When I opened today's issue of San Francisco's Bay Area Reporter, my attention was drawn to this article.
I should say before I go any further that I am not an expert on taxes, though I MAY be an expert on being gay. What I'll be giving you is going to be somewhat impressionistic and may in fact be different from what others take away from this piece of news.
It seems the IRS has determined that LGBT couples who live in community property states and are either in legal marriages or state-recognized domestic partnerships will be required to divide their income equally when filing their 2010 income taxes.
At first blush this seems like a good thing. The immediate response might be, "well this is good; the IRS is going to recognize my relationship with my spouse/husband/wife/significant other/d.p." On that level this is indeed nice to hear. I do see some issues on the horizon though, some of them raised in the linked article, others not even remotely touched upon.
The first and most obvious thing, which IS addressed in the article, is that it makes tax preparation more complicated and may result in couples so situated having to spend more to get their taxes filed. In addition, it appears that those couples won't be able to file their federal returns electronically, which means it will take longer for them to receive any refunds they might otherwise qualify for. As it is, anyone who itemizes their deductions must wait to file until a revised Schedule A has been published.
Here's where it gets tricky:
Last May the IRS issued a memorandum stating it would recognize the community property earned by domestic partners in California the same way as it does for heterosexual married couples who file separate federal tax returns. Up until early October the IRS said the new policy would be optional for the 2010 tax filings.
But then the federal agency reportedly switched course, and according to LGBT advocates, it will now be required for the 2010 tax returns due by April 18. (The usual April 15 deadline is being extended this year because of a holiday in Washington, D.C.)
Most people establish their withholding based on what they think they're going to have to pay in taxes when they file. This could pose a problem for members of affected couples where there is a significant disparity in income. The person making less money will have had less of that income taken out for federal taxes than they will now owe. Typically there is a penalty for significant under-withholding of taxes. So the person with less income is likely to be the one hit with the penalty.
The bigger issues arise when the impact of DOMA is looked at. While the individuals in the couple can treat their income as joint income, they still will not be permitted to file jointly as a heterosexual couple would. Thus there is still disparate treatment.
Secondly those fortunate to on their partner's health plan will have to show the cost of the coverage as income. Heterosexual couples don't have to do this.
The article speaks to tax savings for some couples but to me it seems as though, again in couples where there is disparity of income, the individual with a larger income will benefit (his or her income now goes down) while the individual with less income will be hurt because he or she will be paying tax on income that he or she did not, in fact, earn.
All of this comes without the countervailing advantages that heterosexually-married couples receive.
There seems to be a great deal that could go wrong here. On one hand, since the relationships of same-sex couples are acknowledged in one respect but not in others, this might provide more ammunition in the legal fight against DOMA. On the other hand I can well foresee some right-wing entity suing the IRS precisely for VIOLATING DOMA by recognizing, at the federal level, a same-sex relationship that is legally valid at the state level.
All in all it seems as though at the very least this opens up some major cans of worms. Perhaps I'm making something out of nothing but I felt that the issues should be raised. I wouldn't be surprised if some were to suggest that the federal government doesn't want to recognize same-sex relationships when it comes to rights and benefits, but does want to do so when it comes to taxes (the disparate treatment of health insurance is of course an obvious example but the new rule seems to highlight this even further).
For the record, my partner (TrapperSF) and I have been together for nine years but we aren't married and are not in a California domestic partnership so this doesn't actually affect us. At least so far.