On June 26th, 2103, Supreme Court of United States issued a landmark decision where it enabled the federal government to recognize the same sex marriages in United States which at present is allowed in 13 states and the District of Columbia.The decision was a struck to Defense of Marriage Act which prohibited same sex marriage n the United States. However, reacting over the decision of ace court of United States, The Treasury Department ruled that legally married same sex couples will be treated as married for federal tax purpose. The rule applies to only same-sex couple legally married in any state, District of Columbia and US Territory and not to any couple who is into domestic partnership or any other formal relationship.
The new tax laws will have implications on as how these couples will be treated for the purpose of federal income taxes, federal estate and gift taxes and the tax breaks they get for health and insurance benefits, sponsored by their employers. Before the introduction of new law, a same sex married couple was required to file two single status tax returns. The prior situation was advantageous for the couples although others paid high income taxes because of single status filing. Thus, from 2013, a same sex married couple will have the only option of filing Married Filing Joint Return or Married Filing Separate Return and now the single status return will not be available.
The new taxation rules on same sex couples, will provide a financial benefit to the couples through the mean of filing a joint return. However, they will see an increased tax burden because of being changes marital status. The high tax burden on the couples is what is termed today as “ Marriage Penalty’’ as it will cause marriage couples to pay more tax than they would if they were unmarried. Other benefits for same sex couple as per new taxation rule includes:
- As per new rules of the treasury, money used by employers for buying health insurances of same sex spouses was subject to income tax but as per new rules of the treasury, both the employer an employee contribution will be treated as tax free for federal income tax purposes.
- Under new taxation rules, the same sex surviving spouses will now be entitled to inherit the estate of their deceased husband or wife.
Another advantage comes in the form of Estate and Gift Taxation for same sex couples. Many same sex couples created elaborate estate tax plans complaining that their marriage was not recognized for tax purpose. Thus as per new rules, same sex couples are now subject to same estates and gift taxation rules just as opposite sex couples. Thus, same sex couple may employ estate planning methods available to other married couples same-sex couples create elaborate estate plans.
Although, the rules have been welcome by many same sex groups but the provision will end up with married couples paying higher taxes. Another headache in the rules is absence of fairness for Gay Couples. In other words, there is no provision for Gay Couples on tax returns to file joint returns and this will make tax preparation more tedious for them.
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KPMG LLP. Supreme Court’s Same-Sex Marriage Decisions Clarify Some Issues, Clarify Clouds. Discussion over new Tax Rules. USA: KPMG LLC, 2013. Web.