With the fall of DOMA has come a rush of same-sex couples (SSCs) converting their partnerships into marriages. It is an emotional time, especially for those who have waited for over thirty years to make that change. I have been to three weddings since the fall of DOMA and have five more between now and the first week of September. Put simply, it is inspiring and I am proud of these couples. Despite the pride and emotion we are all feeling, though, I urge all couples to proceed with caution. The right to marry, and to be recognized as a spouse, comes with changes that are worth consideration.
The media has been quick to discuss a few of the enormous benefits of marriage, particularly in the context of health, retirement and Social Security benefits. There has even been the occasional reference to the presumed right to file as married filing jointly (MFJ) in 2013. However, there are still questions on how, and to whom, these changes will be applied.
Despite the IRS’ immediate promise to “move swiftly,” they have not yet issued any statements about how they will implement the Supreme Court decision. We can be confident that the IRS will allow SSCs to file jointly if they have a valid marriage license by the end of 2013. The question then is what will be considered a valid marriage license. The answer hinges on whether the IRS will use the state of domicile or the state of marriage in determining who has a valid marriage license. While we wait for the IRS to make an official statement, the more pressing question for many is whether or not to get married at all, and if so, when. Emotion and celebration aside, the tax implications of marrying in 2013 are significant.
The ability to file MFJ will not be beneficial across the board. Some couples will realize a benefit in their total income tax and others will not. Generally, if there is only one earner, MFJ status will be financially beneficial. Others will experience what is known as the “marriage penalty” and end up with a higher tax bill when filing MFJ. This usually occurs when each spouse is an earner and the combining of income pushes the couple into a higher tax bracket.
The combining of incomes may also push many couples to an adjusted gross income (AGI) level that excludes them from tax deductions and credits that they have been able to claim in the past. For example, in 2012, many single taxpayers were eligible for the Child Tax Credit as long as their AGI was below $75,000, the beginning phase-out amount for a single taxpayer. If in an RDP couple each partner had a child and each partner had an AGI of $60,000, it’s possible that they could each claim the credit. The 2012 AGI phase-out for married taxpayers began at $110,000. In this example, if the couple was married, their AGI would be $120,000 and they would only be eligible for a reduced credit or, in some cases, none at all. Eligibility for many deductions and credits are determined by AGI and, unfortunately, the MFJ phase-out amounts are not equal to double the single amounts.
It is important to remember, too, that some of the discriminatory tax laws actually benefit unmarried couples. Perhaps the most significant is the adoption credit. My earlier post, The Adoption Tax Credit – One Good Thing the Defense of Marriage Act did for Registered Domestic Partners, goes into the details of why registered domestic partners benefit from the adoption credit in a way that spouses do not. If you are planning on adopting a child, and are not yet married, you may want to consider completing the adoption in 2013. If the potential tax benefit of the adoption credit exceeds the combined benefit from other changes, it may behoove you to adopt in 2013 and marry in 2014.
No matter when you decide to tie the knot, it is important to be prepared. A quick review of your tax situation can give you the information you need to be ready for the changes to come. A small amount of planning can go a long way.
