Wills, Trusts & Estates Prof Blog

Editor: Gerry W. Beyer
Texas Tech Univ. School of Law

Monday, February 28, 2011

Same-Sex Couples Receive a Tax Break in 2010 in Three States

Gay marriage Same-sex couples in California, Nevada, and Washington could save money on their federal income taxes this year due to unusual interactions between federal and state laws. These three states recognize domestic partnerships and apply community property laws to registered domestic partners. The IRS, which must follow state property laws, has determined that these couples should calculate their total community income and divide it down the middle. However, DOMA prevents the IRS from treating these same-sex couples as married joint filers. Thus, each partner claims half the community income while filing as the head of household. Chris Kollaja, a CPA in San Francisco, provided the Wall Street Journal with an example of how this results in an unintended benefit for same-sex couples:

David and Richard are registered partners in California who own a house together. In 2010 David earned $225,000 and Richard earned $20,000. Under the new IRS rules, they will merge their income and deductions, then divide them by half and file separate returns. Their total federal tax will be $40,744. If they filed a joint federal return, they would owe $3,144 more.

If David and Richard were two single filers but not registered partners in California, they would owe total taxes of $47,572, or $6,828 more. That is closer to what they would owe in states that recognize same-sex marriage or domestic partnerships but don't have community-property rules. In those states each partner files a separate federal return, claiming only his own earnings.

Laura Saunders, Same-Sex Couples and the Marriage Penalty, W.S.J., Feb. 19, 2011.

Special thanks to Jim Hillhouse (WealthCounsel) for bringing this to my attention.


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