Same Sex Marriage and Taxes

In 2011, New York passed a law allowing same-sex marriage. In doing so, the state joined five other states and the District of Columbia in allowing such marriages. Legally married same-sex couples in Connecticut, Iowa, Massachusetts, and Vermont, DC, and now, New York, should file State tax returns as married couples. (New Hampshire also allows same-sex marriage but does not have a State income tax.) Three other states (California, Oregon and New Jersey) have civil union or domestic partnership laws which allow same-sex couples to file State tax returns together.

The Federal government, however, still does not allow same-sex marriage, so those couples must file Federal tax returns as if they were not married. What this means is that same-sex couples will be spending a bit more time preparing their tax returns this year. For New York taxpayers this affects, they must prepare separate Federal returns as single — or head of household, if they qualify — then prepare the Federal return as married filing jointly or married filing separately. Figures from the latter return, which are not filed with the government, then flow onto their State return and then the State tax liability is calculated by making adjustments to the Federal adjusted gross income they calculated as a married couple.

In New York State, which for 2011 has a progressive tax structure — that is, people at higher income levels are taxed at a higher rate than people at lower levels — couples may find themselves paying more tax as a couple than as two single persons, but it really depends on their income. When you have a couple where one person makes a lot of money and the other one has a very low income, there could be tax advantages to filing a joint return. On the other hand, two high-income earners will probably be paying more taxes when filing together. One thing to keep in mind, though, is that once you’ve tied the knot in New York State, there’s no going back. You need to file your State return as either married filing jointly or married filing separately.

If you have a same-sex couple with a child, for Federal purposes, one of the couple could file as head of household, while the other files as single. But for State purposes, the couple would file together, losing some of the tax advantage of the head of household filing status.

Last year I had a client who, after many years, married the father of her child, with whom she had lived for over a decade. She always filed as head of household, and because of her modest income, was able to claim the Earned Income Credit (EIC). But after they married, their incomes were combined and went well above the limit for the EIC. After I prepared their tax return, they faced a hefty tax bill!

So keep in mind, if you’re thinking of getting married, your marital status may affect your taxes, and this holds true regardless of your sexual orientation!