For sixteen years, since the passage of the Defense of Marriage Act, it has been federal policy that each of the 50 states and the District of Columbia can decide for themselves whether to recognize marriages between same-sex couples. It’s an unworkable compromise.
Jonnelle Marte, reporting for WSJ MarketWatch (“The gay-marriage tax penalty: Unable to file joint tax returns, gay couples face bigger bills, hassles“), offers just one illustration:
[G]ay couples cannot file jointly on their federal tax returns. This makes tax preparation more tedious for those living in states that recognize gay marriages. Same-sex couples may have to prepare as many as four tax returns in order to maximize their tax benefits, pros say. Each spouse needs to file his or her federal return as a single person. And couples who want to file married at the state level have to prepare a joint federal return — which never gets filed — in order to have all the information they need, experts say. “It’s a burden, and it takes extra costs,” says Alison Flores, an attorney and analyst with the Tax Institute at H&R Block.
Not being able to file jointly also means that many same-sex couples face larger tax bills than straight couples, says Kenneth Weissenberg, a partner at accounting firm EisnerAmper who estimates he and his husband Brian Sheerin paid an additional $5,000 in taxes last year because they couldn’t file as a married couple. Many married couples owe less in taxes when they file their returns jointly than they would as individuals, especially when one spouse earns more than the other, says Weissenberg.
Same-sex couples may likewise miss out on various credits and deductions that are only available to couples filing jointly, including exclusions offered to couples selling a home, child-related credits and other breaks. Being able to file as a married couple would have allowed Weissenberg to offset his portfolio gains with his husband’s losses, and to take larger business-related deductions, he says.
Indeed, unequal tax treatment is at the root of one of the cases the Supreme Court will hear at the end of March that could make same-sex marriage a constitutional right. Edith Windsor, an 83-year-old widow who was hit with a $363,000 federal estate tax bill when her wife died in 2009, is challenging the 1996 Defense of Marriage Act, which defines marriage as being between a man and a woman. Because same-sex marriages are not recognized by the federal government, gay couples cannot pass along an unlimited amount of assets to their spouses when they die, as straight married couples can. Instead, spouses inheriting more than $5.1 million would be subject to the estate tax. (The second case coming before the Supreme Court challenges California’s Proposition 8, a ballot initiative that prohibits same-sex marriage.)
And for some same-sex couples, the biggest tax hit happens in an area most married couples don’t yet associate with Uncle Sam: health benefits. While more employers are allowing same-sex spouses to be added to their employees’ health plans, the perk is often considered a taxable benefit under federal law, costing those couples an additional $1,069 a year in taxes, according to a 2007 report by the Center for American Progress, a progressive think tank based in Washington. Workers also normally can’t use pre-tax dollars to pay for a spouse’s coverage. Some companies try to offset those higher taxes by increasing pay for affected workers, but those employees are also subject to higher taxes on that compensation, says Moulton.
Aside from being grossly unfair, it’s simply stupid and inefficient.
In the national capitol region, people routinely work in DC and live in the near suburbs in Virginia and Maryland. But it’s not uncommon to live in the District and commute to a job in the suburbs. And people change jobs all the time, being domiciled in one of the three and working in another. Three years ago, same-sex marriage became legal in DC. Last November, Maryland followed suit. Virginia is unlikely to follow any time soon unless ordered to by the US Supreme Court.
So, naturally, a same-sex couple married in DC, Maryland, or one of eight other states that allow it would be unwise to move to Virginia. And taking a job in Virginia while commuting from either DC or Maryland would have to be evaluated closely from a tax standpoint.
If the Equal Protection aspect doesn’t trouble you, here’s something that should: Even one or both partners found a job in Virginia good enough that it easily offset the tax penalty, they should think hard about declining it, anyway. If they were, for example, to get into a serious accident on their commute and be taken to a Virginia hospital, their partner would quite probably not be able to visit on the same basis as a spouse. And, absent a power of attorney, they wouldn’t be able to make medical decisions. Indeed, it’s arguable that the couple ought to avoid even shopping in Virginia—or, for that matter, traveling to any of the 41 other states that don’t recognize their relationship—for the same reason.
