The IRS has finally come out with an answer to the question of how same-sex marriage will be taxed among the varying states. Kiplinger is reporting that as of September 16 all legally married same-sex couples must file jointly or married filing separate regardless of what state they live in. This answers the question of what a couple should do if, for example, they get married in Massachusetts and then move to Florida.
Only legal marriages count for this rule. In other words, civil unions will not allow you to file as married. Neither will unofficial ceremonies in states that have not legalized same-sex marriage. You must have a legal marriage certificate. You may also experience a situation where you must file jointly for federal purposes and single for state purposes. Adding children into the mix can really complicate things, as can the ugly word that affects a percentage of all marriages: divorce.
The change in IRS rules regarding same-sex marriage offers some opportunities, but also some downsides. Couples who have been legally married in prior years can go back and amend 2010-2012 and file jointly if it produces a tax advantage. Often times single income married couples will receive better tax benefits due to higher standard deductions and different tax brackets. However, this can backfire as well.
The marriage penalties from the Affordable Care Act and the fiscal cliff changes, along with PEASE and PEP limitations on deductions and exemptions, can significantly affect married couples with high or multiple incomes. For example, a married couple with each spouse making $125,001 a year is going to start to pay a higher marginal tax rate than two single individuals each making $200,000 per year. According to the CBO, IRS recognition of same-sex marriage could actually increase tax revenues by up to $700 million a year.
If you have questions about how these rules or the tax increases on families included in the Affordable Care Act and American Taxpayer Relief Act affect you, please don’t hesitate to contact us.