Tax Filing Status Options for Gay Couples

A 2015 Supreme Court decision changed the old rules

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The U.S. Supreme Court ruled in June 2015 that all people have a right to marry regardless of the gender of either spouse. That case, known as the Obergefell decision, has had some significant tax consequences. Gay and lesbian married couples no longer have to grapple with having one filing status for their federal tax return and a different filing status for their state tax return. They no longer have to file separate returns at the federal level.

Gay and lesbian couples who are lawfully married can now file their tax returns just like any other married couple would. That means the same two basic options are available to them.

Filing a Joint Married Return 

The couple can combine all their income and their deductions on one jointly filed tax return. The key advantage of using the married filing jointly status is its administrative simplicity. You'll have just one tax return to prepare rather than two. The principal drawback is that both spouses take responsibility for the accuracy of the tax return and for full payment of any taxes that are due. 

Filing Separate Married Returns 

A gay couple can also file separate tax returns if they choose to, with each spouse reporting his or her own income and deductions on each return. Married filing separately is often considered to be a disadvantageous filing status because a range of tax breaks and incentives are not allowed for separate married filers.

The principal advantage of filing separately is that each spouse is then responsible only for what is reported on his or her own tax return and any resulting tax that's due. They can't be held responsible for the accuracy of the other spouse's tax return.

You Can No Longer Use the Single Filing Status  

The IRS makes it pretty clear that if you're considered married on the last day of the tax year, you must file one of the two married tax returns, but this can get tricky. The term "considered" can make a big difference.

You're considered unmarried for tax purposes if you're legally separated by a decree from the court, although you might not yet be actually divorced. Technically, you're still legally married and you can't marry anyone else, but you're considered unmarried for tax purposes so you could each file individual returns using the single filing status. 

And, of course, it's possible that you never tied the knot. Maybe you're living together as domestic partners or there's no formal arrangement between you at all. In this case, you cannot file a married return any more than an unmarried heterosexual couple could. 

Head of Household Filing Status 

Married couples might also be able to file separate tax returns with one or both spouses filing as head of household in certain situations. 

Here's an example. Suppose one spouse lives on the East Coast and the other lives on the West Coast. They have separate residences and they're raising two kids. One lives with the parent on the East Coast and the other lives with the parent on the West Coast.

As long as the spouses maintain separate residences and live apart from each other for at least the last six months of the year, and if they each have a dependent, they might be eligible for head of household filing status, and this is particularly advantageous with regard to tax brackets and the standard deduction. Other rules apply to qualifying as head of household. The taxpayer must pay more than half the cost of maintaining his or her own household during the course of the tax year. 

The same qualifying rules apply to unmarried couples. You must be "considered unmarried" on the last day of the tax year, you must pay more than half the bills for maintaining the household, and you need a dependent. Here's where things might get interesting again.

Can You Claim Your Partner as a Dependent? 

Your partner—although not your spouse—might qualify as your dependent, but the rules are strict. He or she must have lived in your home with you for the entire year. He or she must have only negligible income—no more than that year's personal exemption amount which is $4,050 for the 2017 tax year. You must have paid for more than half of his or her living expenses.

And the second rule regarding income will have to be tweaked in 2018 because the Tax Cuts and Jobs Act eliminates personal exemptions. There will certainly be an income threshold for qualifying, but it's not yet been determined exactly how much it will be.  

The Obergefell decision in combination with other tax laws gives you multiple options for tax filing, but it all comes down to your personal circumstances.