CONSUMER REPORTS: New savings strategies for same-sex couples
The Supreme Court’s June decision to strike down a section of the Defense of Marriage Act created potential parity for same-sex married couples regarding taxes as well as other money issues, according to Consumer Reports Money Adviser. If you or someone you care about is in a same-sex marriage, note that the changes will often — but not always — save on taxes, add money to paychecks and provide potentially greater health care, retirement and survivor benefits.
But it may take awhile to figure out how to proceed. The Internal Revenue Service determines that a couple is married based on the laws of the state where they live, though according to Lambda Legal, a civil rights organization, no law or regulation mandates this approach. The IRS hasn’t yet said how it will deal with taxpayers living in states that don’t recognize their marriage.
If you live in a state that does recognize your marriage, the federal government now recognizes it, too. The actions that Consumer Reports Money Adviser describes below should be available to you pending an official IRS announcement. Check with tax and legal professionals for updates.
PICK THE RIGHT FILING STATUS
You now most likely will have to file your federal tax return either jointly or as a married couple filing separately. Married filing jointly usually saves you money over married filing separate returns. If you earn much more than your spouse, for example, filing jointly can lower your overall tax rate, reducing the tax you pay as a couple.
What to do: Initially, you may have to spend to save, says Elisha Wiesenberg, a certified public accountant in Studio City, Calif. You’ll need to prepare amended joint returns, and compare them with previously filed returns.
You should be able to file the amended return, IRS Form 1040X, as far back as 2010.
In some cases you actually may save by leaving prior-year returns alone, unless the IRS requires amended returns for the earlier years in which you were married. That’s because you’ll avoid the so-called “marriage penalty” that subjects couples to higher tax brackets at lower income thresholds than it does for singles.
SAVE ON EMPLOYEE BENEFITS
Until now, if you covered your partner under employer-sponsored group health insurance, you paid tax on his or her coverage while married workers did not. Now, you won’t pay that tax. And you should be able to take advantage of employee benefits such as flexible spending accounts to cover the health costs of your spouse and dependent children.
What to do: To get back the tax you paid, give your preparer prior-year W-2s and Form 1099s; you may need to ask your employer for additional information. Update beneficiaries, especially to preserve your spouse’s rights as a survivor.
A Consumer Reports Money Adviser notes that your employer may need to update its plan documents before those rights can fully kick in.)
GIVE TO A SPOUSE, UNTAXED
The IRS allows unlimited gifts to spouses but taxes gifts above $14,000 a year to others. Now, you should be able to give any amount to each other with no tax implications.
You can also double your tax-free gifts to others. For instance, each spouse can give $14,000 to a grandchild, for a total of $28,000 a recipient this year.
The Supreme Court ruling also creates potential parity in bequests, estates and inheritances, though it’s not clear yet how that will play out where single-sex marriage is not recognized. In states friendly to same-sex marriages, you should now be able to pass all property to each other with no federal tax consequences.
Those not considered legally married could pay an estate tax of up to 40 percent on inheritances.
What to do: If you don’t live in a state that recognizes your marriage, wait to make major gifts until the IRS clarifies its rules.