The IRS Nationwide Tax Forum came to Chicago recently, so some of my colleagues and I attend the three-day long conference. 

One of my favorite presentations dealt with how things have changed for legally married same-sex couples post-Windsor. As you may remember, the Windsor case repealed a major section of the Defense of Marriage Act (DOMA), allowing legally married same-sex couples the same rights and benefits as married opposite-sex couples.

In the year since Windsor, the legal landscape for same-sex couples has changed dramatically and continues head down the path to full marriage equality.  Currently nearly 44% of the population in the U.S. lives in a state that recognizes same-sex marriages.

Here are some of the highlights of the presentation about newly married same-sex couples and the IRS.

The Basics

The IRS now recognizes same-sex couples legally married in a jurisdiction that recognizes marriages between individuals of the same sex. It does not matter if that couple resides in that jurisdiction; they just need to be legally married in it (also known as the “place of celebration” rule). This rule does not apply to registered domestic partnerships, civil unions or similarly recognized relationships under state law. Just marriage.

Beginning in 2013, these couples must file a married filing joint return or married filing separate return.  In addition, those couples that have been legally married for several years, have the option of going back and amending their returns to married filing jointly (although they are not required to).

Employers can also use streamline procedures for requesting a refund for payroll taxes on previously taxed health insurance and fringe benefits. See Revenue Procedure 2013-61 for more information on that.

Over 200 Provisions in the Internal Revenue Code Involve Marriage

Being able to file joint tax returns is just the tip of the iceberg when it comes to the new legal rights for married same-sex couples. Over 200 provisions in the Internal Revenue Code (IRC) include the word “spouse,” “marriage,” “husband and wife,” “husband,” and “wife.” 

Here are some popular ones that newly married couples may run into:

• Phaseout of Personal Exemptions: In 2014, each person can claim an exemption of $3,950 for themselves and any dependents. However, that amount begins getting phased out when a couple filing jointly has adjusted gross income (AGI) above $305,050 (vs. $254,200 for individual filers).  It becomes completely phased out at $427,500 for married couples (vs. $376,700 for single filers).
• Qualified Joint Ventures:  Usually if two or more people own a business, the default status for that business is a partnership. As such, the partnership would have to file a Form 1065 on income earned. However, if the two owners are married, they can elect to be considered a Qualified Joint Venture and only need to file two separate schedule Cs in accordance with their interest in the business.
• Gift Giving: For 2014, married couples can split their gifts to one individual and as a result pass $28,000 ($14,000 per person) to a single individual without filing a gift tax return.
• Portability of Estate Tax Exclusion: In addition to being able to split gifts, married couples can also transfer an unused estate tax exclusion (currently $5.34 million) of a deceased spouse to the surviving spouse. For example, if one spouse dies in 2014 without using any of his or her exemption, the executor of the estate can elect to pass that spouse’s $5.34 million exclusion to the surviving spouse. When that spouse dies he or she can use his or her own exclusion (whatever it is at the time of death) plus the $5.34 million received from the deceased spouse. In 2014 alone that would result in an estate over $10 million passing estate tax free.
• Deductions for Traditional IRAs: There are certain income limits when it comes to deductions for Traditional IRAs. It’s a bit too involved to cover here. But I’ve explained them in detail here.

There are so many more I could go through.  Make sure to see your tax advisor well before next year’s filing deadline (or this year’s if you filed an extension), if you’re a couple filing jointly for the first time. You may find that your marriage results in a tax penalty rather than benefit to you.

References:

For more information on the effects of Windsor and the applicable procedures check out Revenue Ruling 2013-17.