Gay couples pay over $1 Billion in additional taxes every year!

Gay couples in state-sanctioned domestic partnerships, civil unions or same-sex marriages often pay higher taxes because they do not get the federal tax benefits that go with marriage. The April 15th tax filing deadline is a reminder of the inequalities remaining in the way the United States handles same-sex relationships.

While Massachusetts is the only state to allow gay marriage, nine other states and Washington D.C. have begun offering civil unions or domestic partnerships that give some or all of the state level legal protections of marriage.  But 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.  That’s because the state-sanctioned unions do not enable couples to file federal taxes jointly due to the 1996 Defense of Marriage Act (DOMA) which prohibits the Federal Government from treating same-sex relationships as marriages, even if they are recognized as marriages by the state.

Inability to file taxes jointly results in major differences in tax liability. Consider a gay couple where one partner has a taxable income of $40,000 and the other a taxable income of $20,000. If the couple could file their federal taxes jointly, the tax bill would be $8,217.50 but filing separately they must pay $9,032.50, an additional expense of 815 dollars.

In addition to the potential expense of filing separately, gay couples must pay income taxes on benefits paid to spouses such as health benefits.  That additional taxable income can increase the tax rate that the individual must pay and can add up to thousands of dollars in extra taxes not paid by their heterosexual counterparts.

Gay couples who own a home together must also decide how much of the mortgage interest payments each partner will use as a deduction, and 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.

Steve Sanders, a Chicago appellate attorney, pointed out a new study by the UCLA Law Williams Institute finding that same sex couples subject to the estate tax (people with more than $3.5 million at death) pay on average $3.3 million more in taxes than straight couples.

The study says that the tax disadvantage stems from IRS non-recognition of gay marriages due to the Defense of Marriage Act. Other findings include:

The estate tax penalty will cost same-sex couples $237 million in 2009 and nearly $620 million in 2011, if the exclusion limit falls back to $1 million.

If current estate tax law is not changed, by 2011 the estate tax disadvantage will have cost same-sex couples more than $3.5 billion over the last decade.

The loss to federal tax revenue of equalizing the treatment of same-sex couples would be less than one twentieth of one-percent (.05%) of total federal government revenue.

Still, with around $2.5 trillion in revenue, .05% is about $1.25 billion. Congress would need to come up with a way to pay for the lost revenue if they let the IRS recognize same-sex relationships.