For all those same-sex newlyweds in New York, Lawrence S. Jacobs has a message: Enjoy the Champagne and the honeymoon, but expect no gifts from the IRS. Jacobs, a lawyer in Washington, specializes in estate planning for same-sex couples — and in delivering the bad news that their unions aren’t legal in the eyes of the IRS, a policy that will cost them time and money during tax season.
Same-sex couples in Washington, which last year legalized gay marriage, must fill out a federal return to make calculations required for their D.C. joint return. But then they must set that work aside and fill out separate federal returns because the IRS doesn’t regard their union as legal, Jacobs says. “You just spent decades getting your marriage recognized, and now the feds say, ‘No, you’re not,’” says Jacobs, who as a partner in a same-sex marriage has firsthand experience of the problem.
This cumbersome process applies to all married same-sex couples in the U.S. It comes courtesy of the Defense of Marriage Act, or DOMA, which defines marriage as “a legal union between a man and a woman as husband and wife.” The Obama Administration, saying DOMA is unconstitutional, has instructed federal agencies to do what they can under existing law to extend benefits to same-sex partnerships. Such rule-stretching doesn’t go far with the IRS, says Brian Moulton, an attorney with the Human Rights Campaign, a Washington gay rights advocacy group. “There’s a relatively small space before you bump up against DOMA,” he says. “I don’t think there’s much they can do.” The IRS declined to comment.
Filling out a “dummy” federal return can add $300 to $400 to a same-sex married couple’s tax preparation bill, according to Larry Rubin, a partner at accounting firm Aronson in Rockville, Md. As a result of DOMA, gay couples must also pay income tax on a portion of employer-provided health insurance, which isn’t taxable for heterosexual married couples.
The costliest potential consequence of the IRS’s treatment of same-sex couples involves the estate tax. A heterosexual husband or wife generally can inherit any amount of money or property from his or her spouse without paying tax. A same-sex spouse inheriting a large estate, by contrast, can face a tax bill of as much as 35 percent on anything above $5 million. That situation spurred a New York widow, Edith Windsor, to sue the government last November seeking to get the IRS to return $363,000 in taxes on an inheritance from her spouse, Thea Spyer. Windsor is working with Senator Kirsten Gillibrand (D-N.Y.) and other lawmakers to repeal DOMA. “It’s a matter of fundamental fairness,” says Rose Saxe, an attorney with the American Civil Liberties Union, which is helping represent Windsor. “The government shouldn’t be excluding one group of married couples from these important protections.”
The bottom line: Even where they can marry, gays face disadvantages such as higher estate taxes and tax-prep fees $300-$400 more than straight couples.