By Sheryl Rowling
Dear Money Maven: My husband and I were married in California in 2008 before Proposition 8 passed. Now that DOMA has been repealed, how do we file our tax returns? This is so confusing! Sincerely, Steven
Dear Steven,
I agree that the tax laws for same sex couples have been and are confusing. Let’s look at the history:
• Before Registered Domestic Partners (RDPs) or Same Sex Marriages (SSMs) – The partners were treated as legal strangers to each other. Each were required to file as single (or head of household) reporting their own income and deductions for both Federal and California purposes.
• RDPs & SSMs pre 2011 – Although same sex partners (or spouses) were still treated as legal strangers for Federal purposes, California allowed couples to file as married with either joint or separate returns. Thus, couples were forced to file as single for Federal purposes and as married for state purposes.
• RDPs & SSMs post 2010 – The IRS, in its infinite wisdom, decided that RDPs and SSMs in community property states were required to report income and deductions as community property on Federal tax returns – even though each partner (or spouse) was still required to file as single. So, the puzzle became even more complicated! The couple had to file as married for California, with each partner required to file as single for Federal tax purposes – reporting half of their own and each other’s income, deductions and withholding! Oy vey! Essentially, four returns were required – 1) a California joint return, 2) a “fake” Federal joint return that would be used as the basis for splitting all of the numbers (with this schedule attached to each single return), and 3 & 4) a single Federal return for each partner. This new twist even confused the IRS! Many RDPs and SSMs found that the IRS did not know how to split withholding when they received erroneous refund checks for one partner and big tax bills for the other! To further complicate things, the IRS gave couples the right, but not the requirement, to amend returns for prior years to reflect the community property splitting. This meant that after all the difficulties of filing prior years’ tax returns, the couple would need to recalculate taxes in a different way to determine if amending would be beneficial or not!
• RDPs & SSMs post 2012 – With the repeal of DOMA, California tax law remains unchanged; however, the IRS must now recognize the legality of state sanctioned SSMs. Note that this only applies to married couples, not RDPs. This means that SSMs must now file as married for Federal purposes. The good news is that SSMs will now only have to prepare two joint tax returns – one for Federal and one for California. However, complexity is still part of the deal … the IRS is allowing SSMs to amend prior open tax years. So, again, the couple needs to recalculate taxes in a different way to determine if amending would be beneficial or not.
It is with great hope that I wish the tax nightmare for SSMs is over. Now, we need to work on the same for RDPs…
Shana Tova,
Money Maven
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Rowling is a certified public accountant, personal finance specialist, and principal of Rowling & Associates. She may be contacted via sheryl.rowling@sdjewishworld.com