Alex Blaze

IRS gives some same-sex couples a tax break

Filed By Alex Blaze | June 07, 2010 6:30 PM | comments

Filed in: Politics
Tags: California, community property, domestic partnership, irs, tax

The IRS ruled that same-sex couples with domestic partnerships in California must put down the average of their incomes when they file federal income taxes, reducing federal income tax liability for same-sex couples where one person makes significantly more than the other. California is a community property state, so the IRS found that the best way to account for these people's incomes in accordance with California law was to consider half the income they make together as belonging to either person.

The Wall Street Journal explains how it works with the couple that asked for the rule clarification:

Applying this rule to federal taxes offers clear tax benefits for people such as Mr. Rey--an executive who said he earns much more than his partner does--because it brings him into a lower tax bracket. In 2007, he said, applying this standard would have cut his federal tax liability in half and more than doubled his partner's tax bill. Taken together, it would have saved them about $7,000, he said.

Nevada and Washington are also community property states that have domestic partnerships, and the WSJ says they may be affected by this ruling as well. Wisconsin's also a community property state with domestic partnerships, but I guess they don't apply community property to DP's.

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I wonder how this would work if you kept your money separate? and only had an joint account to pay utilities etc out of? I know a couple of people like that.

And I have the strong feeling knowing my self when/if/when the time comes I'm in that kind of relationship unless I'm the one given control of the banking I don't ever see my self handing control of my finances over to some one else.(I'm to anle and have always been since I first started banking back when I was teeny tiny)

I will be very interested to see how this develops in regards to WA state, are they just going by the community property law? or also playing into state income tax law too? (as in it's easier to say well we know it works for that it should work for this, so its good enough approach? if so that could make a difference with WA having no state income tax, only 8.5%sales tax)

Steve Ribisi | June 7, 2010 7:20 PM

So, my husband and I are registered domestic partners in California. We moved out of state in 2005 and married in Massachusetts, where we now reside. Does this ruling affect us? He makes nearly double what I make.

...and gives others a higher tax bill too...

I really wish I could answer your tax questions, but I really don't know the answers. And few knowledgeable people are writing about this because it's such a specific ruling. All I can say is look for a professional's advice.