By Rich Streitfeld, CPA
Wow! I am still celebrating the demise of the federal “Defense of Marriage Act”. This wonderful news puts married same-sex couples on the same playing field as heterosexual couples when it comes to federal benefits, at least if you are ”in the right state”*. For most situations, this is great – you can file your taxes jointly, your partner reaps Social Security survivor benefits upon your death, and you can automatically sponsor your partner for a green card.
Yet there are hidden complexities and, yes, even disadvantages, to being married when it comes to some tax and financial matters. Maybe not enough to keep you from tying (or untying!) the knot, but these are worth your being aware of. Take health insurance. If you are “in the right state”* then here is:
The Great news: If you have been fortunate enough to receive employer-paid health insurance benefits for your spouse, you will no longer pay income taxes on this benefit (didn’t you hate that?). And if you were paying for your partner as an employee, you may now use any “tax advantaged” programs the employer offers.
The Bad News: Under DOMA, the federal government looked at each person in a same-sex marriage autonomously. Now the two of you comprise a household and an individual who used to qualify for Medicaid on an individual basis might no longer, if the total “household income” is too high. This can be especially significant if your partner has dependents receiving Medicaid benefits. In a similar vein, one or both of you may have qualified for the “premium tax credits” that will be available thru “Obamacare” starting October 1, 2013. If married, you may both lose out should your combined income exceed the household income threshold, which is related to federal poverty guidelines. Then Again:
The Good News: Depending on their respective incomes, a couple might qualify for the tax credits as a couple, thus covering both of them, whereas only the lower wage earner may have qualified if they were single. But:
The Bad News: Even if you meet the income criteria for the tax credits, either or both of you may be deemed ineligible if your employer offers health insurance on an individual or family basis (even if no contribution is made!)
Such is the complicated state of health care for all families in America in 2013! The DOMA ruling itself is fresh and federal and state agencies will be clarifying procedures over the coming months. Stay tuned.
* It is expected that the IRS will treat you as married based on your residence -- if the state you live in recognizes same-sex marriage then you are considered married for federal purposes. However, experts have pointed out that the IRS recognizes common-law marriage for federal taxes no matter where a couple lives as long as their marriage was valid where entered, and INS has also used these criteria for immigration benefits (“place of celebration”—love that term). Again, stay tuned!
NOTE: Every situation is different and federal and state tax laws are subject to change. This article is presented for informational purposes only and is not intended to substitute for obtaining tax or financial advice from a tax or other business professional.