DOMA: The Cost of Being Gay and Married

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Published June 26, 2013

| Bankrate.com

More than 130,000 same-sex married couples would see many financial disadvantages evaporate if the Supreme Court strikes down the Defense of Marriage Act, or DOMA, this week.

That includes Ron Haislip-Hansberry, who as a stay-at-home parent, was unable to contribute to a Roth individual retirement account because his same-sex marriage isn't recognized by the federal government. It also includes Jude Higdon-Topaz, who paid taxes on health premiums his employer covered for his husband, Chad Higdon-Topaz.

DOMA, which defines marriage as between a man and woman, disqualifies gay couples from tax and Medicare incentives currently offered to straight couples. They also are unable to claim certain Social Security benefits and face certain restrictions with Roth IRAs.

"Unequal," Ron Haislip-Hansberry says. "(We're) unfairly treated."

For the six years Ron Haislip-Hansberry stayed home to care full time for his three small children, his husband, Phillip Haislip-Hansberry, wasn't legally allowed to contribute to a Roth IRA on Ron's behalf. This financial incentive offered to nonworking spouses in straight marriages allows up to $5,000 a year to be placed in an account.

"I had to get a job to earn the minimal requirement to contribute (to my Roth IRA)," says Ron Haislip-Hansberry, who now sells books, baby products and toys online.

The retirement disadvantage

That's not the only difficulty same-sex couples face with retirement planning. Ron Haislip-Hansberry also can't depend on certain Social Security benefits if Phillip Haislip-Hansberry dies before him. The pair could likewise end up paying more in Medicare premiums than a straight married couple because of DOMA's restrictions.

"I don't know if enough same-sex couples are aware of the disparity and how it will affect their retirement," says Ineke Mushovic, executive director of the Movement Advancement Project, a think tank that focuses on advancing gay rights.

The lack of Social Security payments can be costly for gay spouses when their partner dies. For a gay couple earning $100,000 a year, that could be as much as $25,000 a year that the surviving spouse is unable to collect. They also aren't eligible to receive a spouse's retirement benefits.

Social Security benefits

  Heterosexual married couple Same-sex married couple Difference
Yearly benefits $25,344 $0 $25,344

This illustrates the difference in Social Security benefits same-sex married couples would receive if one spouse doesn't work and the other makes $100,000.

Source: SocialSecurity.gov.

"All workers are required to pay into Social Security. It's not a choice," Mushovic says. "But same-sex workers and their families don't receive the full benefits."

Medicare premiums also can cost same-sex married couples in two ways. First, married straight spouses can delay enrolling in Medicare if they are on their spouse's employer health insurance, which can sometimes be a cheaper option. Same-sex spouses cannot.

Second, Medicare premiums are determined by income as it appears on federal tax returns. Depending on the how the income is split up, joint filers could pay less on premium costs. Same-sex married couples are unable to qualify because they can't legally file their federal taxes jointly.

Medicare premiums

  Heterosexual married couple Same-sex married couple Difference
Yearly premiums paid to Medicare $2,518 $3,022 $504

This illustrates the difference paid by same-sex married couples for Medicare premiums if one spouse doesn't work and the other makes $100,000.

Source: Medicare.gov

For instance, a same-sex married couple with one working spouse making $100,000 a year will pay $504 more in yearly Medicare premiums than a straight married couple, according to calculations based on Medicare's Part B premiums. The disparity widens if the working spouse's income increases. If the working gay spouse makes $170,000 a year, the same-sex couple ends up paying around $2,013 more than a straight married couple.

The tax gap

The financial frustrations for same-sex married couples can begin well before retirement -- with taxes. In analyzing recent tax data from HandR Block, Bankrate found that a married gay couple earning $100,000 annually can pay as much as $7,727 more each year in federal taxes versus a married straight couple, depending on each person's income.

Federal tax liability

  Heterosexual married couple Same-sex married couple Difference
Tax liability per year $11,858 $19,585 $7,727

This illustrates the difference paid by same-sex married couples in federal taxes if one spouse doesn't work and the other makes $100,000.

Source: The Tax Institute at HandR Block.

The financial disparities vary in degree based on income, how it's split between the spouses and the number of deductions. There are some instances where federal tax law benefits gay married couples who file returns separately versus their heterosexual counterparts who file jointly and experience the so-called marriage penalty.

But more often, marriage provides a tax benefit, says Jackie Perlman, principal tax research analyst with The Tax Institute at HandR Block.

"Joint filing status is generally considered the best filing status," she says. "Higher earning partners' income will be shifted into a lower tax bracket."

Generally, the advantage of filing jointly becomes greater as the difference in the two incomes widens, she notes. That means couples with a nonworking spouse benefit the most from joint filing.

In the Haislip-Hansberry household, they file jointly for their state taxes but must file separately for the federal government. Ron Haislip-Hansberry believes their tax liability would be less if they could file their federal tax returns jointly as well.

The Higdon-Topaz family would just welcome the chance to see if filing jointly would help their federal tax liability. A Minnesota couple raising a 4-year-old daughter, they play what Jude Higdon-Topaz calls "structural game theory" every year with their taxes with the help of an accountant.

When they lived in Los Angeles, they had to take into account that the federal government taxed Chad Higdon-Topaz's health insurance premiums since they were covered by Jude Higdon-Topaz's employer. In other years, when their incomes were off by just thousands, the issue was who gets which deduction.

"A big question for us every year is who claims our daughter as a dependent? Who claims our house?" says Jude Higdon-Topaz.

The couple are elated that Minnesota will join the 11 other states and the District of Columbia that recognize same-sex marriage. Not only can they consider filing their state taxes jointly next year, it will allow Chad to join Jude Higdon-Topaz's state-sponsored health insurance, saving them $300 each month. Chad will also be entitled to Jude's pension if Jude predeceases him. The state law takes effect Aug. 1.

"Hopefully, I don't kick the bucket before then," Jude Higdon-Topaz says.

Jude Higdon-Topaz hopes a broad invalidation of DOMA by the Supreme Court leads to national recognition of same-sex marriages. That would have even further-reaching changes for the personal finances of gay married couples, including more options for filing state taxes, a spouse's accessibility to state-sponsored health insurance and pensions, and an expansion of homeownership rights.

"I want (the overturning of DOMA) to happen, especially for my gay brothers and sisters who live in places where you don't see an aggressive movement on gay rights," Jude Higdon-Topaz says. "I'm annoyed that the court is taking so darn long to figure it out."

Copyright 2013, Bankrate Inc.

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