We Would Love to have to Pay the Marriage Penalty

Gay couples face higher tax bills
Gay couples face higher taxes, denied marriage deduction

Couples can file jointly in states where civil unions recognized

But federal taxes must be file separately, doubling paperwork

MOUNT LAUREL, New Jersey (AP) -- For gay couples, the April 15 tax filing deadline can be a reminder of the disparities they face, even in a nation that is becoming more accepting of same-sex couples.

Gay couples often pay higher taxes because they don't get the federal tax benefits that go with marriage. And for couples in state-sanctioned domestic partnerships, civil unions or same-sex marriages, filing federal income taxes can involve doing three sets of paperwork instead of one.

"It's a significant financial disability," said Beth Asaro, who last year entered into one of New Jersey's first legally recognized civil unions.

While the debate over government recognition of gay marriage is a political hot-button with arguments about morality, civil rights and tradition, the tax issue is a mostly practical one for hundreds of thousands of same-sex couples.

Most states ban gay marriage and don't recognize same-sex unions in any way. Only in Massachusetts can gay couples legally marry. Since 1997, nine other states and Washington D.C. started offering civil unions or domestic partnerships that give some or all the legal protections of marriage.

Those protections include allowing gay couples to file state taxes jointly -- and potentially save them money. But they can also make tax filing more complicated for the couples.

That's because the state protections do not help with federal taxes. Under the 1996 Defense of Marriage Act, the government defines marriage as being allowed only between a man and a woman.

"You're running one household," said John Traier, a partner in the Butler, New Jersey, accounting firm Hammond & Traier. "But the federal government and a lot of states treat them as two households."

The same is true for straight unmarried straight couples who are living together.

There are two main effects of the different treatment under federal law.

One is the tax rate. Take two couples where one partner has a taxable income of $20,000 and the other makes $40,000. If they can file their federal taxes jointly, the tax bill would be $8,217.50. Filing separately, the combined bill would be $9,032.50 -- more than $800 higher.

Another disparity comes with the federal government's treatment of employer-provided health insurance, which also affects unmarried heterosexual couples.

For example, Dan Jessup is a project manager at JPMorgan Chase in Indiana. His partner, Bob Chenoweth, is self-employed, running two businesses out of the couple's Mooresville, Indiana, home. So Chenoweth gets health insurance through Chase.

But Jessup is required to count the company's cost of his partner's benefits as additional income for tax purposes.

State and federal taxes on those benefits cost about $1,800 per year, Jessup said.

"I certainly think about it every payday," when the extra withholding is taken from his paycheck, he said. "If you think about 10 years, $18,000 is a lot of money. That could buy me a pretty nice car."

The tax on benefits for domestic partners also applies to employers. Companies including Chase are endorsing the Human Rights Campaign's push for a bill that would end the tax on health plan benefits for people who are neither the spouse nor legal dependent of the employee. Versions of the bill have been introduced in Congress in the last three sessions, but have never moved out of committee.

A government analysis estimated the bill would cost about $10 billion in lost federal tax revenue over 10 years. Advocates for the bill say it would create savings elsewhere, including reducing the Medicaid rolls.

Ryan Ellis, the tax policy director for Americans for Tax Reform, said his group supports the concept, but not the specific language of the bill, because it does not propose increasing how much domestic partners could put into health savings accounts.

It's not just the higher bills that can be frustrating for same-sex taxpayers; it's also the process of filing taxes, particularly in states that offer some joint benefits to gay couples.

"I don't want to say it's chaotic, but it's very difficult for a lot of reasons," said Traier, the accountant who is in a civil union partnership himself.

In New Jersey and the other states where same-sex unions are formally recognized, couples can file their state taxes jointly, but they must file their federal tax returns as individuals.

That means doing income calculations twice. Many tax programs such as Intuit's TurboTax are set up to deal with that extra math.

But there are other issues where even up-to-date software might not solve.

These issues also affect unmarried straight couples.

For instance, couples with children must decide which partner gets to claim them as dependents for tax purposes on federal returns and returns in states that don't recognize same-sex unions. Similarly, couples who own homes together have to sort out how much of the mortgage interest payments each partner gets to use as a deduction, said Lara Schwartz, the Human Rights Campaign legal director.

"If you are not a different sex," from your partner, Schwartz said, "you are strangers, basically, under federal law."

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