New Guidelines Change the Tax Rules for Same-Sex Couples

Over the last few weeks, most of you have been receiving all sorts of forms in the mail:  W-2, 1099, interest and mortgage statements … We are in the midst of tax season.  Some of you may already have prepared your taxes.  Others will wait until April to file those 1040s. 

Either way, I offer a wonderful post by guest blogger, Elisha Wiesenberg, a Certified Public Accountant with significant experience preparing income-tax returns for same-sex couples. His firm, Wiesenberg & Company, is based in Los Angeles.


When it comes to taxes, the Federal Government’s not recognizing same sex marriage is not necessarily a bad thing.

John and Otis came in to my Los Angeles office with a tower of file folders and a seemingly completed tax return lying neatly on top of it all. Otis had always prepared the tax returns using turbo tax, but this year could not figure out the new requirement to split the income based on community property laws. He had prepared their return using the married filling joint status, when he gave up and came to see me.

Like many failed do-it-yourselfers Otis was frustrated and angry. “Why does it have to be so complicated and how can they take this much money from us”. John makes nearly $500,000 a year and Otis is a stay at home Dad. Despite the fact that John had paid in over $100,000, according to Otis’s calculations John had not withheld enough, and they owed over 10,000 to the IRS.

I told them not to worry about Otis’s results. If he had prepared the return as married filling joint, correcting it would likely change the results significantly. The new Federal guidelines obligate RDPs and SSMC in community property states like California to combine their income and then split it. Each spouse then files his or her own tax return and claims half of the income. To the uninitiated this might sound like it would come out the same as filling a regular joint return, but that is far from the case. Like most areas of taxation, when it comes down to the details, they are anything but simple, and there are many factors at play. The surprising thing is that in most cases RDPs and SSMC come out better than federally recognized married couples.

In John and Otis’ case there were a number of issues that worked in their favor. One of the big factors was John’s high wages. When Otis prepared the return using the regular joint status John was paying the highest rate on over $100,000 of his income. When we split John’s income between him and Otis the income was taxed at a lower rate. In addition to this, the fact that John and Otis have a son further lowered the tax rates. When we filled the corrected returns, instead of owing nearly $10,000, John and Otis got a refund of a little over $4,000.

Of course, every return does not come out this way. In some instances a joint return would result in slightly lower taxes. On the whole, however, splitting income instead of combining it, is a more favorable way to file.
In Connecticut, which is not a community property state, income is not split, a great illustration of how complicated these new rules are. Instead, each spouse is treated separately on the federal level. Under this tax regime, a little planning is necessary, but the rules can also be made to work out favorably. The goal of reducing the total tax burden can be facilitated by shifting income to the spouse with the lowest marginal tax rate. Similarly deductions can be channeled to the spouse with the higher marginal tax rate.

In many cases the Federal Government’s not recognizing same sex marriage actually saves the couple money. It is tempting to think of this as a little bit of compensation for the complexity involved in preparing the returns.


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copyright 2012 Irene C. Olszewski