SHATTUCK'S TAX FACTS
Making income tax less taxing – Part 7
by Alan Shattuck, CRTP
March 11, 2014
• Court ruling makes major change in tax filings
• Are you considered single, married or the head of household? Are you really sure?
On June 26, 2013 the United States Supreme Court issued its decision in United States v. Windsor. This decision invalidated a key provision of the 1996 Defense of Marriage Act. The U.S. Department of the Treasury and the Internal Revenue Service (IRS) ruled on August 29, 2013 under IR-2013-72 that same-sex couples, legally married in jurisdictions that recognize their marriages, will be treated as married for federal tax purposes. The ruling applies regardless of whether the couple lives in a jurisdiction that recognizes same-sex marriage or a jurisdiction that does not recognize same-sex marriage.
You have started to collect all your income tax paperwork for 2013 (You know, W-2s, 1099’s, 1098’s, tax bills, letters from charitable organizations, etc). Have you stopped to determine what your income tax rate is? Do you qualify for tax credits? Are any credits refundable?
For federal tax purposes, the IRS looks to state or foreign law to determine whether individuals are married. The IRS has a general rule recognizing a marriage of same-sex spouses that was validly entered into a domestic or foreign jurisdiction whose laws authorize the marriage of two individuals of the same sex even if the married couple resides in a domestic or foreign jurisdiction that does not recognize the validity of same-sex marriages.
How can all this affect my filing status?
It is necessary to use the correct filing status when filing your income tax return. It can impact the tax benefits you receive, the amount of your standard deduction and the amount of taxes you pay. It may even impact whether you must file a federal income tax return. The current law has been modified for same-sex couples. The question now becomes how that relationship is defined for federal tax purposes.
The changes in the Revenue Ruling 2013-17, referred to above, do not affect Registered Domestic Partners (RDP) and Individuals in Civil Unions.
The definition of RDP is individuals of the same sex and opposite sex who are registered domestic partnerships, civil unions or other similar formal relationships that are not marriages under state law.
The definition of marriage is expanded to recognize the union of two spouses of the same-sex that were validly entered into in a domestic or foreign jurisdiction whose laws authorize the marriage of two individuals of the same sex even if the married couple resides in a domestic or foreign jurisdiction that does not recognize the validity of same-sex marriages.
Based on this new information, ask this question again. Are you considered single, married or the head of household? There are actually five filing statuses on the federal income tax return. If more than one filing status fits you, choose the one that allows you to pay the lowest taxes. The filing statuses are as follows:
1. Single – This status generally applies if you are not married, divorced or legally separated according to state law under a decree of divorce or separate maintenance. If, at the end of 2013, the divorce was not final (an interlocutory decree), you are considered married and cannot claim “Single” status. You were widowed before January 1, 2013, and did not remarry before the end of 2013. If you have a dependent child, you may be able to use the “Qualifying widow(er) filing status. See below.
This is also the status that generally applies to the RDP or Civil unions referred to above.
2. Married Filing Jointly (even if only one had income) – Your marital status on the last day of the year, December 31, 2013, is your marital status for the entire year. If your spouse died during the year, you usually may still file a joint return with the decedent for that year if you have not remarried during 2013. Once you file a joint return, you cannot choose to file separate returns for that year after the due date of the return. If you file a joint return, both you and your spouse are generally responsible for the tax and interest, and/or penalties due on the return. This is referred to as joint and several liability.
For tax year 2013 and going forward, same-sex spouses generally must file using Married Filing Jointly or Married Filing Separately (see Below).
3. Married Filing Separately – If a married couple decides to file their returns separately, each person’s filing status would generally be Married Filing Separately. In California, community property rules apply. See IRS Publication 555, Community Property for further detailed discussion. Also, if you file a separate return, you cannot take the student loan interest deduction, the tuition and fees deduction, the education credit, or the earned income tax credit. You also cannot take the standard deduction if your spouse itemizes deductions.
4. Head Of Household (with qualifying person) – Generally applies if you are not married and have paid more than half the cost of maintaining a home for yourself and a qualifying person. You were legally separated according to your state law under a decree of divorce or separate maintenance at the end of 2013. But if, at the end of 2013, your divorce was not final (an interlocutory decree), you are considered married. You are married but lived apart from your spouse for at least the last six months of 2013 and you meet the other rules under Married persons who live apart as follows:
• You file a separate return from your spouse
• You paid over half the cost of keeping up your home for 2013
• Your home was the main home of your child, stepchild, or foster child for more than half of 2013
• You can claim this child as your dependent or could claim the child except that the child’s other parent can claim him or her under the rule for Children of divorced or separated parents.
5. Qualifying Widow(er) With Dependant Child – This status may apply if your spouse died
during 2011 or 2012, but only if the survivor remains unmarried and maintains as a home a household that, for the entire tax year, is the principal place of abode of a son or daughter, adopted child, foster child, or stepchild who is a member of the surviving spouse’s household and for whom the taxpayer is entitled to the dependency exemption.
I also recommend that you go to www.irs.gov and go to the search box in the upper right hand section of the home page and type in “FAQ for Same-Sex Couples.” This will open relevant data including “Answers to Frequently Asked Questions for Individuals of the Same Sex Who Are married Under State Law” – 23 Questions answered – and “Answers to Frequently Asked Questions for Registered Domestic Partners and Individuals in Civil Unions” – 27 Questions answered.
Do you have to file?
Please refer to my last article – Part 6.
Who can I claim as a dependent?
Please refer to my last article – Part 6 in the series
Please remember that the IRS’s website has the Interactive Tax Assistant (ITA). They have answers to general filing questions that can make a little easier. Some of the topics correspond to this article and are as follows:
What is My Filing Status?
Do I Need to File a Tax Return?
Who Can I Claim as a Dependent?
How Much Can I Deduct for Each Exemption I Claim?
How Much is My Standard Deduction?
Next weeks’ article in this series discusses whether you should consider changing the amount of taxes withheld from your paycheck and how to do it. If you get large refunds, remember you are loaning Uncle Sam your money interest free.
We should all be familiar with general tax terms as the tax debate, or lack thereof, in Congress affects all of us. We must know what our congressional representatives are talking about and what they are actually doing.
This helpful information has been provided by Alan Shattuck, CRPT who can be reached at email@example.com or at (916) 240-3486.