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Tax Considerations for Same-Sex Couples - Spousal vs. Separate Filing

Tax Considerations for Same-Sex Couples - Spousal vs. Separate Filing

Although same-sex marriages have been nationally recognized since 2015, some couples may still have a common-law marriage or civil partnership rather than a marriage. Persons living in a civil partnership, common-law marriage, or similar formal legal relationship are not considered married under state law for federal tax purposes. This prevents them from filing in pairs at the federal level. If legally married at the state level, couples should consider their options before choosing to file together or separately.

Couples have diverse options when it comes to filing taxes. If you are married and you are filing together or separately, you are still presenting yourself as a couple, but with different tax rules.

Until recently, you were not offered the opportunity to file under any status at the federal level as a same-sex couple. This is due to the Defense of Marriage Act. However, since the Supreme Court struck down part of that law in 2013 and legalized same-sex marriage nationwide in 2015, it no longer applies. If you are married to someone of the same sex, you can now file as a couple.

This article addresses some of the issues you face as a same-sex couple when deciding whether to file separately or jointly.


What is the Defense of Marriage Act?

Prior to 2013, several states recognized same-sex marriage, but you were not eligible for federal marriage status if you were in a same-sex marriage. The Act, passed in 1996, barred same-sex couples from many of the tax benefits provided for couples in the tax code.

As a result, between 1996 and 2013, legally married same-sex couples at the state level could not file jointly at the federal level. They could not access deductions and other tax benefits available to married taxpayers.

In 2013, the Supreme Court struck down a section of the Defense Marriage Act that barred federal recognition of same-sex marriage for federal benefits, such as taxes. As the Supreme Court established the national law and recognition of same-sex marriage in 2015 with Obergefell v. Hodges, you can now enjoy footing in the tax code as a same-sex couple no matter what state you live in.


What does it imply to be married filing jointly or separately?

You can file a federal tax return with your spouse when you get married instead of filing yourself. The IRS encourages most couples to file a joint return, offering various tax breaks for joint filings.

If you choose to file a separate return, you'll:

  • Have half of the standard deduction amount available to married filing jointly couples ($12,500 vs. $25,100 in 2021)

  • You'll have lower IRA contribution limits

  • You'll lose your eligibility to claim a student loan interest deduction

  • Loss of eligibility to claim Earned Income Credit or Lifelong Learning Credit

  • Have $1,500 in capital loss deductions instead of the $3,000 you receive as a joint filer

By law, if you are married according to state rules, the Federal Tax Code will recognize you as married for tax purposes. This remains true even if you live in a state that does not recognize your marriage. You can file a joint federal tax return and an individual tax return if this happens.

Although the Supreme Court ended all state bans on same-sex marriage in 2015, the decision did not change registered domestic partnerships, civil partnerships, or other formal relationships recognized by state law.

If you are registered as a cohabitant or civil union, you may not be able to file as a couple at the federal level. On the basis of these formalized legal unions, only individual declarations can be filed at the federal level.

If you and your partner have a child who qualifies as a dependent, either of you can file as the head of household and claim the child as a dependent. In this case, you or your partner, but not both, can claim a dependency deduction for the child with the head of household status.


Do same-sex couples have to file a joint return?

The answer is the same for all couples - you can choose to file a joint return if it saves you money. Once you're married, you'll need to decide whether filing jointly or separately is right for you.

In cases where tax brackets, standard deductions, or other aspects of the tax code don't double for you as a married filing jointly, you may face a marriage tax penalty. However, instances in which this occurs are much less likely than in previous years due to recent congressional action.

You may consider filing separately as a couple when you have roughly equal income levels and one spouse has to claim a large amount of out-of-pocket medical expenses. Since the IRS only allowed you to deduct these costs on 7.5% of your adjusted gross income in 2021, it may save you more money if you have a lower income threshold as a separate filing.

Tax reform has done much to reduce the likelihood of a marriage penalty, making limits for six tax brackets for joint taxpayers exactly double what you could use if you were married, filing separately, or individual filers. High-income earners are the only ones who could face this when the top tax rate in 2021 for individuals and married filing separately starts at $523,601, compared to the same tax rate limit of $628,301 for joint filers.

In most cases, joint filers receive a marriage bonus when the incomes of the spouses are significantly different. This pulls the income of the higher income earner into a lower tax bracket, which often saves money.


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