Filing your gay taxes
Taxes and marriage are often compared, yet the term “gay marriage” adds complexity to tax filings for same-sex couples. Understanding the nuances is critical before filing your taxes. Let’s lessen all your fears about filing your gay taxes.
A study on gay taxes by Credit Karma
Did you know that according to a hilarious study by Credit Karma, 35% of same-sex married couples are scratching their heads over their filing status? If you found yourself in that perplexed percentage and mistakenly filed as single, head of household, or married filing separately, fear not! You might have missed some sweet tax breaks, but fret not – you can still amend that return and snag that cashback.
Christina Taylor, the Senior Manager of Tax Operations at Credit Karma, the financial fairy godmother for 75 million members, is here to enlighten us. She’s got the lowdown on why tax law feels like trying to solve a Rubik’s Cube for same-sex couples and a handy guide to the five (yes, five!) potential filing statuses. Tune in to Christina’s wisdom to learn about filing jointly, snagging that adoption tax credit, and navigating the maze of medical deductions.
Listen here to learn more about your gay taxes:
Gay marriage tax filing: Ways same-sex couples can file taxes
Married filing jointly vs separately
Ah, the joys of marriage equality. Now legally hitched LGBTQ+ couples, even those in recognized common-law unions, get to play the thrilling game of tax return roulette: joint or separate filings? It’s like choosing between a romantic dinner date and a solo Netflix binge—both have perks and pitfalls. Let’s dive into the delightful tax filing options for you and your beloved.
1. Married filing jointly
The perks of joint filing as a same-sex duo are like hitting the tax jackpot: more generous tax brackets, a standard deduction double the fun, and a smoother ride through the financial rollercoaster of tax brackets. Plus, think of it as a two-for-one deal on tax preparer fees—who doesn’t love a good bargain?
But, just like any good sitcom plot twist, there’s a potential downside: both partners become co-captains of the accuracy ship and bear the weight of the entire tax bill, regardless of whose paycheck’s beefier. So, if one of you’s bringing home the bacon and the other’s frying it up, you’re both on the hook for the sizzle.
2. Married filing separately
The married filing separately option – it’s like the tax version of “living in the same house but having separate Netflix accounts.” Each spouse gets their moment in the tax limelight, with their deductions and income getting their own solo performances.
The upside? You get to be the solo star of your tax return drama – no need to share the spotlight or stress about your partner’s tax quirks. It’s all on you, baby!
But, just like choosing to binge-watch a classic rom-com instead of the latest blockbuster, there’s a trade-off. You’re saying “no thanks” to some of the juiciest tax breaks that joint filers enjoy. We’re talking about missing out on the educational tax credits, childcare goodies, and even that beloved Earned Income Tax Credit. It’s like saying “bye-bye” to tax perks and “hello” to flying solo in the tax world.
Hear all the ins and outs of keeping finances and taxes separate on this Queer Money®:
Marriage bonus vs. marriage penalty for same-sex couples
Picture this: brace yourselves for a potential marriage penalty if you and your sweetheart are earning similar paychecks, whether they’re hefty or humble. It’s like the taxman saying, “Sorry, folks, no free ride here!”
But if one of you is raking in the big bucks while the other’s earning more humble dough, that’s where the fun begins! You might enjoy a sweet marriage bonus – consider it a little tax gift from the heavens.
Now, for all you middle-income lovebirds out there, fear not! You’re cruising through the tax landscape like champs, with neither penalties nor bonuses raining on your parade. It’s like sailing through calm waters while others are navigating stormy seas. Smooth sailing ahead.
The marriage penalty
1. Like income, low earners
The earned income tax credit (EITC) may decrease or be non-existent due to marriage increasing the household income of low-earning couples. In that case, a married couple’s after-tax income may be lower than if they remained unmarried.
2. Like income, high earners
Couples whose joint income ranges from $612,350 – $1,020,600 will pay increased taxes upon marriage. This is due to the 37% tax bracket structure for married couples filing jointly.
3. High earners with similar incomes
Couples who jointly earn between $612,350 and $1,020,600 will pay higher taxes if they marry. This is because the 37% federal tax bracket for married couples filing jointly is not twice as large as the tax bracket for unmarried individuals. Although the 37% federal income tax rate kicks in for income over $510,300 for singles, it is for income over $612,350 for married couples filing jointly. Simply put, a larger portion of a high-earning couple’s income is shoved into the 37% tax bracket if they marry, while more stays in the 35% tax bracket if they don’t.
4. Medicare Surtax for high earners
For single taxpayers earning over $200,000 and married taxpayers earning over $250,000 in wages, compensation, and self-employment income, a 0.9% Medicare surtax applies. For couples earning between $250,000 and $400,000, a marriage penalty applies as the tax threshold for married couples isn’t double that of singles.
5. Net investment income tax for high earners
The net investment income tax (NIIT) of 3.8% applies to individuals whose modified adjusted gross income (MAGI) exceeds $200,000 if single and married and filing jointly, $250,000. A marriage penalty applies to couples with total earnings of $250,000 – $400,000. The tax applies only to net investment income, not earned income.
6. High earners with long-term capital gains investments
When a high-earning couple, married, filing jointly, earns over $488,850, they incur a marriage penalty of a 20% capital gains tax rate versus the usual 15% rate on investments held longer than one year.
7. Homeowners with big mortgages
Based on the Tax Cuts and Jobs Act (TCJA) that took effect in 2018, married couples with large mortgages – mortgages over $750,000 – may trigger the marriage penalty. A same-sex married couple may still claim an itemized deduction on their mortgage interest paid up to $750,000 of debt originated after December 14, 2017. Still, a mortgage of $750,001 or more may trigger the marriage penalty.
8. State and local residents with high income and high property taxes
Also, per the TCJA, married couples and singles are capped at $10,000 in itemized deductions for local and state taxes, including property and income taxes. Since July 1st, 2018, as noted by the Tax Foundation, 15 states have applied a marriage penalty as their income tax brackets for married couples filing jointly are not two times that of the single filer brackets:
- California
- Georgia
- Maryland
- Minnesota
- New Mexico
- New Jersey
- New York
- North Dakota
- Ohio
- Oklahoma
- Rhode Island
- South Carolina
- Vermont
- Virginia
- Wisconsin
The marriage bonus
Did you know married couples filing jointly could unlock some profound tax treasures? According to the Tax Foundation, those with kids could score an incredible 21% bonus on their total income, while the childless lovebirds can still enjoy an 8% boost. It’s like finding hidden loot in your tax return!
But wait, there’s more! Filing jointly can be a financial magic trick if one partner brings the bacon home in more giant slices than the other. Thanks to the broader tax bracket for joint filers, the lower-earning spouse’s income won’t push the couple into a higher tax bracket. Translation? You might snag a lower tax rate, all while holding hands through the tax maze.
Oh, and did I mention the cherry on top? A spouse with a lower income might even score some sweet spousal IRA contributions courtesy of a higher-earning partner. It’s like getting extra toppings on your financial sundae.
Social Security Spousal and Survivor Benefits for married, same-sex couples
Did you know that when marriage equality became the law in 2015, LGBTQ+ couples gained access to over 1,000 benefits? Among the most crucial are the Social Security Spousal and Survivor Benefits. Why? Well, the potential lifetime growth on those payouts could be a game-changer, potentially adding up to over a cool $1,000,000 for you or your same-sex spouse.
We had the privilege of having David Freitag, the Social Security Benefits pro at MassMutual, join us on Queer Money® to spill all the beans on these essential details. So, if you’re looking to cash in on your rightful benefits, you won’t want to miss what David had to say.
Hear all about the Social Security Spousal and Survivor Benefits:
Common questions about filing gay taxes after gay marriage
1. How does married filing jointly affect student loan payments on an income-based repayment schedule (this can cause the repayment amount required to increase)?
Listen up because this is crucial info! If you’re hitched and filing jointly, your student loan payments could significantly spike, especially if you’re on an income-based repayment plan. Here’s the deal: with joint filing, the repayment plan usually considers both your incomes combined. But if you file separately, it’s typically based on the spouse’s income with the student loan.
Here’s where it gets tricky: with Revised Pay As You Earn (REPAYE), your loan payment calculation considers your and your spouse’s income, regardless of your filing status. However, for other income-driven plans like Income-Contingent Repayment (ICR), Pay As You Earn (PAYE), and Income-Based Repayment (IBR), how you file your taxes matters when calculating your payments. So, before you file, ensure you’re not signing up for a student loan surprise.
Income-driven repayment plan comparison – filing jointly vs. separately
The helpful chart below is from Ed Homeroom – The Official Blog of the U.S. Department of Education.
| Repayment Plan | Income Considered When Married Filing Jointly | Income Considered When Married Filing Separately |
| Revised Pay As You Earn | Joint Income | Joint Income |
| Pay As You Earn | Joint Income | Individual Income |
| Income-Based Repayment | Joint Income | Individual Income |
| Income-Contingent Repayment | Joint Income | Individual Income |
Suppose you’re unsure whether filing jointly or separately will benefit you and your same-sex spouse most financially. In that case, it’s always a good idea to consult a tax professional for expert advice.
2. If a taxpayer adopts the child of his or her same-sex spouse as a second parent or co-parent, may the taxpayer (“adopting parent”) claim the adoption credit for the qualifying adoption expenses he or she pays or incurs to adopt the child?
Here’s a sticky situation: if you’re an individual adopting your same-sex spouse’s child as a second parent or co-parent, you’re out of luck when it comes to claiming the adoption tax credit. Unfortunately, expenses related to adopting your spouse’s child, whether it’s through stepparent or second-parent adoption, can’t be deducted from your federal tax return. It’s like hitting a pothole on the road to tax deductions, but knowing the rules upfront can help you navigate the terrain smoothly.
3. When are individuals of the same sex lawfully married for federal tax purposes?
When recognizing marriages, the IRS takes cues from state and foreign laws. Here’s the scoop: if you’ve tied the knot in a jurisdiction that legally allows same-sex marriages, whether it’s in the U.S. or abroad, the IRS gives your marriage a thumbs-up. This recognition holds even if you’re living in a place that doesn’t acknowledge same-sex unions. So, no matter where life takes you, the IRS has your back when honoring your marriage.
4. Can gay couples file married-jointly if they’re domestic partners or in a civil union? If so, how?
Sorry, no dice. Even though registered domestic partners might have a strong bond, the IRS doesn’t treat them the same way as married couples. Uncle Sam follows suit because state laws don’t consider domestic partnerships as marriages. That means registered domestic partners cannot file jointly or separately as a married couple for federal taxes. It’s like being stuck in a tax limbo, but knowing the rules can help you navigate the maze.
5. What are the ways same-sex couples can minimize taxes?
There’s a treasure trove of tax-saving tricks for same-sex couples to uncover.
1. Max out employer-sponsored traditional retirement plans
If you haven’t already jumped on board, maxing out your employer-sponsored traditional retirement plans isn’t just a tax-savvy move—it’s also an intelligent way to beef up your retirement fund for the golden years ahead.
Hear all the pros and cons of company-sponsored retirement plans on this Queer Money®:
2. Donate more to the LGBTQ community to get an itemized deduction
Don’t forget to factor in the standard deduction amount and the donation threshold required to qualify for itemized deductions.
Hear how to give to the LGBTQ community on this Queer Money® smartly:
3. Talk with a financial planner about tax-loss harvesting in taxable accounts
Consider consulting a financial advisor about tax-loss harvesting if you have taxable investment accounts. This strategy involves selling certain investment assets at a loss to reduce your year-end tax liability. It’s a clever way to offset capital gains from profitable securities and even non-investment income by up to $3,000. Remember, though, that tax-loss harvesting applies only to taxable investment accounts.
Another smart move is investing in a 529 plan, whether it’s for your children, nieces, nephews, or even yourself. Not only can you enjoy potential state deductions or credits for contributions, but you’ll also reap long-term benefits. These plans grow federally tax-free, and when used for qualified education expenses, withdrawals are tax-free as well. Plus, some states offer deductions for contributions to any 529 plan, making it a win-win for your tax bill and your loved one’s future.
6. How to pay federal taxes as a married, same-sex couple?
You have plenty of options for settling your federal taxes with Uncle Sam. You can go the traditional route by paying directly from your checking or savings account or using credit or debit cards. If your tax bill is hefty, you might consider setting up an installment agreement to spread the payments. It’s all about finding the best method for you and your financial situation.
1. Direct pay
With IRS Direct Pay, settling your tax bill is a breeze. You can pay directly from your savings or checking account without worrying about extra fees. Plus, once the payment is done, you get instant confirmation, giving you peace of mind. You can even schedule payments up to 30 days in advance, and if plans change, no worries—you can easily adjust or cancel the payment as long as it’s at least two business days before the scheduled date. Its convenience and flexibility rolled into one handy service.
2. Debit or credit cards
You’ve got options galore when it comes to paying your taxes. Whether you prefer the ease of online payments, the convenience of mobile apps, or the simplicity of a phone call, the IRS has you covered. Remember that while the IRS doesn’t tack on any extra fees, there are convenience fees associated with using debit or credit cards, which can vary depending on the card you use. So, while you might pay a little extra for the convenience, the flexibility might be worth it.
3. Installment agreement
If you’re facing a hefty tax bill and can’t pay it all at once, don’t fret! The IRS offers monthly installment agreements to help you spread out the payments. Before applying for one, ensure you’ve filed all the necessary returns. You can easily apply for an installment agreement using the Online Payment Agreement tool, which guides you through the process and provides valuable information on eligibility requirements. It’s a simple solution for managing your tax payments without overwhelming your wallet.
4. There’s an app for that
For mobile-savvy taxpayers, the IRS2Go app is the go-to solution for paying taxes on the fly. Whether you prefer the convenience of credit or debit card payments or the simplicity of Direct Pay, this official IRS mobile app covers you. You can easily download IRS2Go from the Apple App Store, Amazon App Store, or Google Play, putting tax payments at your fingertips. It’s like having a tax assistant in your pocket, making managing your taxes as easy as checking your email.
7. How to pay state taxes as a married, same-sex couple?
Paying taxes online is a straightforward process. Here’s a general guide:
- Choose a Payment Method: The IRS offers various payment options, including Direct Pay, debit or credit card payments, and electronic funds withdrawal. Each method has its requirements and potential fees.
- Access the IRS Website: Visit the IRS website at IRS.gov and navigate to the “Pay” section. Here, you’ll find different payment options available to you.
- Select the Payment Option: Choose the payment method that best suits your needs. For example, you can use IRS Direct Pay to pay directly from your bank account. You can use a third-party payment processor if you prefer to pay by credit or debit card.
- Provide Necessary Information: Depending on your payment method, you’ll need to provide information such as your bank account details or credit card information. Make sure to double-check this information for accuracy to avoid any payment issues.
- Authorize the Payment: Once you’ve entered the required information, authorize the payment. This may involve confirming your identity or agreeing to specific terms and conditions.
- Receive Confirmation: After successfully submitting your payment, you should receive a confirmation of your transaction. Keep this confirmation for your records as proof of payment.
It’s important to note that some payment methods may incur additional fees, so carefully review the terms and conditions before proceeding. Additionally, deadlines for tax payments vary depending on your tax situation, so make sure to pay on time to avoid penalties and interest. If you’re unsure about the best payment option for your needs, consider consulting with a tax professional for personalized guidance.
9. How do you pay taxes with a credit card? Is that a good thing?
When paying taxes by credit card, convenience is essential—you can do it from your mobile device, online, or over the phone, whether you’re filing on paper, electronically, or responding to a notice or bill. The IRS ensures security by leveraging trusted commercial and business card networks and standard service providers. You can choose from three card payment processors, each with its interest rates, allowing you to select the best option based on your payment amount and card type.
Your choices include PayUSAtax at 1.96%, Pay1040 at 1.87%, and Official Payments at 1.99%. While paying taxes with a credit card may add to your debt, we’re here to offer a solution. To help you tackle your credit card debt, we recommend the Debt Lasso Method, which can be more effective than the Snowball or Avalanche methods in breaking free from the debt cycle.
10. Do you have to pay taxes on stimulus checks?
Good news! Stimulus checks are a silver lining as they aren’t considered taxable income by the IRS. Plus, receiving a stimulus check won’t affect your eligibility for federal benefits or government assistance programs based on income. But wait, there’s more good news! There are additional resources available to support you during this challenging time.
11. When are taxes due?
Tax due dates can vary depending on your situation and the type of tax you owe. For most individual taxpayers in the United States, the deadline to file federal income tax returns is typically April 15th each year. However, if April 15th falls on a weekend or holiday, the deadline is usually extended to the next business day.
It’s important to note that if you can’t file your taxes by the deadline, you can request an extension to file, which gives you additional time to submit your return. However, an extension to file doesn’t mean an extension to pay any taxes owed. You’ll still need to estimate and pay any taxes owed by the original due date to avoid penalties and interest.
It’s always a good idea to check with the IRS or a tax professional for specific tax deadlines and extensions to ensure you meet your obligations and avoid potential penalties.
Need to file an extension beyond the July 15th deadline?
A solution for individual taxpayers needing extra time beyond the July 15th deadline is to file for an extension using Form 4868. You can do this quickly through your tax software, with the assistance of a tax professional, or by accessing the Free File link conveniently located on IRS.gov.
For businesses in a similar bind, Form 7004 provides the necessary extension for filing. Whether you’re navigating personal or business tax matters, these extensions offer valuable breathing room when deadlines loom large.
IRS Penalties for paying taxes late or late filing
Interest and penalties accumulate on outstanding tax balances after July 15th, 2020. Paying your taxes by this date ensures you avoid any additional charges. However, you’re looking at IRS penalties if you owe taxes and miss the deadline without filing an extension or return. These penalties also kick in if you file for an extension or return on time but fail to pay the taxes owed by the deadline.
Here’s a tip: penalties generally don’t apply if you expect a refund and don’t file on time. But beware—the fines for not filing a return or failing to e-file or file an extension on time are far steeper than those for not paying taxes owed. For instance, filing late incurs a penalty of 5% of the tax owed per month, plus interest, compared to a late payment penalty of 0.5% per month, plus interest.
In short, it’s wise to face your tax responsibilities head-on by filing your return on time, filing for an extension, and paying as much as you can upfront. Ignoring the issue now could lead to royal pain in the form of hefty tax penalties and accumulating interest.
12. How can I find gay-friendly tax preparation near me?
An easy way to find a qualified tax preparer is to search “gay-friendly tax preparation” on sites such as Thumbtack.
13. What if I can’t pay or I’ve fallen behind in my tax payments?
Owing back taxes feels like being stuck in a financial horror movie! Your hard-earned wages could vanish faster than a magician’s rabbit, your bank account might resemble a barren wasteland, and don’t even get me started on the dreaded liens and levies lurking around your property. And when you think it couldn’t get any worse, here comes the IRS, slapping you with penalties that could make a pirate blush—up to 25% every month!
Remember, compound interest isn’t playing favorites here—it’s a double-edged sword. But fear not; if you are drowning in tax troubles, it’s time to call in the cavalry. Seek a reputable debt management company to help you navigate this nightmare. After all, even the scariest monsters can be defeated with some help from the pros.
14. What ways should same-sex couples spend or invest their tax returns
Using your tax refund to tackle debt, especially high-interest debt, can be a financial game-changer, potentially saving you a bundle in the long run. For many, this approach trumps the allure of the stock market, given the hefty interest rates gnawing away at their finances.
Another savvy move is to beef up your emergency savings in a high-yield savings account. If your rainy-day fund looks feeble or non-existent, funneling your refund into savings can provide much-needed financial security. After all, nothing beats the peace of mind that comes with knowing you’re prepared for whatever life throws your way.
Consider directing your refund into your Roth or Traditional IRA when investing it. This strengthens your retirement savings and sets you up for long-term financial health.
Hear about the differences and benefits of Roth and Traditional IRAs on Queer Money®:
Finally, spread the love and generosity! There’s no shortage of charitable organizations out there eagerly accepting tax-deductible donations. Here are a few to consider:
- Human Rights Campaign
- Trevor Project
- Project Angel Heart
Whether you’re passionate about human rights, supporting LGBTQ+ youth, or providing meals to those in need, there’s a cause out there that could benefit from your generosity. So go ahead and give until it feels good.
* As always, talk with an accountant or tax professional before taking any tax recommendations or filing your taxes.