if they qualify, as head of household, which has more favorable rates than the single filing status.

But many same-sex couples contend that filing as single amounts to lying about their marriage status, and that’s the message behind the “Refuse to Lie” campaign created by gay activists, which is timed to coincide with tax season.

“More people are refusing to lie on those forms, even though the government is telling them to,” said Nadine Smith, executive director of the gay, lesbian, bisexual and transgender advocacy group Equality Florida, who plans on filing a joint return with her wife, Andrea. “It would be both dishonest and deeply humiliating to now disavow each other or our marriage and declare ourselves single on our tax form.”

Nina E. Olson, the national taxpayer advocate who acts as an ombudsman for the I.R.S., acknowledged the uncertainty surrounding federal taxation of same-gender spouses in an annual report to Congress. In the report, she said that taxpayers may take a filing position without penalty if there is “substantial authority” to do so, such as a court case that hasn’t been overruled by the United States Court of Appeals. And there happen to be two such cases, which are currently on appeal.

In July 2010, the Federal District Court in Massachusetts declared the Defense of Marriage Act — the federal law known as DOMA that defines marriage as between a man and a woman — as unconstitutional in two cases. They are now being appealed in the First Circuit. “Thus, there may be substantial authority for same-gender spouses to take certain tax positions as married as long as the Massachusetts district court’s opinions stands,” Ms. Olson said in the report.

The “Refuse to Lie” Web site warns same-sex couples of the risks of filing jointly, and explains different options to both adhere to the law while expressing that they disagree with it. One way to do that would be to put an asterisk by the “single” box, and then indicate at the bottom of the tax form that you are “only single under DOMA.” Another option, the site says, is to attach a note with a similar message.

The campaign also explains on its Web site how to file a joint return while avoiding penalties. In the first method, each partner would file their own single return and include an attachment stating that they’re married, and then file an amended return jointly. “Once the I.R.S. rejects the amended return, or if six months passes and they do nothing, the taxpayers who file an amended return have the right to file suit in Federal District Court claiming the refund,” the activists’ site said, adding that this option would avoid penalties because your original return would be filed according to the law.

Another method suggests filing two returns: one filed jointly (and showing the tax due on the joint return) and one filed as a single taxpayer (showing the tax due on that return). Pay whatever is due on the single return — which means you will not have underpaid — and then ask the I.R.S. which return to accept. But if the I.R.S. accepts the joint return and issues you a refund, “there is no way to know what will happen if you are later audited,” the site said.

“People who follow this example need to do so with a clear head about the decision they are making and that what could happen is unclear,” Ms. Smith, of Equality Florida, said. “It’s not without risk.”

But there’s another way to preserve your right to collect any refunds due to you if the law is eventually struck down. Patricia Cain, a professor at Santa Clara Law and an expert on sexuality and federal tax law, said that couples who would benefit from a joint filing — that is, couples who would pay less in taxes or receive refunds — can file a protective claim using I.R.S. Form 843. (File separate returns in accordance with the law, then attach the form to an amended joint return).

“If you state on Form 843 that your claim is based on the unconstitutionality of DOMA, which is an issue pending in current litigation, it is more likely that the I.R.S. will do nothing until the issue is finally determined,” she added. “And if DOMA is struck down as unconstitutional, you should be entitled to the refund on the amended return.”

Although she generally recommends that same-sex married couples file their own returns in accordance with the law, she said that couples living in Massachusetts might be able to better justify filing their returns jointly because of the two court cases there.

“The question is whether that is sufficient as substantial authority to avoid being assessed penalties if you were audited by the I.R.S. and found to have filed incorrectly,” Professor Cain said.

She also said that she knew some same-sex couples in several different states who had filed joint returns and received refunds. “It’s because the returns are handled by machines,” she said, adding that the 1040 forms don’t have any gender markers on them. “That doesn’t mean they won’t be audited sometime. But honestly, I think the I.R.S. has bigger fish to fry than figuring out where same-sex couples filed jointly.”

Taxpayers who don’t pay the proper amount of tax will be levied a 20 percent penalty on top of the amount of tax owed. An I.R.S. spokeswoman said the agency followed the federal Marriage Act and declined further comment.

But for Kate Kendell it’s about more than the money. Ms. Kendell, executive director of the National Center for Lesbian Rights, said she and her wife, Sandy, who have been together for 18 years and have two children, are going to file as married this year (they married in California during the brief window in 2008 when same-sex marriage was permitted there).

“As a lawyer and a legal advocate for the L.G.B.T. community, I am often in a position to advise people to exercise great caution and to comply in most cases with the letter of the law, even when that means denying who we are,” she said. “This is my small way of saying, where we can, we are not going to play the game anymore.”

In their case, the move is going to cost the couple more than $5,000.

If you’re part of a same-sex couple and would like to file jointly, how far would you go to show that you disagree with the current law? And what does everyone else think about this effort?

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