This article was fact-checked by our editors and Christina Taylor, MBA, senior manager of tax operations for Credit Karma Tax®.
It’s been several years since marriage equality became the law of the land.
Since then, the number of same-sex marriages has increased, most Americans support allowing same-sex couples to wed, and the majority of people of all sexual orientations say love is the top reason to get married. What’s more, legally married same-sex couples have access to the same federal income tax breaks and benefits that heterosexual couples have long enjoyed.
“In terms of federal income tax filing for same-sex and opposite-sex married couples, there are not that many differences anymore,” says Rosalind W. Sutch, a CPA and shareholder of Philadelphia-based Drucker & Scaccetti, an accounting firm that specializes in serving LGBTQ clients.
Still, taxes can be confusing. Some same-sex married couples still may have questions related to their filing statuses on federal and state returns, as well as deductions and credits that may benefit them. In fact, more than a quarter of same-sex spouses polled by Credit Karma Tax®, in a March 2018 survey of 155 respondents, say they are still moderately confused about selecting a filing status.
- The IRS was there first
- Complications can occur
- Clearing up filing status
- State status questions
- Medical expense deduction
- Adoption credit
- General tax tips for LGBTQ couples
The IRS was there first
While the landmark Supreme Court case that legalized same-sex marriage was decided on June 26, 2015, the IRS actually started recognizing the marriages of lesbian and gay couples two years earlier.
On Aug. 29, 2013, the IRS and U.S. Department of the Treasury issued a statement in response to an earlier Supreme Court ruling — United States v. Windsor. As a result, the IRS ruled that same-sex couples who were legally married under state law were to be treated as married for all federal tax purposes.
That means that since the 2013 tax year, legally married same-sex couples have been able to take advantage of any qualifying marriage-related federal income tax breaks, like a higher standard deduction and lower tax brackets. However, if a legally married same-sex couple lived in a state that did not recognize same-sex marriages, they might have been required to file separate state returns, even though they could file as married on their federal return.
Today, all states must recognize same-sex marriages and allow legally married same-sex couples to file their returns jointly.
Complications can occur
However, marriage equality and access to the tax advantages of marriage don’t mean that all LGBTQ couples will have an easy time filing their state and federal income taxes.
“Everyone’s situation is different,” Sutch says, “whether they’re a same-sex married couple, opposite-sex spouses or an unmarried cohabiting couple.”
Certain realities of an LGBTQ experience could complicate taxes for some couples. What’s more, some same-sex couples may choose not to marry.
“Some don’t wish to marry given how the right was withheld from them for so long,” Sutch notes. “Some feel they don’t need it now; they’re happy where they are in their lives and relationships.”
Sutch explains that other couples may put off marriage to avoid any marriage penalty they may face on their federal income taxes — such as a couple in which partners earn similar incomes, potentially putting them into a higher tax bracket if they file were to marry and file jointly.
“If they live in a state that has civil unions or domestic partnerships, in most instances they have some of the same rights as a married couple, yet they can avoid the federal tax impact of marriage,” she says.
If you’re part of a same-sex couple newly navigating filing a tax return as legally married, here are some tax tips for LGBTQ couples that may help.
Clearing up filing status
Prior to marriage equality, choosing a filing status could have been problematic for LGBTQ married couples.
If they were legally married and living in a state that recognized same-sex marriages prior to 2013, they might have been able to file a joint state return but had to file separate federal returns. After the IRS ruling in 2013 recognizing all legal same-sex marriages, a couple who had legally married in one state but lived in another that didn’t recognize their marriage might have been able to file a joint federal return and two separate state returns.
In fact, the March 2018 Credit Karma Tax® survey found that the majority of same-sex couples who exchanged vows before marriage equality filed their state and federal income taxes as single or head of household. For 2017, just under 6.5% say they’ll still file as single or head of household, while the majority will use married filing jointly (80%) or married filing separately (13.6%), according to the survey.
Today, choosing a filing status for federal income tax is straightforward for legally married same-sex couples. Just like different-sex married couples, they can choose a status of either married filing jointly or married filing separately.
That’s because the IRS recognizes same-sex marriages as long as they were validly entered into “in a domestic or foreign jurisdiction whose laws authorize the marriage of two individuals of the same sex.” And since the 2015 Supreme Court ruling, all same-sex marriages within the U.S. are valid.
State status questions
Filing status still can be confusing on state income tax returns for same-sex couples who had a domestic partnership or civil union that pre-dates marriage equality. More than 57% of survey respondents say they were in such a union with their current spouse before they legally married.
“You can’t file as married — either jointly or separately — on your federal return unless you’re actually married,” Sutch says.
That means that same-sex couples in a civil union or domestic partnership, who are not legally married, can’t file their federal return using a status of married filing jointly or married filing separately.
“However, some same-sex couples in a civil union or domestic partnership may live in a state that allows people in those types of arrangements to file a joint return,” she says.
For example, New Jersey, which recognizes civil unions, generally advises taxpayers to use the same filing status on their state return that they do on their federal one. But partners in a civil union, who are not legally married and so can’t file their federal return as married, can’t file their state return as single — due to their civil union status — even if they did so on their federal return.
“Legally marrying solves this issue,” Sutch says. “Even if they don’t dissolve the civil union or domestic partnership. However, I would recommend couples dissolve that legally recognized relationship if they choose to marry, since doing so later if they want to divorce will be a hassle in addition to the divorce itself.”
Medical expense deduction
The medical expense deduction is technically available to all filers who have qualifying unreimbursed medical expenses that exceed 7.5% of their adjusted gross income. However, claiming the deduction can be nuanced for LGBTQ filers, Sutch notes.
A 2010 U.S. Tax Court ruling determined that sex-reassignment surgery and other treatments for gender identity disorder could be tax-deductible medical expenses. Yet LGBTQ couples may encounter complexities in claiming the deduction. And just 18% of survey respondents say they plan to take a medical expense deduction, including folks who plan on using the deduction for gender reassignment surgery or therapies (almost 2% of respondents).
“I advise my LGBTQ clients who are going through gender transition to get a written diagnosis of gender dysphoria from their healthcare provider, even if they are offended by the term,” Sutch says. “A doctor’s support that the treatment or surgery is medically necessary, and why it’s necessary, could help if the IRS challenges a medical expense deduction.”
Medical expenses related to becoming a parent may also present complications. Same-sex couples trying to conceive a child have many options for doing so, but only some of them will be tax deductible and only in certain situations.
For example, in-vitro fertilization treatments could be considered tax deductible if they’re medically necessary. In order to take a medical expense deduction, the qualified expense must be for yourself, a spouse or a dependent. Under this criteria, a married lesbian couple who undergoes IVF so that one of them can conceive might be able to take a medical expense deduction for qualified costs related to the treatment.
However, a married male couple probably would not be able to deduct costs associated with surrogacy, even if the surrogate is carrying the biological child of one partner, because the surrogate is not their dependent, Sutch says. Nor is the child a dependent until it’s born.
Credit Karma Tax™, a free online tax-filing service, can help filers claim deductions and credits they may be eligible for, including a medical expense deduction.
Same-sex couples are four times more likely to adopt than different-sex couples, according to the University of California School of Law’s Williams Institute. Nearly a quarter of those polled in the March 2018 Credit Karma Tax® survey say they have one or more children who are not biologically related to either spouse.
That means that the adoption tax credit can be particularly important for same-sex parents who want to adopt. Yet 60% of survey respondents say they’re unaware of the adoption tax credit and how it works.
Generally, the nonrefundable adoption credit allows taxpayers to deduct up to $13,570 per child for qualifying adoption-related expenses. Adoption and attorney fees, court costs, travel expenses and other costs directly related to adoption may be tax deductible.
The credit is reduced for taxpayers whose modified adjusted gross income, or MAGI, is between $203,540 and $243,540 and is unavailable to those with a MAGI of more than $243,540. The median annual household income of same-sex couples with children younger than 18 was $63,900 in 2013 (compared to $74,000 for different-sex couples), so many same-sex couples interested in adoption could potentially qualify for the credit.
However, in cases in which a spouse adopts the child of his or her same-sex spouse, the couple can’t claim the adoption credit. This limitation also applies to different-sex couples.
But there’s an alternative. The tax code does allow an adoption credit to registered domestic partners who live in a state that permits same-sex second parent or coparent adoption of a partner’s child.
“If a same-sex couple is not yet married, and they plan to have one spouse adopt the child of the other spouse, they may consider doing the adoption before they get married if they want to claim the adoption credit,” Sutch says.
General tax tips for LGBTQ couples
Sutch offers some additional advice, both for LGBTQ couples who are newly married or planning to marry, and for older, established couples considering marriage.
- Newlyweds or soon-to-be-weds, should be sure to register any name change with the Social Security administration, and use that name when they file their federal income tax return after marriage. The name you use on your federal return must match the name the SSA has registered to your Social Security number. A mismatch could delay any tax refund you’re owed.
- If you’re unmarried, don’t automatically assume the higher earner should take all the deductions or credits you might be eligible for. Evaluate the tax benefits of each partner taking those deductions to see who could get the greater value from them.
- If you must file separate returns — whether you’re married filing separately or not eligible to file as married — having a single preparer do both returns can help ensure you’re not missing anything important.
- If you’ve been together awhile, own businesses or have complex financial situations, consider consulting a tax professional to get an idea of how marriage will affect your taxes.
Marriage significantly affects a couple’s financial life — from taxes to health benefits and retirement savings — whether they’re a same-sex couple or different sexes. Many of those effects can be positive, but some couples in certain situations might also experience negative effects.
Before marrying, same-sex couples should consider how this significant, hard-won life change will affect their finances, and make sure to plan ahead to maximize the tax benefits of marriage while mitigating any negative effects.
Christina Taylor is senior manager of tax operations for Credit Karma Tax®. She has more than a dozen years of experience in tax, accounting and business operations. Christina founded her own accounting consultancy and managed it for more than six years. She co-developed an online DIY tax-preparation product, serving as chief operating officer for seven years. She is the current treasurer of the National Association of Computerized Tax Processors and holds a bachelor’s in business administration/accounting from Baker College and an MBA from Meredith College. You can find her on LinkedIn.