When I announced that I was moving to New York, lots of people asked me if I was planning to get married. Most probably didn’t realize that we’d be paying extra money in taxes as a same-sex married couple, even here in New York where it’s legal.
An analysis posted by CNN Money examines the financial cost imposed by the 1996 Defense of Marriage Act (DOMA) upon same-sex couples married in the handful of states that recognize it. Regardless of state recognition, same-sex couples have to file as unmarried.
One scenario involved families with one spouse earning $100,000 and the other spouse staying at home with the family’s two kids.
In the same-sex family’s case, the working spouse files as “head of household,” and the stay-at-home spouse is considered a “qualifying relative.”
Say that couple reported no other income or deductions. In that case, the same-sex household’s federal tax bill is $15,199, which includes tax the head of household must pay on health insurance premiums to cover the stay-at-home spouse. That’s $4,543 higher than the straight couple’s liability.
Why? Because the “head of household” designation comes with some disadvantages.
Filing as “head of household” instead of “married filing jointly” exposes more income to a higher tax bracket. Plus, standard deductions, which are given based on the filing status to taxpayers who don’t itemize deductions, are lower for a head of household than they are for married couples filing jointly.
And then there are the kids. When a child tax credit is claimed, the gap between same-sex households and married couples can grow even wider.
The heterosexual couple in H&R Block’s example is able to claim the full $1,000 child tax credit for each kid. But the credit phases out sooner for families claiming “head of household.” So in this case, the cost of being unable to file jointly comes out to $6,043 for same-sex households.
And that’s not all… Same-sex households don’t get tax exemptions for inheritance and gifts from their spouses, for capital gains on property that isn’t legally jointly owned, and even for the employer-paid portion of insurance benefits if one partner is on the other’s employer-subsidized benefits plan.
That’s right — if I had my partner on my insurance, the amount of money my employer pays for his benefits is considered “imputed income” for me and both my employer and I pay taxes on that so-called income. (And no, opposite-sex married couples are not subject to this additional tax.)
Here’s a little-known fact… A very, very small number of companies — including my employer — are doing something about that last piece. Companies can choose to “gross up” employees’ pay to cover the extra taxes that the employee has to pay on the imputed income. Doing this means that if you have two teammates with the same pay, each with a partner on their insurance benefits, but one is in a same-sex relationship and the other is in an opposite-sex relationship, the take-home pay that each receives will be the same.
This is especially impressive when you consider that it’s extra money the company is paying, over and above its portion of the additional taxes (yes, the law costs companies money also) just to ensure that employees are receiving equal treatment. Since the law doesn’t provide for equality, the companies are taking a double hit (paying their extra taxes and the employees’ extra taxes.)
The Defense of Marriage Act is hurting same-sex couples and their children, it’s hurting employees, and it’s hurting businesses (with an extra penalty to companies who are going out of their way to take on the additional burden for their employees.)
More importantly, and slightly off-topic: IT DOESN’T ACTUALLY DEFEND ANY STRAIGHT COUPLE’S MARRIAGE! Seriously, I’ve never been able to understand the argument that me marrying my same-sex partner somehow would impact your marriage to your opposite-sex partner. Someone please explain to me how it affects you at all! (Stepping off soapbox now.)
It’s time that this law is revoked, and same-sex couples who are legally married in their state (or in another country whose opposite-sex marriages are recognized by the U.S. government) can receive equal treatment under the law.