Monday, July 8, 2013
Same sex married couples got a victory last week when the Supreme Court struck down a law defining marriage as between a man and woman only, for federal legal purposes. Another Supreme Court ruling allowed for the resumption of same-sex marriages in California.
Currently, 13 states (CA, Conn., Delaware, Iowa, Maine, MD, Mass., MN, N.H., N.Y., R.I., Vt., and WA) plus the District of Columbia allow same-sex marriages.
As a result of these court rulings, same-sex married couples can now file a joint return. Generally speaking, married filing jointly will produce less tax for the married couple if the spouses have widely disparate income levels. It is possible that many two-earner couples will end up paying more in taxes as a result of this ruling.
Estate planning and Gift tax issues will be simpler. Married same-sex couples can now use the unlimited estate tax marital deduction and, they can elect portability, so at death, any unused estate and gift tax exemptions will pass to the surviving spouse. They can also make gifts and transfers of property to each other without paying income or incurring gift tax. Additionally, they will now qualify for gift splitting which allows them to potentially double the size of cash gifts by treating the gift as coming half from each.
Same-sex spouses will be eligible for tax free employer health coverage.
Workers can be reimbursed from their health flexible spending accounts (FSA) and health savings accounts (HSA) for their same-sex spouse's medical expenses.
Retirement plans are also impacted. Same-sex spouses will now automatically qualify for survivor and death benefits under pension plans, 401(k) plans, etc. Spousal IRAs can now be set up for nonworking same-sex spouses. There are also favorable withdrawal rules for spouses who inherit pension accounts allowing them to take the money more slowly than what was allowed under the nonspouse-beneficiary rules.
Many open questions remain, especially for married couples who have moved and now find themselves living in a state that doesn't recognize same-sex marriages. It's also unclear at this time whether civil unions or domestic partnerships will be able to file joint returns.