VA CPAs Explain the Complex Post-DOMA Tax Code
The Supreme Court has declared the Defense of Marriage Act (DOMA) to be unconstitutional, and this new decision has opened the door for legally married same-sex couples to receive federal tax benefits similar to those received by hetero-sexual couples.
But what does this specifically mean for same-sex couples that get marriage license in states where it is legal, but when they return to states that do not recognize their marriage, like couples living here in Virginia.
Claire Guthrie Gastañaga, Executive Director of the Virginia ACLU, said there are 1,000s of laws and regulations that offer rights, benefits or obligations for married couples, though it is not that easy to decode and apply. “Some of those laws clearly apply based on the location of the marriage and its validity where it was held,” said Gastañaga. “Other laws appear to apply based on where the married couple lives at the time the benefit or right accrues.”
Navigating those numerous laws and regulations is a daunting task for any couple; in an attempt to better understand their impact we spoke briefly with Virginia Society of Certified Public Accountants (VSCPA) member Art Auerbach, CPA. He has detailed a number of specific benefits that VA LGBT couples can receive, but warns those couples to be wary as the passage of DOMA is not what everyone has made it out to be.
What does the repealing of DOMA mean for current Virgnia LGBT couples:
ART: Virginia is one of those states that actually has a law which defines marriage as between a man and a woman, not a same sex couple. As far as Virginia state statutes are concerned a same-sex couple will have to abide by the fact that they are single- two single individuals- for state taxation purposes because the Supreme Court failed to address Section 2 of DOMA which would have undone all of those state statutes that defines marriage as between a man and a woman.
If the person lived in the District of Colombia or in Maryland the situation would be different. So the key here is where they are domiciled not the fact that DOMA got repealed- or declared unconstitutional.
Now what that means for the couple is they are going to have to file a joint federal tax return- and I say probably, in all likelihood they will, but we’re still waiting for the IRS to issue regulations in that regard, although the majority opinion at the court seems pretty clear that they will be able to file a joint federal tax return. But that is not the blessing that it seems like it is going to be, because if you are legally married, your choices are only married filing jointly and married filing separately- single is not an option, head of household is not an option.
When you look at the rate structure in the federal tax system joint returns are the cheapest, single returns- if you file as two single individuals- might be a cheaper tax than married filing separately, which is more expensive. So the couple is going to have to sit down and actually do some calculations. Since under Virginia statutes they are not legally married because the only thing the Supreme Court addressed was states that issue marriage licenses, the decision does not even apply to those that allow domestic partnerships or civil unions- they are still considered two single individuals.
What if you get married in a state that legally recognizes your marriage and move to Virginia:
The Supreme court said that any federal law now must recognize a same-sex couple as if they were legally married if they are married in a state that calls it a marriage, not a civil union or domestic partnership.
On their Federal tax return they will have an option, they will file as joint or as married filing separately, is the way that I interpret this, but again, I will classify that and say this all depends on how the IRS is going to rule on that situation, because you have couples that have traveled to states that have legally married people and they are domiciled in Virginia.
Clearly for Virginia purposes they are going to be single, there is no doubt about that. But for Federal purposes- if the IRS permits it – they will be married and their options are joint or as married filing separately, and as I said before that is not always going to give them the cheapest tax.
What benefits are now open to gay couples:
Art: If they are legally married-and let’s say many lesbian and gay couples do- they might adopt kids. That gives them the opportunity to claim that child as a dependent on that return and then all of the benefits that come along with that: the education benefits, the personal exemption, being able to claim the medical expenses…
In a lesbian or gay couple, if one of them is self-employed, for example, they file on a schedule C on a 1040 and they employ the other now-spouse then they get all kinds of benefits to offer that spouse health coverage, which reduces both their income tax and their self-employment tax.
So they get a whole lot of other things opened up to them on the federal tax return, but like I said they’re going to have to do, especially in Virginia, some really tough calculations. When you get married, whether it’s a same-sex couple or a heterosexual couple, and you file a joint return that files one income on top on another and all of the adjusted gross income limits go up and you can lose a whole bunch of things.
And that’s why I said this decision is not, on the surface, what everyone thinks it is who is a lesbian and gay couple living together. If one of them is a stay-at-home spouse and the other one works, then you can derive a whole bunch of benefits, but if both of them are working, and lets say their both professionals- accountants or attorneys or doctors- and their living together. then they have two sizable incomes, their AGI on a joint return is going to go through the roof, they will probably be paying more tax then when they were two single people.
Obviously the conversation that we had with Auerbach, CPA was a bit dense. He is giving a webinar entitled “What You Need To Know About DOMA” next Tuesday, July, 16th. Registration for the event is $40 for VSCPA members and $60 for non-members. For the best advice on your personal situation contact your CPA.
I am originally from a small town in North Carolina and have recently moved to Richmond. Meaning I am a novice to the ways of Richmond life, but from what I have seen it is a culturally rich environment that I look forward to diving into. My daily hustle consists of playing bass, reading, and hunting for new music. This summer I will be interning with RVA Magazine and GayRVA.com. In the fall I will be transferring to Virginia Commonwealth University where I will major in journalism.
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