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All Couples Are Not Created Equal in the Tax Code

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Gay MarriageEqual rights for lesbian, gay, bisexual, and transgender Americans is often viewed as a moral issue, or a religious one. But in many ways, it's a financial issue, as well -- one that leaves same-sex couples paying thousands of dollars more every year to the IRS in taxes.

A recent CNNMoney study revealed that LGBT couples are paying as much as $6,000 annually in extra taxes because they can't file tax returns jointly at the federal level. (They can on state returns in the few states that do recognize same-sex marriages.)

Simply preparing one's taxes if you are in a same-sex couple can result in additional administrative costs. For example, if a couple lives in a state that recognizes their same-sex marriage, they'll often have to prepare several different tax returns, including some "dummy" returns. The situation is complex because the federal government doesn't recognize the marriage for purposes of filing a joint return -- meaning even more paperwork to prepare and manage, and often, the added cost of paying a professional for tax planning and preparation assistance.

And we haven't even gotten to the actual differences in tax treatment yet.

How the Dollars Add Up

Here are some of the ways that same-sex couples suffer financially, come tax time:

  • They are not allowed to combine their income and deductions, which could reduce their tax bill.
  • If a same-sex couple has one spouse covered by the health insurance plan of the other, the value of that employer-provided coverage is generally counted as taxable income. So even though you receive no cash from the insurance, if it's valued at $6,000, the couple ends up taxed on that. With married couples, spouses covered by employer plans face no such tax treatment and enjoy tax-free coverage.
  • In many same-sex partnerships, one partner files as "head of household," but in that category, more income is taxed at higher rates. The standard deduction taken by those who don't itemize deductions is lower for heads of households than for those married and filing jointly.
  • A married couple selling a qualifying home can exclude from taxation up to $500,000 of the gain from the sale -- double the $250,000 exclusion for single folks. Same-sex couples not recognized as married by the federal government can end up able to exclude only $250,000.
  • When a married person dies, the surviving spouse receives an inherited estate up to a value of $5 million tax-free. The balance is taxed at 35%. That's not the case with LGBT couples, whose marriages are not federally recognized. In a case in New York, a widow is suing the federal government to reimburse her for the $350,000 she had to pay in taxes on the estate of her longtime partner and wife.

Removing Bias From the Tax Code

While public attitudes toward the same-sex marriage issue remain divided, the tax situation has many people shaking their heads not only at the unfairness, but also at the irony.

For one thing, all these extra LGBT dollars are going toward a government that discriminates against LGBT citizens. And at the same time, public support for marriage equality in America has been growing briskly, so that a majority of Americans now support it -- 53%, per a Gallup poll, up from 44% just a year ago.

Also, when it comes to marriage and taxes, it's not just the LGBT community that suffers. The so-called "marriage penalty" has been long lamented for costing some married couples more in taxes than if they filed singly. But that penalty has been reduced in recent years, and in general, it's more tax-advantageous to file jointly as married -- if you can. But also, don't forget that various tax credits phase out sooner for single filers than for joint filers, so these folks can end up not qualifying for breaks that paired off male-female couples get.

The best solution for all would be simplification and some tax reform. A tax code that doesn't penalize singles or couples on the basis of their filing status would be better, and an America that recognizes same-sex marriages at the federal level would make tax treatment for all couples simpler and more fair.

Longtime Motley Fool contributor Selena Maranjian holds no position in any company mentioned. Click here to see her holdings and a short bio.


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scottee

Politicians are the only people in the world who create problems and then campaign against them.

Have you ever wondered why, if both the Democrats and the Republicans are against deficits, we have deficits? Have you ever wondered why, if all the politicians are against tax cheats, we have tax cheats?



One hundred senators, 435 congressmen, one president and nine Supreme Court justices - 545 human beings out of the 235 million - are directly, legally, morally and individually responsible for the domestic problems that plague this country.

maybe, we the people, need to vote out every incumbent in Washington, every election, every time...just to make them squirm...to make them fear for their job?

January 25 2012 at 8:15 AM Report abuse rate up rate down Reply
sfamilyent

The same sex marriage issue is not about "rights." It is about money - the financial benefits that our society gives to "marriage."

Single people, heads of households, and married filing separately could all make a case against the tax benefits for "married filing jointly." These tax filing "status" and the tax brackets and rates applied to them, were put in place at the discretion of our society, and can be modified. They are not "rights."

I do happen to agree that any domestic partnership should be permitted to use the "married filing jointly" status, and that state and federal recognition of this status should be provided via recognition of civil union or domestic partnerships.

January 25 2012 at 7:45 AM Report abuse rate up rate down Reply
larry

The single man or woman with only a single taxable income, gets screwed the most on taxes. Not to mention they pay ALL the bills including, electricity, gas, gasoline, oil, rent, house payment, property taxes, home insurance, car insurance, health insurance, dental insurance, vision insurance, water, sewer, garbage pickup, car payment, groceries and much, much, more. he single man or single woman has no deductions. Even a single parent has at least a child as a tax deduction. The tax system needs to be changed so everyone pays the same or at least an equal amount or same or equal percentage.

January 24 2012 at 8:30 PM Report abuse rate up rate down Reply
arl6686

Let's get to the other point-Why should singles pay a higher tax rate then marrieds. If you are married (filing jointly) you get a higher deduction, how is that fair

January 24 2012 at 6:03 PM Report abuse rate up rate down Reply
mariam17776

What if you are a straight unmarried couple having been together for 14 yrs, still do not have as many benifits as lgbt in some states,. In the state I live in, Gays ans Lesbian couples can get med ins from our union but straight coulpes can't.. Where is the bias there?
We can't file joint taxes either even though we have joint interest in our property, only one of us can claim the taxes we pay, and so on.
Sure we have the choice to marry but haven't because we don't believe the government has the right to tell us we have to pay another gov't entity to have a piece of paper that says we are legaly married. After 14 yrs what would you call it?

January 24 2012 at 5:22 PM Report abuse rate up rate down Reply
mdwright1

Do away with income tax. No more tax reports to file. How do we pay for the government? Consumer tax. Every time you purchase ant item (except food) you pay tax. The state already collects taxes from us when we buy something. The city and the counties to do. Why not the Federal Government? Where I live we pay 8.25% tax on all purchases. Let the government tack on another 10%. People with a Wal-mart budget will endup paying a lot less taxes to Fed than those that have a SAX Fifth Ave budget. Married, Single, Widowed, gay or straight, it won't matter. Cash registers don't judge.

January 24 2012 at 2:49 PM Report abuse +1 rate up rate down Reply
B

Yea, well blame the greedy politicians. This Christian Conservative thinks this is way wrong! Committed couples should get thesame tax rate we hetrosexual couples get period!

When I heard there was going to be a Tea Party...I didn't think we were going to get a bunch of nuts I thought we were going to revolt the excess tax. What we need to get this economy on track is less taxes and less nonsense spending.
We should start by a law that all Presidents pay for their own vacations, with minimal paid Security when times are tough! All those who travel on the countries dime travel commercial tourist or pay their own way! It is time to demand the excess in Washington STOP!

January 24 2012 at 8:55 AM Report abuse +1 rate up rate down Reply
jtran8424

I have commented on this before, even yesterday, and I will do so again. America is a country of Civil Rights for all.
50 years ago Bi-Racial couples were banned from marriage, but then they got their Civil Rights. This is America. That's the way its supposed to happen in America.

Today Same Sex couples are banned from marriage, but they, too, will get their Civil Rights. This is America. That's the way its supposed to happen in America.

America is the land of Civil Rights for all (except for Corporations, who do not want to get married just merge, significantly different, but they do get tax benefits from merging, and we are not going to let same sex couples merge and get the same tax benefits as corporations??? THINK !!!).

If you do not want Civil Rights for ALL, go to Russia where no one has Civil Rights. Then you won't be worrying about Same Sex couples getting their Civil Rights.

Remember, E Pluribus Unam??? Civil Rights for All. This is America. That's the way its supposed to happen in America. Got a problem ??? I hear there's wide open spaces with opportunities for all in Siberia and no Same Sex couples...Go for it !!!

January 24 2012 at 7:25 AM Report abuse +1 rate up rate down Reply
falconsso

The current tax code is not fair to anyone but the government. There is one TV commercial of which a taxpayer gets back something like over eight thousand dollars. Do not let that fool you. Everyone this year, and I mean everyone will be in shock, once they find out what little they will be getting back; if anything at all.

January 23 2012 at 11:32 PM Report abuse +1 rate up rate down Reply
1 reply to falconsso's comment
patigramma

I am an Enrolled Agent and have always told my clients that if you want a bigger refund, then quit having too much taken out of your paycheque in tax payments. I have taught clients that they need to change their withholding to have the amount of tax taken out to be equal to the tax owed on the 1040. If they put the money that is saved each month in an account, hopefully a ROTH IRA and/or an education IRA for their children, then they get their refund during the year and get to earn interest on it. In a ROTH IRA the money is available if there is an emergency, but most clients keep it there. I get thanked years later when they have to put a child through college or retire. Been doing this for over 43 years and am not at a loss for clients or referrals. Big tefunds are not a wise use of YOUR money. Tax planning is not just for the wealthy taxpayers, it's important for everyone.

January 24 2012 at 8:09 PM Report abuse rate up rate down Reply
gopispoison666

The gay marriage "debate" is like the global warming "debate." just a place for the uneducated, superstitious idiots to get riled up. The only reason this ridiculous issue isn't over and done is that a bunch of radical right politicians, who care about religion about as much as newt cares about family values, can hang onto the votes of a group of semi-literate evangelicals and keep them drooling to get to the polls to vote for fascists in November.

January 23 2012 at 11:18 PM Report abuse +3 rate up rate down Reply
2 replies to gopispoison666's comment
jbchartford

AND...HOMOS annoy some people.

January 24 2012 at 4:47 AM Report abuse -1 rate up rate down Reply
B

You are blaming the wrong people! But you would rather blame Christians because of your hate. Blame the Government...that is where the fault lies!

January 24 2012 at 8:57 AM Report abuse rate up rate down Reply