How the DOMA Ruling Will Affect Gay Couples’ Finances

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Yesterday’s historic Supreme Court rulings will have a ripple effect on the lives and futures of gay couples, especially when it comes to their personal finances. The Court’s decision on the Defense of Marriage Act means that people who marry and live in states with legalized same-sex marriage will have that union recognized by the federal government — including the Social Security Administration, Internal Revenue Service, and so on. Financial planners who work with same-sex couples say these are the biggest ways the Court’s decisions will affect them if they marry. 

Social Security benefits: When one spouse dies, the survivor has the option of claiming either his or her own Social Security benefits or those of his or her spouse, whichever is higher. “That’s really important because you often have couples with a high-earning spouse and a low-earning spouse,” said Dana Levit, principal at Paragon Financial Advisors. It’s especially good news for gay stay-at-home parents who left the workforce to raise their kids.

In a similar vein, a gay person now should be able to collect a spouse’s federal or military pension after the spouse dies, says J.T. Hatfield Charles, an independent financial planner with Raymond James.

Estate taxes: Millionaire, billionaire, doesn’t matter: You can leave a Scrooge McDuck-sized money pile to your husband or wife and he or she won’t have to pay any taxes to the I.R.S. on it. But until today, a gay person would have to pay taxes on an inheritance above the estate tax exemption threshold. At roughly $5 million, it’s not something many of us have to think about, but this is the issue that kicked off the case that culminated in DOMA’s demise: Edith Windsor was handed a tax bill for more than $363,000 by the IRS after her wife (the couple was married in Canada and lived in New York) passed away and left Windsor her estate.

(MORE: In Court Victories for Gay Marriage, Signs of the Longer War to Come)

Gift taxes: As with the estate tax, husbands and wives can give one another anything, and the tax man never gets involved. But until today, that didn’t apply to gay couples. “Let’s say I bought a million dollar house and added my husband to the deed. As of yesterday, that would’ve been a $500,000 [taxable] gift to him; now there’s no tax implications. That’s huge,” Charles says. Previously, the spouse whose name was added to that deed would have owed tax on all but the first $14,000 (the gift tax exemption threshold for non-spouses).

Health insurance tax: “A big benefit I’m seeing is people are taxed on their health insurance if they get it as domestic partners, so it should eliminate that,” Levit says. If you’re straight and married, and your husband or wife gets health insurance through your job, that’s a tax-free benefit to you. But gay people in state-recognized marriages previously had to pay federal income tax on that employer contribution — called imputed income — to their partner’s health insurance premium.

(MORE:  Change in the U.S.: Rolling Back DOMA and the Voting Rights Act)

Retirement savings rollover: Husbands and wives get special privileges when it comes to rolling over IRAs or 401(k)s for which they’re named as beneficiaries. “If I die, my wife won’t have to take distributions til she’s 70 ½ years old,” says John Olivieri, a partner at White & Case. That privilege is limited to spouses, although other people can inherit IRAs or 401(k)s as beneficiaries. “If we weren’t married, she’d have to start taking distributions right away,” he said.

Filling taxes jointly: Taxes are bad enough, but for gay couples in states like New York and Massachusetts where same-sex marriage is legal, it was exponentially more complicated. They could file jointly as a married couple in the state,but they had to file as singles with the IRS. Now, this process is only as complicated as it is for straight married couples — although financial advisors point out that filing jointly could mean a bigger tax bite for high-income couples. That’s because single tax filers can make up to $400,000 before they hit the top tax bracket of 39.6%. Married couples hit that bracket if they earn a combined $450,000, though — a $350,000 gap. “You push a ton of income into the highest income tax bracket,” Olivieri says.

Married gay couples will have the option of amending their federal tax returns for the last three years (provided they’ve been married that long, of course). If filing jointly is better, couples can amend, but they don’t have to, says Anna Pfaehler, chief compliance officer at Palisades Hudson Financial Group. “Same-sex couples should not feel obligated to amend a tax return to claim joint status since they filed according to the law and instructions at the time.”

One big caveat, especially given the extent to which yesterday’s DOMA ruling throws the issue of gay marriage back to the state level: It’s not yet clear how government will handle these and related legal and tax issues if people live in or move to a state that doesn’t have same-sex marriage.

(PHOTOS:  Supreme Victory: Gay Marriage Decisions Spark Celebration)

18 comments
alexgerome123
alexgerome123

Paula Dean made a descriminatory remark 30 years ago and we persecute her...Chris Christi decriminates against Gays rights to marry today despite the supreme court verdict ...and we ingnore it? Go Figure!

FALSE VICTORY - DONT CELEBRATE IN NJ !!
Voters - realize this - NJ residents with Civil Unions are not considered "married" by federal standards and therefore are not required to receive federal benefits with the defeat of DOMA…what is Christi going to do about that problem?…NOTHING!!!!


 


 

xenoxcabal
xenoxcabal

bisexual people are spreading too much, it is in the ingridients of food chains,,,, it is launched mid 1980 to 1990, and the effect is on time on their clock

c_etude
c_etude

EXCUSE ME but this did NOT legalize gay marriage.  States STILL have the right to ban gay marriage.  This merely removed DOMA but the Federal Government still does NOT recognize gay marriage as legal, which would require an act of Legislation.  Sadly, this should not be a priority in our government being $17 trillion dollars in DEBT and $2.6 BILLION dollars is added to this debt every single day sustained only with CHINA LOANS.  

GonzalezChristian
GonzalezChristian

I'm SON-OF-MAN chrisgrx7@yahoo.com Christian Gonzalez. I'm trying to contact others but no luck.  Facebook Christian Gonzalez


smehgol
smehgol

As a group, in comparison with normal men, male homosexuals are more promiscuous, spread more disease, and are convicted of more sexual offenses. In recruiting adolescents, they represent gender as a choice. As teachers or other authority figures they are skilled recruiters. They prevent children and grandchildren.

To most men, flaunted male homosexuality is repulsive. Strait is normal and good for the species. No regrets. No apologies.

RamRanch
RamRanch

President Obama

The White House

1600 Pennsylvania Ave.  NW

Washington, DC, USA 20500

Dear President Obama:

Thanks to the best president in the history of the United States & the U.S. Supreme Court for supporting gay rights. Thank you … President Barack Obama for your dignity and compassion.

Being black, left-handed or being gay is just as natural.  It is a sometimes rare occurrence to fall in Love and to hold that person in your heart and be loved in return ... it is something that should be celebrated!   If it’s between two guys or two girls -- all the better.  It takes even more courage to defend that LOVE!

Respectfully,

Grant MacDonald

Dear Lt. Governor Newsom and Governor Brown:

Thanks for your dignity and compassion in supporting equality.

Being black, left-handed or being gay is just as natural.  It is a sometimes rare occurrence to fall in Love and to hold that person in your heart and be loved in return ... it is something that should be celebrated!   If it’s between two guys or two girls -- all the better.  It takes even more courage to defend that LOVE!

Respectfully,

Grant MacDonald

steveham13
steveham13

@c_etude ...but...ummm...your marriage, assuming you're married...should be a priority...right? 

posterboi
posterboi

Maybe you weren't listening. It does recognize gay marriage as legal, where gay marriages are performed in states where it is legal. It also recognizes gay marriage as legal in all states, as long as the marriage is performed in a state where it is legal. It probably would be a "priority" if it involed you. Gay people have been paying the same taxes as straight people all along, but have been denied the same benefits that straight people enjoy. This issue has been a priority to some way before we incurred a $17 trillion debt. You can't put off eliminating discrimination just because the country is in debt. The two are unrelated. The government can't put everything off, just becuase we owe a fortune to China. When the next state that has banned gay marriage is sued like in CA, both the state and federal supreme court now has a prescident case that will be used to strike down that ban because the state cannot prove that gay marriage causes harm to anyone. Just not liking same-sex marriage is not a basis for banning it.

posterboi
posterboi

How to you know what homosexuals do? Promiscuous? How about Jim Bakker and Jerry Fallwell? Sexual offenses? None of the thousands of those military sexual assaults involved gay people. I've never heard of a gay couple kidnapping children and inprisioning them for years, but you hear about straight couples doing it all too frequently. I have a gay friend who has 3 children and 2 grandchildren, and I hope you realize that many straight couples don't have children and most of them simply don't want children. As for disease, no one is immune and if you're talking about HIV, the majority spreading it are heterosexuals. Homosexuality is not a choice, so you kinda of lost credibility when you made that statement. "Normal" by the way is a setting on a washing machine and does not apply to people. Homosexuality is experienced by nearly all species. No one can "recruit" a person to be gay. You either are or you are not. Gay people want to be with other gay people and they are not interested in straight men as you might think. Sex with women is "repulsive" to gay men because it is not natural to a homosexual. They are as turned off by women (sexually) as you are turned off to other men. You don't have to agree with it, but that is the way it is.  

c_etude
c_etude

@smehgol Men are men, and you are right.  Many gay men get tired of each other and allow "open relationships" often getting into threesomes, foursomes.   This happens to be part of the "gay culture".

czsommers
czsommers

@smehgol Oh for God's sake! Your posting is completely incorrect, filled with old outdated lies. Come out of your hate-filled closet. Go out and actually meet and get to know gays and lesbians, before you post your childish, homophobic rantings again.

c_etude
c_etude

@RamRanch States still have the legal right to ban gay marriage, and gay marriage is still not recognized by the Federal government.    There is nothing "historic" about this other than being one of the finest pieces of DIVERSIONS ever created in the United States to keep people's mind off of the bad - ruined - economy. 

c_etude
c_etude

@posterboi It's a bankrupt doomed nation so what difference does it make. God will destroy.

Undertakerwwe
Undertakerwwe

@c_etude @smehgol  - Not in ALL relationships....and how can you generalize that ALL gay men get tired of each other....I have been with my husband for almost 10 years and I am not "tired" or him.  I believe your statement to be inaccurate.

posterboi
posterboi

You probably don't think desegregation was historic either.

Undertakerwwe
Undertakerwwe

@c_etude @RamRanch  States do still have the right to pass legislation banning same sex marriage, but if the same sex couple lives in a State that it has been legalized in, then the Federal Government has to recognize it by law now that the Supreme Court struck down D.O.M.A....so I would say that Wednesday; 06/26/2013 was an EXTREMELY historic day as more equality was given to gay couples that had no rights on a Federal level......where do you get off saying that it was not historic? Maybe I don't understand the context of the information that you posted above; or are you really that uneducated?