Same-sex married couples can save with tax ruling

By Tobie StangerConsumer Reports

The IRS's announcement today that it would treat same-sex marriages equally in all states creates federal tax parity for married couples, regardless of where they live or were legally married. If you or someone you care about is in a same-sex marriage, note that the changes will often—but not always—save on federal taxes. If you're considered legally married in any state or country, the IRS now considers your marriage legal for all federal tax purposes, regardless of whether the state where you live recognizes your marriage.

But the ruling does not affect civil unions, domestic partnerships, or "similar formal relationships recognized under state law," the IRS said. The ruling follows the Supreme Court's decision in June to strike down a section of the 1996 Defense of Marriage Act.

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You now will have to file your federal tax return either jointly or as a married couple filing separately. Married filing jointly usually saves you money over married filing separate returns. If you earn much more than your spouse, for example, filing jointly can lower your overall tax rate, reducing the tax you pay as a couple.

The IRS also is offering same-sex married couples the option, but not the requirement, to file amended returns for the last three tax years.

Initially, you may have to spend to save, says Elisha Wiesenberg, a certified public accountant in Studio City, Calif. You’ll need to prepare amended joint returns, and compare them with previously filed returns. You can file the amended return, IRS Form 1040X, as far back as 2010, though the IRS said today that in some special circumstances, the statute of limitations could stretch back to 2009 or earlier.

If you and your spouse filed extensions for 2012, file those returns, with amendments, by Oct. 15.

In some cases you actually may save by leaving prior-year returns alone. That’s because you’ll avoid the so-called “marriage penalty” that subjects couples to higher tax brackets at lower income thresholds than it does for singles.

Until now, if you covered your spouse under employer-sponsored group health insurance, you paid tax on his or her coverage while married workers did not. Now, you won’t pay that tax. And you should be able to take advantage of employee benefits such as flexible-spending accounts to cover the health costs of your spouse and dependent children.

To get back the tax you paid, give your preparer prior year W-2s and Form 1099s; you may need to ask your employer for additional information. Update beneficiaries, especially to preserve your spouse’s rights as a survivor. (Your employer may need to update its plan documents before those rights can fully kick in.)

The IRS allows unlimited gifts to spouses but taxes gifts above $14,000 a year to others. Now, you can give any amount to each other with no federal tax implications. You can also double your tax-free gifts to others. For example, each spouse can give $14,000 to a grandchild, for a total of $28,000 a recipient this year.

The IRS ruling also creates parity in bequests, estates, and inheritances. You now can pass all property to each other with no federal tax consequences. Those not considered legally married could pay an estate tax of up to 40 percent on inheritances.

To file for refunds of estate and gift taxes paid in prior years—typically back to 2010—use IRS Form 843, Claim for Refund and Request for Abatement.

Tobie Stanger

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