In 2013 there was a huge change to the way that domestic partners are allowed to file their taxes. Prior to this date, the federal government did not recognize domestic partners as being married for either legal or tax purposes. However, some states did recognize domestic partners as being married for legal and tax purposes, which meant that there were tax consequences (advantages and disadvantages) depending upon the state you lived in.
Let’s take a look at how this used to work, and the way it works now.
Old Way Domestic Partners Had to File Taxes
Prior to the passing of new legislation, when the federal government did not recognize domestic partner couples for tax purposes, domestic partners could not file joint federal tax returns. Instead, they had to fill out 1040s using a separate filing status (married filing separately).
The way that this worked when a same-sex married couple lived in a Community Property state is when each partner filed a separate federal tax return, they also had to report half of all Community Income as well (this was a change made just in May 2010; prior to May 2010, for Community Property states, the IRS had every domestic partner file taxes separately regardless of state community property laws).
New Way Domestic Partners Can File Taxes
As of 2013, the IRS granted same-sex married couples equal federal tax filing status regardless of the state they reside in. This means that for same-sex married couples, no matter what state you live in, you can now file a joint tax return (even if you reside in a state that does not recognize same-sex marriages).
And this decision could be retroactive; as married same-sex couples are allowed to amend up to three years of old tax filings in order to submit a joint tax return for domestic partners. See How to File an Amended Tax Return.
What is the Potential Benefit of a Joint Tax Return for Domestic Partners?
You do not have to file a joint tax return because of this law. Just like with a husband and wife, you now have the decision to make between two filing status options as a same-sex married couple: married filing separately, or married filing jointly.
- Married Filing Jointly: Filing jointly means you will file one tax return together, including all of your income, deductions, assets, credits, and tax liabilities.
- Married Filing Separately: Filing separately means each of you file your own tax return.
Married couples who file jointly can potentially apply for child and dependent care credits, adoption expense credits, tax-free exclusion of US Bond income, tax-free exclusion of Social Security income, and various education expense credits. Filing joint returns also can help with the IRA contribution deduction despite your spouse contributing to an employer’s retirement plan. These options are not available for couples who file married filing separately.
Also, if you are married and filing jointly, you will enjoy lower tax rates than if you are married and filing separately, which means you could pay less taxes.
What is the Potential Drawback to Filing a Joint Tax Return?
Have you ever heard of the marriage penalty? Well, now that same-sex married couples can file a joint tax return, they might incur this penalty as well. When you file a joint tax return, it is possible that not only will you see no financial benefit from doing so, but you may actually pay more in taxes than when you were filing separately.
Also, if one person has significant medical expenses, then it may make sense to file separately so that the medical expenses become a larger percentage of their overall income (thus meeting the minimum threshold for taking a medical tax deduction).
You can use the Tax Calculator to compute your tax liability under both scenarios and compare the differences.
Remember that if you and your spouse file a joint return, you both assume joint responsibility for the information included on it (you also both have to sign the tax return, showing the joint responsibility involved). This means you are responsible for your spouse’s tax liability and vice versa. It also means you could be responsible for errors or fraudulently filled out returns (unless you are considered an innocent spouse by the IRS).
If you decide to amend a tax return from the previous three years so that you can file jointly, then you will need to fill out Form 1040X: Amended U.S. Individual Tax Return. Before doing so, fill out a joint return and see if it makes financial sense for you to amend or not by comparing your married filing separately tax return previously submitted with a joint tax return. You can use our tax estimator to calculate differences on prior year returns.