The Repeal of DOMA – 1 year later
Same-sex couples still face serious tax challenges navigating a patchwork of state tax laws
Since the June 26th Supreme Court decision that struck down certain provisions of the Defense of Marriage Act (DOMA), the past year has been one of change. This ruling opened the door for government agencies, like the Internal Revenue Service, to recognize same-sex marriages for tax purposes. It also marked a time of change for those couples when it comes to filing both federal and state tax returns. In the last year alone, there have been nine more states added to the previous 14 that now recognize same sex marriages compared to this time last year. In addition, recognition is pending judicial appeal in at least nine more states.
The only constant in this past year has been change.
With 10,000 offices nationwide, H&R Block served same-sex couples in every tax situation this past tax season. With many of those couples filing extensions and working to meet the October filing deadline, or now making necessary adjustments to withholdings, H&R Block offers guidance on choosing the right filing status, claiming all of the tax breaks taxpayers are entitled and some guidance as to just what tax filing may look like for next tax season.
A year removed from that ruling, the IRS continues to offer guidance to same-sex married couples filing married for the first time. While filing at the federal level is fairly seamless, there are still state-level issues that must be worked out to properly navigate the tax regulations surrounding joint filers. The Tax Institute at H&R Block developed a state-by-state map that details the various filing needs based on current law.
While some couples may have been legally married for several years, same-sex married couples began using a married filing status for federal tax returns for the first time starting with tax year 2013. Understanding filing status and making adjustments will help couples get the most out of this new opportunity for future and past returns.
Some states still require the same filing status for federal and state returns. This requirement means couples must complete a second set of federal returns. This is commonly referred to as pro forma or completing a “dummy” return.
Start with the status
Like couples that now file jointly, there will be several factors to consider as to whether it’s better to file jointly or separately within the complexity of the tax code, and H&R Block tax professionals are able to help with that determination.
- When filing their tax returns, the newly married need to know what tax breaks they may be entitled, which is sometimes impacted by combined income. First of all, they need to know which filing status to select.
- Generally, married taxpayers file a joint return because of the added tax benefits, including eligibility for certain credits. Couples should consult a tax professional to determine the status that best meets their situation.
- The three other filing statuses are single (married or legally separated), head of household and qualifying widower, and all five filing statuses generally are based on marital status as of Dec. 31.
Filing separately can sometimes lower a tax bill. For example, if one of the spouses has low income and high medical bills, it could work in their favor to file separately to claim these expenses as itemized deductions. This is because their spouse’s income could make it difficult to reach the threshold for claiming medical expenses. Starting in 2013, for taxpayers under 65 to claim medical expenses, they must exceed 10 percent of their adjusted gross income, an increase from the previous 7.5-percent threshold.
Plan the work and work the plan
For those who have not yet filed their 2013 return, or are doing a mid-year check up in anticipation of filing next year, there are a few items to consider.
1. Assess and consider amending past returns
- Couples legally married during a previous tax year (2011 or 2012) can file amended returns to claim tax breaks they couldn’t before. And, they could possibly get a refund of taxes paid on employer-provided health insurance for their spouse.
2. Plan the work and work the plan
- There now will be a new world of tax deductions and credits that could open up for same-sex married couples – dependent care, child tax credits and more – and the phasing out of some breaks they used to claim. Perhaps the new married filing status caused a couple to be above the income threshold to be able to claim a variety of tax breaks. This could mean an increase in tax liability.
- Now is the time taxpayers should adjust how much tax is withheld from their wages to better reflect tax liability under their newly recognized married status. Talking to a tax professional about updating Form W-4 and other tax topics surrounding this issue can help taxpayers understand what works best for their household.
The results of H&R Block’s W-4 survey show consumers not only haven’t updated their withholding after tax reform, but many don’t even know how.
Filing out a W-4 correctly can help taxpayers avoid surprises. H&R Block’s personalized analysis and W-4 calculator can help when filing out the W-4 form.
Major life events, including changes in relationships, can have a big impact on the tax return. H&R Block offers tips for handling divorce and taxes.