IRS Changes for Same-Sex Married Couples

So you're a same-sex couple who can now marry in your state (or marry in a state other than your home state-where allowed).  That's great!  What they don't tell you when you get your marriage license and walk down the aisle is that your financial picture will change.  In many ways, you'll see things become simplified and more beneficial.  In other ways, some of your finances may become more complex and you may wind up paying more for things-such as your taxes.

In its Revenue Ruling 2013-17, the IRS declared that all gender-specific wording in the tax code be changed to gender neutral so that it would include all married couples.  What the ruling also clarified is that if you are married in a jurisdiction that allows for same-sex marriage (in this country or in a foreign country), you may file your federal income taxes as a married couple.  This is regardless of whether or not your home state recognizes your marriage. Which is awesome!

Some questions that may come up as a result of your change in tax status per the IRS site:

1) Can a tax payer's same-sex spouse be a dependent of the taxpayer?

a. No.  A taxpayer's spouse cannot be a dependent of the taxpayer.

2) Can a same-sex spouse file using head of household filing status

a. A taxpayer who is married cannot file using head of household filing status. However, a married taxpayer may be considered unmarried and may use the head-of-household filing status if the taxpayer lives apart from his or her spouse for the last 6 months of the taxable year and provides more than half the cost of maintaining a household that is the principal place of abode of the taxpayer's dependent child for more than half of the year. See Publication 501 for more details.

3) If a taxpayer adopts the child of his or her same-sex spouse as a second parent or co-parent, may the taxpayer ("adopting parent") claim the adoption credit for the qualifying adoption expenses he or she pays or incurs to adopt the child

a. No. The adopting parent may not claim an adoption credit. A taxpayer may not claim an adoption credit for expenses incurred in adopting the child of the taxpayer's spouse (section 23).

4) If an employer provided health coverage for an employee's same-sex spouse and included the value of that coverage in the employee's gross income, can the employee file an amended Form 1040 reflecting the employee's status as a married individual to recover federal income tax paid on the value of the health coverage of the employee's spouse?

a. Yes, for all years for which the period of limitations for filing a claim for refund is open. Generally, a taxpayer may file a claim for refund for three years from the date the return was filed or two years from the date the tax was paid, whichever is later. If an employer provided health coverage for an employee's same-sex spouse, the employee may claim a refund of income taxes paid on the value of coverage that would have been excluded from income had the employee's spouse been recognized as the employee's legal spouse for tax purposes. This claim for a refund generally would be made through the filing of an amended Form 1040. (see the site for examples)

5) If a sole proprietor employs his or her same-sex spouse in his or her business, can the sole proprietor get a refund of Social Security, Medicare and FUTA taxes on the wages that the sole proprietor paid to the same-sex spouse as an employee in the business?

a. Services performed by an employee in the employ of his or her spouse are excluded from the definition of employment for purposes of the Federal Unemployment Tax Act (FUTA). Therefore, for all years for which the period of limitations is open, the sole proprietor can claim a refund of the FUTA tax paid on the compensation that the sole proprietor paid his or her same-sex spouse as an employee in the business. Services of a spouse are excluded from Social Security and Medicare taxes only if the services are not in the course of the employer's trade or business, or if it is domestic service in a private home of the employer.

The information used in this article was taken from www.irs.gov/uac/Answers-to-Frequently-Asked-Questions-for-Same-Sex-Married-Couples.  See that site and your CPA for answers to additional questions.

The opinions voiced in this material are for informational purposes only and are not intended to provide specific advice to any individual.  Consult your legal, tax, and/or financial advisor to determine what is appropriate for your situation.

Woody Derricks, CFP®, ADPA(sm)