Update: The laws have changed! Please see the New Rules on How to File a Joint Tax Return for Domestic Partners.
The federal government does not recognize domestic partners as being married for either legal or tax purposes. However, some states do recognize domestic partners as being married for legal and tax purposes. Naturally, this has tax consequences on both a state and a federal level.
Domestic partner couples cannot file joint federal tax returns, but rather must fill out 1040s separately. However, if you are in a domestic partnership and you live in a Community Property state, then when you file your separate federal tax return you must also report half of all Community Income in addition to all of your separate income. Let’s take a look at how this works.
IRS Definitions of Separate/Community Property and Separate/Community Income
In May 2010 the IRS came out with a new legal memorandum that changed the way domestic partners must file their federal taxes. Before, the IRS had every domestic partner file taxes separately regardless of state community property laws. Now, state community property laws are taken into consideration in the process. However, not all domestic partners are affected by this change in law. Domestic partners in Community Property states that recognize same-sex marriages or partnerships are affected by this, including registered domestic partners (RDPs) in California, Nevada and Washington, and married same-sex couples in California. Before we look at the form to fill out, let’s look at some IRS definitions:
- Spouse: For tax purposes, this refers to a person of the opposite sex who is a husband or a wife. For the purposes of the form discussed below, spouse also includes RDPs (California) or same-sex spouse (Washington).
- Marriage: For the purposes of taxes, the IRS defines a marriage as “a legal union between a man and woman as husband and wife and the word “spouse” refers only to a person of the opposite sex who is a husband or a wife”. It should be noted that in definitions throughout the tax publications/tax forms discussed below, the IRS also includes the phrase “RDP/same-sex marriage depending upon the state you live in” when referring to marriage.
- Domicile: You may only have one domicile (even if you own more than one home). The IRS views your domicile as your permanent legal home that you intend to use for an indefinite or unlimited period. Also, if you are absent from this home, it is still considered your domicile if you intend to return to it.
- Community property: This is defined as property that you/your spouse/both acquire during your marriage while you and your spouse are “domiciled” in a community property state. This is also any property that was converted from separate to community property and can no longer be identified as separate property.
- Separate Property: This is defined as property that was owned by an individual previous to the marriage (or RDP/same-sex marriage depending upon the state you live in), money earned while “domiciled” in a noncommunity property state, property that you/spouse received separately as a gift or inheritance during your marriage, property that you or your spouse bought with separate funds or acquired in exchange for separate property during your marriage, property that you and your spouse agreed to convert from community to separate property (with a valid agreement under state law), or property bought with separate funds (in cases when part was bought with community funds and part with separate funds).
- Community Income: This is defined as income earned from Community Property, and salaries, wages, and other pay received for the services performed by you/your spouse/both during your marriage (or RDP/same-sex marriage depending upon the state you live in).
- Separate Income: This is defined as income from separate property.
Allocation of Tax Amounts between Certain Individuals in Community Property States
Publication 555 discusses community property laws that affect how you figure your income for your federal income tax return if you are married, live in a community property state or country, and file separate returns. In the 2011 tax year and prior tax years, domestic partners filed taxes separately but used Publication 555 in order to allocate income and deductions in community property states. With the changes in state laws, the IRS created a new form in order to deal with domestic partner tax filing in Community Property states.
Domestic Partner Tax Filing Form
Form 8958 was created in 2012 for Married Filing Separate Spouses, Same-Sex Spouses, or RDPs with Community Property Rights. Although domestic partners still file as single individuals, you and your partner or spouse in a Community Property State will need to report half the community income on each of your federal income tax returns and attach this form.