Tax Time Complicated for Same-Sex Couples

Over the last decade, a growing number of statewide laws have brought equality and protection to the lives of gay and lesbian couples. But every year the taxman brings an unavoidable reminder of the inequities that still remain.

While couples in same-sex marriages, civil unions, and Registered Domestic Partnerships have benefited from equality in tax laws at the state level, their relationships are in no way recognized by the federal government. That means they must pay federal taxes on things like employer-sponsored benefits provided to a partner. And for those who live in states where their relationships are recognized, the already complicated task of filing taxes has become convoluted.

Nine states now require same-sex couples who have legally joined as partners to file their state tax returns “as married.” But because of the federal government’s continued discrimination, same-sex couples in those states still have to file their federal returns individually, not as a couple. That means three federal tax returns must be prepared: a single federal return for partner one; a single federal return for partner two; and a pro forma, or “dummy,” married federal return to be filed only with the state. This allows the numbers on the state tax return to come out right.

Which states are involved? Massachusetts, Vermont, Iowa, New Hampshire, and Connecticut all provide marriage equality to same-sex couples. California, Oregon, and the District of Columbia have Registered Domestic Partnerships, and New Jersey provides civil unions. Same-sex couples married in California between June 16, 2008 and Nov. 4, 2008—the time between a pro-marriage court ruling and a repeal by voters—also must file “as married.”

For many couples, this complicated tax filing situation adds to the sting of not being included in the rights of marriage. Not only do they pay the same taxes without getting the same benefits, they often have to pay extra to prepare more than one federal tax return.

If you’re in this situation and you’ve gone to an accountant in the past, you may want to consider using tax software. TurboTax has developed a solution for same-sex couples. If you use a desktop version of TurboTax (from CD or download), you can file up to five federal returns and one state return for one price. While it takes a bit more time to prepare your returns than straight married couples, you’re paying the same as them.

And TurboTax walks you through the filing process. If you say you live in New Jersey, for example, you’ll get the option of selecting “civil union” as your martial status. The next thing you’ll see is a step-by-step guide to filing your returns followed by a customized interview experience that keeps you on track. The desktop products also allow you to save a return under a new file name so you don’t have to re-enter all the information in your dummy federal return.

For most couples, a filing status of “married filing jointly” will produce the best outcome. If you know you need to file “married filing separately,” you can do it in many of those nine states (I recommend you research “community property” states first). But that would require you to create two single federal returns, two dummy federal returns and two state returns, for a total of six.

Tax returns for Registered Domestic Partnership, civil union, or same-sex marriage couples can be e-filed in all nine states that require them to file as married. In general, e-filing is the fastest way to get your refund. If you’re using software and you choose to e-file, you should prepare and file each of your single federal returns before you work on your “dummy” federal return and your state return. And remember to select only the state e-file button when filing your joint state return. This will send the dummy federal return with the state return only to your state, not the IRS.

In addition to the situation faced by same-sex couples, there are a few things all taxpayers should be aware of this year. Eighty percent of taxpayers are entitled to some portion of the economic stimulus money approved by Congress in 2009. This comes in the form of some new deductions and credits meant to help people through the struggling economy.

A couple of different homebuyer credits are available to people who bought a home in 2009. You could get up to $8,000 off your taxes if you qualify. You can also deduct a wide range of energy-saving home improvement costs.

If you bought a new car in 2009, don’t miss the opportunity to deduct the sales tax. If you were a college student in 2009, you might be able to deduct an expanded number of tuitions and fees. And donations to Haiti earthquake victims made this year can be deducted on your 2009 return.
If you’re not ready to file by April 15, you can file for an extension until October 15. But you will need to estimate any taxes you owe and send the IRS a check with your extension.