Same-sex couples: Celebrate, then call a CPA / After Supreme Court ruling, Uncle Sam may owe couples bigger refunds

Jonnelle Marte for MarketWatch writes: In addition to having implications for Social Security benefits, child care rights and retirement planning, the high court’s ruling that the Defense of Marriage Act is unconstitutional might mean a check from Uncle Sam. Couples may be able to amend prior years’ tax returns to receive bigger refunds now that their marriages are recognized by the federal government. Income tax filing has been frustrating for many couples, some of whom had to file as many as four separate returns because of the conflicting state and federal rules. And since they were unable to file joint returns, same-sex couples lost out on some of the deductions and credits allowed for heterosexual couples, such as breaks offered to those selling a home and child-related tax credits.

To be sure, the decision leaves some question marks. The court cases did not address how the government should treat civil unions between same-sex couples, says Alison Flores, an attorney and analyst with the Tax Institute at H&R Block. Also, the ruling does not mean states that currently prohibit same-sex marriage now have to permit it.

But experts say couples may want to meet with their accountant to run through some of the case’s financial implications. Here is a look at some key topics to consider.

Gift taxes and estate planning

This issue, which was at the heart of one of the cases, should now be greatly simplified for many same-sex couples. Without federal recognition, many couples were not able to pass assets to their spouses after death, as straight couples could. Instead, spouses inheriting more than $5.1 million in 2012 (raised to $5.25 million this year) were subject to the estate tax. One of those spouses was Edith Windsor, a widow who challenged the aspect of the Defense of Marriage Act that defined marriage as being between a man and a woman after she was hit with a $363,000 federal estate tax bill when her wife died in 2009. (The aspect of the law that says states don’t need to recognize same-sex marriages from other states, did not come before the court.)

Some couples that set up trusts to avoid double taxation on assets being passed along to their partners may find that a trust isn’t necessary now that assets can be passed directly to their spouse tax-free. Others may want to update their trusts to give their spouses tax-free access to the trust’s income or principal, an option that has only been available to straight couples, says Scott Squillace, an estate planning lawyer based in Boston who focuses on gay couples.

The ruling could also make it possible for married same-sex couples to share assets without being subject to gift taxes. This would sometimes be an issue for couples that owned a house together, but didn’t equally split mortgage payments and other expenses, says Squillace. While rarely enforced until one spouse died or was audited, those expenses covered by one spouse could technically be subject to gift taxes if they exceeded $14,000 annually, says Squillace. But now that those marriages are recognized by the federal government, some same-sex couples may feel more comfortable adding their spouses name to the property title, knowing that they’ll have more flexibility on how they choose to split those expenses.

Income taxes

Not being able to file jointly has also meant that many same-sex couples faced larger tax bills than straight couples, says Kenneth Weissenberg, a partner at accounting firm EisnerAmper, who estimates he and his husband Brian Sheerin paid an additional $5,000 in taxes last year because they couldn’t file as a married couple. Many married couples owe less in taxes when they file their returns jointly than they would as individuals, especially when one spouse earns more than the other, says Weissenberg. Married couples filing jointly can take advantage of certain credits and deductions that can lower their overall tax bill, since they can share capital gains and losses, receive a larger exclusion if they sell a home (of up to $500,000 for married couples, compared with $250,000 for an individual), and receive child-related tax credits, among other tax breaks.

Many gay couples have had to prepare a joint federal return—which they couldn’t file—in order to have all the information needed to be able to file jointly at the state level. They can now turn to those dummy returns, or prepare a sample return now, to know if they would have saved on taxes by being able to file jointly, says Flores of H&R Block. Then they may be able to collect refunds on any taxes they overpaid in previous years by filing amended returns as a married couple.

That relief may be limited, however. Couples who married in one state that allows gay marriage but move to a state that doesn’t could find themselves in a situation where their union is recognized by the federal government but not by the state they reside in. Under that scenario, they may be able to file married jointly for their federal tax returns but need to file separate state tax returns. Generally, the IRS allows taxpayers to amend returns for up to three years after the filing deadline or up to two years after the taxes are paid. The timeline may be different at the state level, and some couples may have more time if they filed protective claims for previous tax years that would give them an extension for amending returns.

But not all couples should rush to file amended returns. Some couples, especially high-earning couples where both spouses are working, could get hit by the so-called marriage penalty. In some cases, spouses are better off filing separately if it increases their chances of qualifying for certain income-based deductions like the medical tax deductions.

Health benefits

For some same-sex couples, the biggest tax hit came from an area most married couples don’t yet associate with tax season: their health benefits. While more employers are allowing same-sex spouses to be added to their employees’ health plans, it was provided as a taxable benefit—costing those couples an additional $1,069 a year in taxes, according to a 2007 report by the Center for American Progress, a progressive think tank. But now that taxes should no longer be a factor, some couples may want to re-evaluate their health insurance choices. One spouse may now be able to move onto the other’s more generous plan, which may also be more affordable.

And even if they aren’t changing plans, some couples may be able to file an amended return to collect the taxes they may have paid on those benefits in previous years.

Of course, some couples may be better off financially by continuing to get coverage through their separate employers. As MarketWatch previously reported, more companies are denying health coverage to spouses who can get coverage through their own jobs. And if they do allow spouses, many are making that coverage more expensive by introducing higher surcharges, lowering reimbursement rates, or making the worker pay the full cost of the premium. 

Tax Implications Of The Supreme Court's DOMA Decision: Same-Sex Couples To Be Subject To Marriage Penalty

Tony Nitti for Forbes writes: Earlier today, the Supreme Court ruled a key component of the Defense of Marriage Act (DOMA) unconstitutional, capping what Time Magazine is calling “one of the fastest civil rights shifts in the nation’s history.”

Understand this, however: the Court’s decision does not pave the way for same-sex couples to get married with impunity. Rather, by striking down DOMA, the Court has simply ordered the federal government to leave the definition of a “marriage” to the States. In other words, if a couple is recognized as married by one of the 12 states that currently permit same-sex marriages, the federal government no longer has the ability to trump that treatment by defining marriage as only between a man and woman, thereby denying the couple benefits under nearly 1,000 federal statutes.

The Supreme Court’s ruling is clearly a victory for equality. And from a tax perspective, the decision stands to save meaningful dollars for same-sex couples who will now be defined as married for purposes of the federal estate and gift laws; because the marital deduction will now apply to these couples, spouses will be permitted to transfer assets to each other tax-free during their lifetime or at death.

In addition, now that DOMA can no longer dictate whether a couple is considered “married” for federal law purposes, same-sex couples who are respected as married under State law should be permitted to file a joint federal tax return. And when the smoke clears, my guess is that these same couples will certainly be permitted to go back to any year still open under the statute of limitations — typically three years — and amend a previously filed tax return as a married couple.

But here’s the thing: while my intention is not to rain on the celebratory parade of those same-sex couples that have long awaited this day, I’d be remiss if I didn’t point out that under the current iteration of the tax law, being considered married ain’t all it’s cracked up to be.

The “marriage penalty” has long been a hallmark of this country’s tax regime; in its simplest form, this term refers to the fact that higher tax rates do not kick in at amounts that are exactly double those of single taxpayers. For example, in 2013 a single taxpayer will begin paying a marginal tax rate of 33% once taxable income exceeds $183,251.  Married taxpayers, however, will begin paying a 33% rate once taxable income exceeds only $223,051, an amount only $40,000 higher than single taxpayers. Hence, the marriage penalty.

Beginning in 2013, however, the marriage penalty takes on even greater importance. Courtesy of three recent changes to the tax law, married taxpayers are now getting the shaft relative to their single peers even more than they previously were.

Law Change #1: Obamacare

Starting in 2013, the Patient Protection and Affordable Care Act – or less formally, Obamacare – will impose two additional taxes of note:

1. An additional 0.9% Medicare tax on wages and self-employment income in excess of the applicable threshold, and

2. An additional 3.8% tax on a taxpayer’s net investment income when adjusted gross income exceeds certain thresholds.

But here’s the catch: the threshold in both cases is $200,000 for a single taxpayer, but only $250,000 for a married taxpayer. To illustrate the inequity this causes, consider the following example:

In 2013, Ace and Gary, two single taxpayers, each earn $150,000 in wages and $50,000 in dividend income. If they remain single, neither Ace nor Gary will be subject to either of the two Obamacare taxes, as they have neither wage income nor adjusted gross income in excess of the applicable $200,000 threshold.

If instead, Ace and Gary get married under the laws of New York and file a joint return for 2013, the fact that the Obamacare thresholds for married taxpayers are not double those of single taxpayers will cause the tax increases to take hold. Because their total wage income of $300,000 exceeds the applicable $250,000 limit, Ace and Gary will pay an additional 0.9% tax on $50,000 of wage income.  In addition, because their adjusted gross income ($400,000) exceeds the applicable threshold ($250,000) by $150,000, Ace and Gary will also pay an extra 3.8% tax on their $100,000 of net investment income.

Law Change #2: Maximum Tax Rates Under the Fiscal Cliff Deal

For the top 1% of taxpayers, 2013 brings an increase in the maximum rate on ordinary income from 35% to 39.6%, while the top rate on long-term capital gains and qualified dividends has increased from 15% to 20%.

Once again, the threshold at which these higher rates kick in does not favor the married.  Single taxpayers will pay tax at 39.6% on all taxable income in excess of $400,000, while married taxpayers will begin paying the higher rate on all taxable income in excess of $450,000; a mere $50,000 increase over their single counterparts. Similarly, the maximum tax rate on long-term capital gains and qualified dividends jumps from 15% to 20% at these same thresholds.

Example: Rocky and Apollo each earn $300,000 of wage income and $50,000 of dividend income during 2013. Had they remained single, Rocky and Apollo would each pay tax on their ordinary income at a maximum rate of 33%, and all of their dividend income would be taxed at 15%. 

If, however, Rocky and Apollo marry on December 31st, 2013 and elect to file a joint return, the damage is significant. The joint return will reflect $600,000 of wage income and $100,000 of dividend income. As a result, $150,000 ($600,000-$450,000) of their ordinary income will now be taxed at a maximum of 39.6%, and the entire $100,000 of dividend income will be taxed at 20% rather than 15%.  And of course, don’t forget to tack on the additional 0.9% Medicare tax on $350,000 of wages ($600,000 – $250,000) and an extra 3.8% on the net investment income of $100,000!

Law Change #3: PEP and PEASE Is Back

In the year-end fiscal cliff deal, Congress resuscitated the limitation on the personal exemptions and itemized deductions of certain high-earners. Starting in 2013, as adjusted gross income exceeds certain thresholds, taxpayers stand to lose as much as 80% of their itemized deductions and all of their personal exemptions.

As we saw in the previous two examples, this threshold is not doubled for married taxpayers; rather, a single taxpayer will be subject to these phase-outs once adjusted gross income exceeds $250,000, while married taxpayers will lose tax benefits once adjusted gross income exceeds $300,000.

Now, you may say, “Just because we’re married doesn’t mean we have to file jointly. Why can’t we just file separately?” Unfortunately, married taxpayers who file separately do not default to the “single” thresholds; rather, the threshold for each of the three law changes becomes exactly half of the married threshold: $125,000 for the Obamacare taxes, $225,000 for the tax rates, and $150,000 for PEP and PEASE. This only exacerbates the marriage penalty.

So congratulations, same-sex couples. Now you get to be abused by the tax law, just like the rest of us!

Advisers Not Fans of Offshore Accounts / Financial advisers discourage clients from stashing money abroad.

• ARDEN DALE for the Wall St. Journal writes:  
About a half-dozen times a year, financial adviser John Smith's wealthy clients raise the issue of offshore banking.

His clients who broach the subject usually have more than $20 million in assets, and they see sticking their cash in, say, the Cayman Islands as a smart way to protect their estates from creditors and lawsuits.

"When they're socializing or networking, these sorts of conversations will start to come up," said Mr. Smith, a wealth manager at Balasa Dinverno Foltz LLC, an advisory firm in Itasca, Ill., with about $2.1 billion under management.

For advisers like Mr. Smith, there's nothing wrong with their clients having offshore accounts, as long as they properly report their holdings to the Internal Revenue Service. But he and other advisers tend to discourage it.

Such accounts may cost more to establish and maintain. And they may not offer as many investment choices. In contrast, a domestic trust can accomplish the same goals, with fewer hassles, advisers say.

"It still comes down to complexity and cost; they weigh it all out and say, 'why bother,'" Mr. Smith said.

Americans now have to do more reporting on offshore assets, adding to the administrative headaches of owning them. By the end of this month, for example, those with accounts worth more than $10,000 must make an important tax filing that repeats some information they already reported this year. And foreign banks are under pressure to report on their American clients to the IRS.

Joan K. Crain, a senior director for BNY Mellon Wealth Management, said she has a ready answer when clients ask about offshore accounts.

"I very quickly say you need to talk to an attorney who is experienced in the area of international tax planning," said Ms. Crain, who typically doesn't bring up the subject with U.S. citizens or permanent residents. BNY Mellon has a subsidiary trust company in the Cayman Islands that does not accept U.S. citizens as customers.

Recently, a client who owns a growing business asked Ms. Crain if he should set up an offshore trust to hold the business itself. She told him such a move would have meant giving up some control, the thought of which prompted the client to reject the idea.

When a client is contemplating creating an offshore account in order to keep his or her assets out of the reach of creditors or lawsuits, Mr. Smith said he will point out that domestic trust works just as well.

A doctor, for example, may want to use a domestic trust to shield his home and other personal assets from malpractice suits. Delaware and a number of other states allow domestic asset protection trusts, or DAPTs, a strong alternative to offshore creditor protection trusts. Creditors cannot claim someone's assets in a lawsuit because the assets don't actually belong to the person being sued.

And liability insurance also can be a better line of defense against creditors than an offshore trust, advisers say.

First Person: Take Advantage of the 0% Capital Gains Tax Rate to Grow Wealth

S. H. Wallick for Yahoo Finance writes: During last year's presidential campaign, we heard a lot about the "carried interest" tax loophole that allows some wealthy private equity managers to pay low capital gains tax rates rather than higher ordinary income rates on much of their income. The purpose of this article is not to debate whether the treatment of "carried interest" is good or bad, but to point out that I believe that today's capital gains tax rules can also benefit lower income tax payers and, in fact, mean that investing in stocks can be one of the best ways for them to grow wealth tax free. 

 Yes, tax free. I know that may be hard to believe, but, under current law, taxpayers in the lowest two tax brackets (10% and 15%) pay no taxes on long-term capital gains or qualified dividends. 

Here are my five tips for lower-income investors who want to take advantage of this hard-to-be-beat deal.

Go Long

Be aware that the 0% rate applies only to long-term capital gains or those on capital assets held for more than a year. Short-term gains are taxed at ordinary income rates. Therefore, I would be very careful to keep track of purchase and sale dates on all assets to ensure that they meet the long-term test.

Many Taxpayers Qualify

 The 15% rate applies to single tax payers with taxable income of up to $36,250 and joint filers with income of up to $72,500. Note that this is the rate that applies to taxable, not gross income, which is a very important distinction. Taxable income is after all deductions, so taxpayers with relatively high gross income may qualify for the 0% capital gains rate if they have enough deductions. 

Estimate Carefully

Taxpayers should be careful when estimating whether they qualify for the 0% rate to include their estimated long-term capital gains in the calculation, since these gains will boost taxable income for the purpose of determining the tax payer's tax bracket.

Can Get Complicated

Determining when the 0% capital gains rate applies can be tricky, at times, and not every taxpayer qualifies for it. For example, some young investors are excluded from taking advantage of this rate. Also, seniors who receive Social Security income should estimate their taxes with and without capital gains, since capital gains income could affect how much of their Social Security income is taxable. Also, only qualified dividends receive capital gains treatments as discussed in detail athttp://www.irs.gov/publications/p550.

When in Doubt, Get Professional Help

Given the issues discussed above, as always, I recommend that taxpayers consult a tax professional as part of their tax planning process. Also, more information on capital gains taxes is available athttp://www.irs.gov/uac/Newsroom/Ten-Facts-about-Capital-Gains-and-Losses.

My Favorite Tax Break for Investors

S. H. Wallick  for Yahoo Finance writes: With the stock market up more than 14% through May, 2013 is shaping up as a year when many taxpayers may have capital gains. However, before selling appreciated stock, I suggest that investors do some tax planning to cut their tax bills. In particular, they should consider the benefits of my favorite tax break for investors: the deduction for charitable donations of appreciated stock. 

Here's how to take advantage of this tax-saving strategy and why and when it makes sense.

Why to Donate Appreciate Stock

 Taxpayers who give a charity appreciated stock that has been held long term can take a deduction for the market value of the shares on the date it is donated and avoid capital gains tax. Financially, this is more advantageous to the taxpayer and the charity than if the stock were sold first, capital gains taxes were paid, and the net proceeds were donated to the charity, as the example below illustrates. 

In the first instance, if the taxpayer gives his favorite charity shares worth $10,000 (including a $4,000 long-term capital gain), the charity receives stock worth $10,000, which it can then sell tax free, and the taxpayer gets a $10,000 deduction.

If, on the other hand, the taxpayer first sells the shares, books the $4,000 capital gain, pays taxes of $800 on it (at the maximum current capital gains rate of 20%), and then donates the remaining funds, the charity receives and the taxpayer deducts only $9,200.

Thus, donating the shares is a win-win for both the taxpayer and the charity, with only Uncle Sam losing out.

How to Donate Appreciated Stock

Based on my experience, making a stock donation generally is very easy.

First, I start by checking with the charity I want to receive the stock to be sure that they accept donations of securities and, if so, to find out what their procedure is for receiving it. They probably have a brokerage account to which the shares can be transferred, making the process simple and seamless.

Second, I only donate stock I have held long term (for more than a year) since the deduction on stock held short term is limited to its cost basis.

Third, after the transfer, I make sure to obtain a letter from the charity correctly valuing the donation as of the date it was made.

When Donating Appreciated Stock Makes Sense

Donating appreciated stock makes the most sense for those taxpayers above the 15% bracket. For taxpayers in the 10% and 15% tax brackets, long-term capital gains rates are 0%, so, for them, there would be no financial benefit to donating stock.

The End of the Gay Tax / What today's Supreme Court decision will mean financially for same sex couples.

Jordoan Weissmann for The Atlantic writes:   The Defense of Marriage Act is largely good and gone, meaning that same-sex spouses can finally enjoy the same federal rights as heterosexual couples, at least in states that recognize their relationships. If you're a bit fuzzy on what exactly that means, don't worry: It's a lot for anybody to wrap their head around. The federal code includes an estimated 1,138 provisions that award "benefits, rights, and privileges" based on marriage status. 

And many of those rights come with a price tag. Think social-security benefits or tax breaks. In total, they can be worth thousands of dollars per year. Below, I've pulled out a few examples, just to provide a small, quantified taste of how the federal government has been financially discriminating against married gays and lesbians these last several years. 

Joint Tax Filing: Worth $2,325 Per YearYou often hear about the "marriage penalty" in the U.S. tax code. But many couples -- usually those where one spouse earns significantly more than the other -- end up saving cash by filing jointly, an opportunity that until now has been denied to gays and lesbians. M.V. Lee Badgett of UCLA's Williams Institute, a think tank that focuses on LGBT issues, estimated what that was costing them in a 2010 law-review article titled "The Economic Value of Marriage for Same-Sex Couples." She found that in Massachusetts, 66 percent of gay and lesbian couples would have saved an average of $2,325 on their IRS bill if allowed to file jointly. About 11 percent would see no change, and 23 percent would pay an average of $502 more. 

Social Security Survivor Benefits: Worth $5,528 Per YearGays and lesbians pay into Social Security just like the rest of us, but until now, they haven't enjoyed the same payoff. Most couples don't make the same salaries over their career, so when a married American retires, the Social Security Administration gives them two options: They can receive their own benefits, based on years of earnings, or receive one half of their spouse's monthly benefit -- whichever is higher. If the breadwinner of a couple dies, the surviving husband or wife is entitled to receive their spouse's more generous benefits instead of their own. 

Again, none of this has applied to gays and lesbians. In 2004, the Urban Institute and Human Rights Campaign calculated that the lack of survivor benefits cost elderly same-sex widows and widowers more than $5,528 a year on average. As the Center for American Progress showed in the chart below, for couples with wider-than-normal differences between their incomes, it could cost much, much more. 

Taxes on Health Benefits: Worth $1,069 Per YearThe federal government doesn't tax employee health benefits. Nor does it tax the benefits when workers enroll their families in company plans. But, well, you get the drill. Since gay and lesbian couples weren't technically married in the government's eyes, the Williams Institute's Badgett estimated in 2007 that "the average person receiving benefits for a domestic partner or same-sex spouse [was] taxed $1,069 in additional federal income and payroll taxes." 

Inheritance Taxes: Worth a Whole Lot
And here's the tax that started the whole DOMA challenge. Edith Windsor, the 83-year-old plaintiff who sued to overturn the law, brought her case after she was forced to pay $363,000 in estate taxes following the death of her partner. Opposite-sex couples, of course, didn't have to worry about estate taxes at all. When one dies, all of their assets can get handed over to the surviving spouse without Uncle Sam taking a cut. A similar dynamic applied to gift taxes.

So if nothing else, the end of DOMA means Americans won't have to pay the IRS a bonus because of who they love. About time, don't you think? 

DEAR GAY COUPLES: Here Are The 22 Big Ways Your Life Is About To Change

Josh Borrow for Today writes: With Section 3 of the defence of Marriage Act struck down by the Supreme Court, many same-sex married couples are about to have their marriages recognised by the federal government.

If you’re married to someone of the same sex and you live in one of the 13 states where gay marriage is or will soon be legal, the federal government will start treating you as married.

It’s not immediately clear how the ruling will affect same-sex couples married by one state but living in another that does not recognise gay marriage.

Federal recognition will mean a lot of new rights and responsibilities for gay married couples. 1,138 of them, in fact, according to a 2004 report from the General Accounting Office, updating this longer report from 1997.

Here are some of the specific changes that are coming for some gay marrieds. Some are important and some are merely interesting. They’re mostly positive, but not all of them are:

1. Income taxes. Gay married couples will start filing joint federal income tax returns. In general, this will mean higher taxes for couples where both partners have similar incomes and lower taxes for those where one spouse earns much more than the other.
2. Employer-provided health insurance. This is a tax free benefit when given to employees, their spouses, and their children. Under DOMA, same-sex couples had to pay income tax on spousal health benefits. Now, they won’t.
3. Estate taxes. You don’t have to pay them when you inherit from your spouse. That’s what Edith Windsor, the plaintiff in the DOMA case, was suing over: She had to pay an estate tax bill over $360,000 on an inheritance from her late wife because the federal government didn’t recognise her marriage.
4. Social Security retirement benefits. Social Security old-age benefits can be based, in part, on a current or former spouse’s income. Some retirees who are or have been gay married will now be eligible for higher benefits.
5. Supplemental Security Income. Your eligibility for this disability program depends in part on your spouse’s income. Some gays and lesbians who would have previously qualified now won’t if a spouse has substantial income.
6. Medicaid. This is a program run by states but partly funded by the federal government. Under federal law, states may consider a spouse’s income in determining eligibility, but not anyone else’s. Same-sex spouses will now count, which means some gays and lesbians will cease to qualify. This little noticed effect — gay marriage reduces the rate at which gays and lesbians become eligible for Medicaid and other public assistance programs — is the reason gay marriage has a small positive effect on state budgets.
7. Federal housing assistance programs. Being married also affects your eligibility for these.
8. NO effect on food stamps. Unusually among income support programs, the Supplemental Nutritional Assistance Program considers only “household” resources without regard to marriage, so there will be no effect on gays’ access.
9. Federal protections against discrimination. Gays and lesbians are still not federally protected against discrimination based on sexual orientation in employment or public accommodations. But they will enjoy various rights against discrimination based on their marital status. GAO: “For example, such discrimination is prohibited in executive agencies, and is unlawful for a creditor in private financial transactions.”
10. Benefits for spouses of federal employees. Before today’s decision, gay federal employees couldn’t get most spousal benefits. The biggest change here is in health insurance, but there are lots of other issues, from relocation allowances to who gets a deceased federal worker’s last paycheck. The extension of same-sex spousal benefits is especially important for military servicemembers, whose compensation is heavily weighted toward benefits (including housing allowances that depend on marital status) rather than salary.
11. Conflict of interest. Spouses of some federal workers are barred from accepting certain gifts. If you’re gay married to a postal worker and you were hoping to accept a gift worth over $250 from a foreign government, you’re out of luck.
12. Employee benefits for private workers. Many companies already gave benefits to same-sex spouses, but federal law still matters here. For example, COBRA continuation coverage for health insurance is available to employees and their spouses, but DOMA meant that same-sex spouses had no right to it. ERISA prohibits workers from waiving certain employee benefit rights without spousal approval.
13. Coal miners, railroad workers, and public safety officers. Spouses of people in these occupations have rights to special benefits under federal law.
14. labour relations. People who work for their spouses have no right to engage in collective bargaining under the National labour Relations Act. A gay man who hopes to organise a worker revolt against a spouse who is also his boss will now have to get to divorced first.
15. Veterans’ benefits. “Husbands or wives of veterans have many rights and privileges by virtue of the marital relationship,” notes the GAO. These include death benefits, health benefits, preferences in federal employment, burial in military cemeteries, and more. So, that’s good news for same-sex spouses of veterans. On the other hand, a spouse’s income is counted in determining veterans’ eligibility for certain need-based benefits, so veterans whose same-sex spouses have significant income may lose benefits they are now eligible for.
16. Immigration. This one is big. Marriage is an important factor for immigration eligibility: If you’re a foreigner with a work visa to come to the U.S., you can often bring your foreign spouse along, and if you marry an American, that usually makes you eligible to immigrate. Extending such rights to same-sex couples was a sticking point in negotiating a comprehensive immigration reform bill. Now, the federal government will recognise valid state marriages for immigration purposes and may also recognise foreign ones.
17. Threats against spouses. You’d better not threaten the gay spouse of a federal official anymore, since that’s now a federal crime. Per the GAO: “Attempting to influence a United States official through threats directed at a spouse is a federal crime, as are killing, or attempting to kill, foreign officials or their spouses, or threatening to kill certain persons protected by the Secret Service, such as major presidential candidates and their spouses.”
18. Federal education loans and grants. Your eligibility for these is determined in part based on your spouse’s income. Gay students whose spouses have significant income may lose benefits.
19. Farm subsidies. The amount of subsidies that can be received by one “person” is limited, and a married couple is defined as a person. So, some gay married farmers (perhaps in Iowa) could lose out on subsidies.
20. Native Americans. There are lots of federal laws pertaining specifically to the spouses of American Indians, including laws that govern non-Indian spouses’ rights to tribal property.
21. Using your land after your spouse sells it to the government. GAO: “When the government purchases land for national battlefields, monuments, seashores, or parks, the law commonly allows those from whom the land is purchased and their spouses to continue to use and occupy it during their lifetimes.”
22. Federal campaign matching funds. If you want to qualify for these, you and your close relatives must not spend more than $50,000 of personal assets on your campaign. Now, gays and lesbians won’t be able to use the loophole of having a same-sex spouse pay.

What Will Supreme Court Decision On DOMA Mean For The IRS?

Len Burman, for Forbes: I’m celebrating today’s Supreme Court ruling on the Defense of Marriage Act (DOMA) with my friends and relatives whose marriages are today, finally, accorded equal status to mine.

But I am a tax geek and couldn’t help but think about the consequences of a hundred thousand or so married couples who will now file joint returns rather than as singles or heads of household. My Tax Policy Center colleague Bob Williams has pointed out that while the tiny fraction of couples with wealth high enough to be affected by the estate will be unambiguously better off, the income tax is more of a mixed bag. Gay couples will now get to experience the joys and agonies of marriage bonuses and penalties.

But for about 75,000 married same-sex couples, the Supreme Court’s ruling could come with a very nice (though belated) wedding gift: Nearly $200 million in refunds.

As Bob and others have pointed out, today’s ruling means that many newly recognized couples will now be able to file amended returns to claim the marriage bonuses they might have enjoyed for the past three years were it not for DOMA. .

We can’t know exactly how many couples will benefit and by how much because there is currently no way to identify legally married same sex couples on individual income tax returns.

However, making some heroic assumptions, one can come up with a very rough ballpark estimate.

Josh Keller of the New York Times estimated that “At least 82,500 gay couples have married since Massachusetts became the first state to legalize gay marriage in 2004 [through 2012].” This total probably reflects some under-reporting. It also doesn’t include the second half of 2012 in New York and doesn’t include those legally married outside the United States like Edith Windsor, the woman who challenged DOMA.

Let’s assume that 100,000 additional couples would have legally filed as married in 2012 were it not for DOMA. A question is how many of them would have received marriage bonuses—i.e., paid lower taxes.

Let’s assume that half of the newly recognized couples receive bonuses, which means that roughly 50,000 couples might benefit from filing amended income tax returns for 2012, 2011, and/or 2010. If all 50,000 filed amended returns for an average of 1.5 years out of the three this would yield 75,000 amended returns.

The IRS is doubtless unenthusiastic about adding to their workload at a time when they are suffering the effects of the sequester and budget cuts, but this number is relatively small compared with the total number of amended returns (Form 1040X) that the IRS processes every year. The IRS projects 5.5 million amended income tax returns in 2013, so 75,000 additional returns would represent only a 1.4% increase. If some couples choose not to amend their returns, the IRS’s workload will be even more manageable.

To estimate total income tax refunds these new filers will claim, assume that the average bonus is $2,500, which is slightly less than the bonus a couple with $50,000 of income and one earner would pay in 2012 according to the Tax Policy Center’s nifty Marriage Bonus and Penalty Calculator. This would yield total refunds of $187 million. That sounds like a lot of money, but it amounts to rounding error compared with projected income tax receipts of $1.3 trillion.

Of course, this is just the tip of the iceberg. My cousin Andrew points out that he will no longer have to pay tax on his husband’s health insurance. The IRS allows a tax-exempt health insurance plan to cover federally recognized spouse and qualifying children, but not a same-sex partner. Andrew’s employer may choose to cover all or part of the cost of his husband’s coverage, but the employer’s contribution was until today considered taxable income. Now, Andrew’s family plan can cover his spouse Tom.

And the DOMA ruling will effect much more than taxes. The GAO estimated in 2004 that 1,138 federal statutory provisions treat married couples differently from singles. Social Security, for example, can provide very large marriage bonuses.

There’s a bigger question about how today’s ruling affect federal outlays and receipts. Bob talks about this a little about the tax consequences here. The short version is “it’s complicated.”

We will have more to say about this when we have actual data.

Meanwhile, back to the celebration already in progress.

DOMA's Demise Means Higher Taxes For Some Same-Sex Couples

Roberton Williams, Contributor for Forbes writes: Same-sex couples are cheering theSupreme Court’s striking down the Defense of Marriage Act (DOMA), but the tax consequences are more of a mixed bag. For many couples, federal recognition of same-sex marriages will mean lower tax bills, but some gay couples will end up paying more.

As I discussed here a few months back, DOMA’s mandate that the federal government not recognize same-sex marriages denied same-sex couples both the tax savings and higher tax bills that marriage can bring. Today’s Supreme Court decision reverses that, exposing gay couples to both marriage bonuses and penalties. Of course, that applies only to same-sex couples married in states that allow them to marry. (It’s unclear how the ruling affects same-sex couples married outside the United States.)

Estate taxes were the issue that motivated the DOMA case. Edith Windsor sued the federal government because her wife’s estate had to pay more than $363,000 in estate taxes. The estate would have paid nothing if the federal government recognized her marriage.

The estate tax provides only marriage bonuses. An estate may claim an unlimited spousal exemption for inherited assets—and thus pay no tax—while the total exemption for all other heirs is limited, currently to $5.25 million. And any unused part of that limited exemption carries over to the estate of the surviving spouse, thus guaranteeing that $10.5 million of the couple’s combined assets will go to heirs estate tax-free. DOMA’s demise can thus result in lower estate taxes for same-sex couples, although very few will be affected: less than 0.2 percent of decedents leave estates big enough to owe tax.

The outcome is not always so good regarding federal income taxes: many same-sex couples will find that federal recognition of their marriages means higher income tax bills. Legislation enacted in 2001 and 2003 protects most middle-income households from marriage penalties (and increased the size of marriage bonuses), but low- and high-income couples can incur substantial marriage penalties, most often when both spouses have similar incomes.

DOMA protected same-sex couples from that outcome by requiring them to file as individuals. In contrast, couples in which spouses have very different incomes will likely receive marriage bonuses—lower income tax bills than they would pay as individuals.

There’s even more good tax news for same-sex couples with marriage bonuses: they can file amended tax returns as married couples for the last three tax years and collect the marriage bonuses DOMA denied them.

There’s even a sliver of good news for same-sex couples incurring marriage penalties. They probably won’t have to amend their recent tax returns and pay the additional income tax they would owe if they had filed as married couples.