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Tax breaks, pitfalls come with marriage

Same-sex couples are no exception

There are still plenty of questions for the IRS.

Susan Walsh/Associated Press/File 2013

There are still plenty of questions for the IRS.

WASHINGTON — Like other married couples, same-sex couples are about to learn that federal benefits for being married might not be all they’re cracked up to be.

Social Security benefits for spouses can be generous, but only for couples with big disparities in their incomes. Taxes are a decidedly mixed bag, and there are still a lot of unanswered questions for the Internal Revenue Service.

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Many middle-income couples should get welcome tax breaks now that they can change their filing status from ‘‘single’’ to ‘‘married filing jointly.’’ The biggest benefits will go to couples in which one spouse makes more money.

But those at the top and bottom of the income scale could face significant tax increases.

High-income taxpayers could feel the pinch because the tax code still contains substantial marriage penalties for couples with higher incomes. Low-income taxpayers could lose benefits that target the working poor, such as the earned income tax credit, if they get married and their spouse’s income disqualifies them.

Low-income parents also could lose other government benefits such as Medicaid, the health insurance program for the poor, if they get married and their spouse’s income pushes them above certain limits.

‘‘The poor gay couples, particularly if they’re raising children, are going to face the same huge penalty structure that’s now faced by low-income households in general,’’ said Eugene Steuerle, a former Treasury official who is now a fellow at the Urban Institute.

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The Supreme Court on Wednesday struck down parts of a federal law that denied government benefits to same-sex couples, even if they were married in states that recognize same-sex marriages.

In 2004, the nonpartisan Congressional Budget Office found 1,138 provisions in federal law in which marriage was a factor. Some were obscure, like being eligible to represent your spouse in negotiations over surface mine leases with the Interior Department.

Among the biggest were spousal and survivor benefits for Social Security. Social Security was designed to protect workers and their spouses even if the spouse didn’t work. Under the program, if one spouse works and the other doesn’t, the nonworking spouse can get retirement benefits simply by being married to the worker.

And if the worker dies first, the nonworking spouse gets 100 percent of the worker’s retirement benefits. Those benefits should soon be available to same-sex married couples.

The benefits disappear, however, if both spouses work and earn about the same amount of money over their lifetimes. In this case, both spouses simply get the benefits they earned by working and paying into the system.

The Congressional Budget Office tried to estimate the effect on the federal budget of legalizing same-sex marriage in every state. On balance, the study said benefits and penalties would come close to equaling out and have relatively little effect on the federal budget.

For same-sex couples, like all couples, how marriage affects your tax bill depends on a lot of factors.

Some of the biggest tax savings will go to same-sex couples in which one partner relies on the other for employer-provided health insurance. By law, employer-provided health insurance is tax-free for the vast majority of workers, married spouses, and dependent children. But if a worker’s unmarried partner is covered, those benefits, which can be worth thousands of dollars a year, are taxed.

Some wealthy same-sex couples could do well, too, if one spouse inherits a lot of money from the other.

The court’s decision, however, left many questions unanswered. For example, taxpayers can generally go back three years to amend federal tax returns. If same-sex couples have been legally married for three years, can they amend past returns and get refunds?

Also, what if you were married in a state that recognizes same-sex marriages but now live in a state that does not?

Do you file your federal taxes as a married couple and your state taxes as single individuals?

Stay tuned, says the IRS.

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