Tax woes for gay couples
Tax season is a headache for most people, but for gay couples, it can be even more complicated and expensive. Reporter Mina Kim visited a gay couple in San Francisco caught in tax season stress.
Filling out tax forms (iStockPhoto.com)
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TESS VIGELAND: Tax season means giant headaches for pretty much all of us. But in states where same-sex partners are allowed to file joint tax returns, they still have to file federally as individuals. For gay couples, that means complicated paperwork and added expense. Reporter, Mina Kim, visited a San Francisco couple caught in the tax tangle.
Mina Kim: Lindasusan Ulrich and her wife Emily Drennen have been happily married for six years. At their cottage home in San Francisco, they show me wedding photos and reminisce.
Ulrich: We were getting our picture taken like there was no tomorrow, and--
Drennan: We got married on a Friday the 13th right?
Ulrich: Oh yeah. Actually, it was February 13th.
Ulrich and Drennen met years ago, but in the eyes of the federal government, they're strangers. Although California allows same-sex couples to file joint tax returns, the federal government doesn't recognize gay marriages. Under the Defense of Marriage Act, it won't recognize civil unions or registered domestic partnerships either. That means same-sex couples have to file separate returns to the IRS as if they're single.
Ulrich: It was, rather a nightmare and took a while to put all the pieces in place.
Ulrich had to figure out how to split up shared accounts to create their individual returns. She also had to split their expenses, like mortgage and insurance. But the hardest part was trying to recombine those figures to do their joint state taxes. Their deductions as individuals didn't jive with their deductions as a married couple.
Ulrich: For that key piece of information of how to combine two forms, I couldn't find the answer anywhere.
San Francisco CPA, Chris Kollaja, says that's because the rules are still unclear.
Chris Kollaja: I highly recommend that people maintain separate bank accounts. That they pay their deductions in the way they would prefer to deduct them. That they avoid co-mingling when they can.
But even with careful tax planning, it's typical for same-sex couples to end up paying more to file their taxes. Since state forms require data from federal forms, same sex couples have to first prepare a fake, or "dummy" joint federal return. Online programs like Turbo Tax and Tax Cut charge extra for that "dummy" return. And, if there are any complications along the way, often the online programs can't handle the filings. Kollaja says that means going to a CPA, like him.
Kollaja: We're finding that the costs of preparing the return is considerable because we're preparing their returns three times as opposed to twice.
But for Ulrich, the biggest cost is an emotional one. She says it hurts that she and her wife Drennen can't file their taxes the same way straight couples can.
Ulrich: In all of those hours that I'm spending on the taxes, I'm constantly reminded that I'm a second class citizen. I'm less than.
Ulrich has yet to tackle her taxes this year. But to help her cope, she says Drennen bought her a "do-it-yourself" tax kit she happened to find online.
Ulrich: With a combination of like tax preparation, and a box of tissues, and a bottle of Jack Daniels.
Ulrich says she probably won't use the certificate for tax preparation included in the kit because their situation is so complex. But, taking a shot of Jack? That, she says, is a lot more likely.
In San Francisco, I'm Mina Kim for Marketplace Money.
Comments
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From Wakefield, MA, 04/06/2009
Thank you so much for having this article! My wife and I were married here in Massachusetts in October, so this year was our first time with taxes as a married couple, and I was interested so see what this report would have to say. One comment - someone in the report recommended that we keep everything separate to help figure out taxes. Now, that may be a useful idea for taxes (although buying a house together might be a challenge if you are keeping everything separate). However, it is NOT useful for inheritance issues, where we have been told over and over that the more things we hold jointly, the better/easier. Then we don't have to worry about probate, or about someone getting hit with taxes if, for example, we own a house and something happens to one of us.
From NE, 03/31/2009
I felt some comfort and validation from your piece describing what for me has been a private annual trial in patience and perseverance to file taxes for myself and my wife since we married in Massachusetts in 2004. I am the primary wage earner in our family, while my wife works part-time and is the primary caregiver for our children. While I can relate to Ulrich's feelings of second-class citizen status as a result of lack of federal recognition of her marriage, I am happy to report that I calculated that we came out about $4000 ahead by being forced to file separately. My wife, filing as single, qualifies for the Earned Income Credit, which we would not qualify for if filing jointly. While $4000 isn't much when you consider the negative impact that lack of federal recognition has on my wife's financial security (e.g. low Social Security earnings and inability to access my SS benefits if I should die), it's still $4000, and we'll take it.
From San Diego, CA, 03/30/2009
It's an excellent piece. What it should really mention is the discrimination faced by the children of same-sex couples as a result of gay couples NOT being allow to file joint returns.
In some households one partner makes considerably more money than another partner, who may be working at home raising the child. The couple cannot a file a joint tax return. If they could, they would, like married couples, save on taxes (by combining incomes). This leaves less money to support the child.
From Buffalo, NY, 03/29/2009
Although I have enjoyed and learned from your weekend programs for a number of years, I was extremely disappointed and disturbed by this story. It is full of misleading statements and false assertions.
First, the title is misleading by implying that the story applies to ALL homosexuals who live together. The fact is, as the story stated, the information applies only to a tiny fraction of such individuals -- only those who are allowed to file joint tax returns. These would be homosexual individuals in only a handful of states that have redefined marriage or passed so-called civil union laws. And even in this fraction of the states, only a small percentage of homosexual individuals living together have the legal standing to file with the state this way.
This story goes on with other misleading assertions speaking of "complicated paperwork", "added expense", and "nightmare". The obvious intent is to give the impression that homosexual couples are unfairly burdened by the federal government in their income tax preparation when in fact tax filing requirements for homosexual individuals are no different than they have been for single heterosexuals living in a shared dwelling since the start of individual income tax filings.
The article also makes the ludicrous charge that because these two people do not qualify for a federal joint return, "in the eyes of the federal government, they're strangers." I had two unmarried aunts, sisters, who lived together all their lives. They never filed jointly and never once thought the government considered them strangers. I’m frankly amazed that Marketplace Money would allow such a woeful attempt at journalism.
And finally, the emotional appeal is made that these two people have to spend so much extra money and feel such inner pain because they "can't file their taxes the same way straight couples can." The only reason for the added level of tax complexity for these two people is their desire for public recognition as a same-sex married couple when the vast majority of Americans oppose such a move. Their own state of California has actually had a majority of voters confirm the illegality of same-sex marriage in the last election.
Please keep up your normal great work in providing financial information, but also please consider refraining from promoting the social agendas of the homosexual movement.
From Chula Vista, CA, 03/29/2009
Marketplace has always been a very balanced program. Information is usually objective and informational. That is why I was surprised at this segment obvious bias and political bent in support of same-sex unions.
The reported failed to mention that the problem outlined in the segment is not exclusive of same sex couples. Unmarried heterosexual couples in California face the same issue. For federal tax purposes they are not married; for state purposes they may file a joint return.
Ms. Ulrich is not a second-class citizen because she is gay. She is treated the same way as heterosexual couples.
I hope Ms. Kim will show more editorial honesty next time she files a report.
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