Paying More – Getting Less

Timothy Kincaid

March 26th, 2008

gaytax1.bmpHey gay couples, grab your checkbooks. It’s that time of year where you get to pay more than your brother and his wife.

If you are part of a couple, you usually would benefit from filing an income tax return as a married couple. While this is not always the case, it is especially true for those couples in which one of the partners has a much lower income than the other.

Some states have decided that they value their gay citizens and seek to encourage stable families and have changed their laws so as to treat gay couples the same as heterosexual couples in their tax law. Massachusetts, California, Vermont, and Connecticut all allow for couples to file joint tax returns (this may also be the case in New Jersey, New Hampshire, Maine, Washington and Oregon and perhaps for some Rhode Island and New York residents – I haven’t researched every state).

But while this is to be commended and advanced in more states, it isn’t as simple as it seems. The federal government doesn’t care what the states have determined, they only recognize marriage as between a man and a woman. Thus, gay couples get to jump through hoops and make multiple tax returns. This becomes costly whenever you have a complicated return.

For example, a California couple in a Domestic Partnership has to prepare its state return as though they were a married couple. But CA tax law relies on federal tax treatment of certain situations, so this couple often has to prepare a federal income tax return as a married couple in order to apply the appropriate treatment on their state returns.

But they can’t file that federal joint return. The IRS won’t accept it. Instead they have to prepare federal returns as though they were unrelated roommates.

Add in some complexity, such as multiple state returns, and you may end up paying your accountant a much higher rate due to the extra time they incur.

If you can. Some accountants may not be familiar with the procedures at all.

H&R Block, the nation’s largest tax firm, is being sued by the ACLU because their online do-it-yourself system can’t accomodate Connecticut’s civil unions. Connecticut gay couples have to pay about $150 more and go into the H&R Block office in order to get their returns prepared correctly.

So the next time you hear some anti-gay whine about “special rights”, remind them that you pay more for your government than they do.

UPDATE

Reader John brought to my attention one of the stupidest and cruelest inconsistencies.

If your brother receives insurance covering his wife, it’s a tax free benefit. If you receive insurance covering your same-sex spouse, the federal government considers that to be a taxable part of your income. Yes, they actually make you pay income taxes on the amount of health insurance that you receive from your company for your spouse if you are gay.

I guess that concern about Americans without health insurance extends only to heterosexuals.

John

March 26th, 2008

TurboTax specifically asked me whether I recieved Domestic Partner Benefits from my employer and explained that those are taxable. My partner and I file separately as single. I didn’t do anything prior to that to trigger the question, so they are asking this question to everyone using their product.

I was annoyed to be reminded that gay people have to pay taxes on benefits that married heterosexuals didn’t, but on the other hand, I thought it was a potential positive, in that other taxpayers were being educated to the unfair tax discrimination that gay Americans faced.

I doubt many Americans want the “special rights” of paying higher taxes than their neighbors.

Scott

March 27th, 2008

Yeah, there is clearly not equal treatment for gay couples. But, this isn’t necessarily a financial negative. My partner and I would pay more if we were married (I have done the calculations)! Even with paying higher income taxes as a married couple, the whole marriage package of rights and responsibilities of that legal arrangement would be worth it.

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