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How Are Same-Sex Couples’ Taxes Affected by New Laws?

How Are Same-Sex Couples’ Taxes Affected by New Laws?
Ines Zemelman, EA
01 December 2014

In June, 2013, the Supreme Court overturned the DOMA (Defense of Marriage Act) and extended equal rights to same-sex marriages.

The Supreme Court abolished the DOMA on June 26, 2013, and the same healthcare and tax rights that opposite-sex marriages enjoy were extended to same-sex marriages. This ruling affects the manner in which partners in a same-sex marriage will file their income tax returns and provides an opportunity to amend tax returns from previous years.

Rights are available to same-sex marriages even if the couple lives in a state in which same-sex marriages are not recognized. This also applies to same-sex couples in the US Military.

If you are in a same-sex marriage that was formed in a state in which gay marriages are allowed, you have access to the same rights as opposite-sex couples – even if the state in which you currently live doesn’t recognize your same-sex marriage as valid. As partners in a same-sex marriage, you are now required to file your tax return as either MFS (Married Filing Separately) or MFJ (Married Filing Jointly).

Gay couples with one or more partners enlisted in the US Military have also been extended the same rights, according to the Pentagon. If a military member is serving in a state in which gay marriage licenses aren’t issued, they will be afforded 10 days of leave for the opportunity to travel to a state in which they can receive a valid same-sex marriage license.

If you are a US expat living and working abroad and you are in a same-sex marriage, you have the same rights that are being offered to the stateside couples.

You don’t have to be living in the United States to take advantage of the new laws surrounding gay marriages. If you are living in another country as a US Expat and you were married in a state or foreign country in which gay marriages are allowed, you are recognized by the Department of Treasury and the IRS as being married – even if you’re living in a country in which same-sex marriages are not legal.

There are a few benefits to being allowed to file a joint return. Deductions and exclusions are higher for married couples filing jointly than they are for single or head of household taxpayers. There are also potential liabilities, like FBAR reporting.

Filing a tax return as MFJ is the best way to get the highest tax breaks. The FEIE (Foreign Earned Income Exclusion), for example, allows an individual taxpayer to deduct up to $97,600 in foreign income from US taxation. As a married couple filing a joint return, the maximum exclusion amount is $195,200.

If you are a married couple filing a joint return, then odds are high that you also share joint financial accounts. It’s important to remember that you must report your foreign financial accounts on FBAR, FinCEN Form 114 if the total balance of your accounts equals $10K or more.

If you were involved in a same-sex marriage before the new laws came into effect, you may be entitled to a refund.

The IRS is allowing couples of a same-sex marriage to amend their tax returns for years prior to the new laws coming into effect. If you feel like you may be entitled to a refund by filing a joint return with your same-sex spouse, you have up to 3 years from the original due date of your tax return to claim your refund. If you owed a tax on your refund, you have a period of 2 years from the time your taxes were paid. If you need help filing an amended return or deciding whether it’s worth your time to do so, contact an experienced US expat tax professional.

Ines Zemelman, EA
founder of Taxes for Expats