LGBT Couples Face Easier Tax Season

Rather than file their 2013 tax return last spring, Jeanne Rizzo and Pali Cooper kept filing for extensions with the Internal Revenue Service to delay the inevitable as long as possible.

The Tiburon couple, which married in 2008, was first waiting to see how the U.S. Supreme Court would rule in a lawsuit seeking federal recognition for same-sex marriages. When the court released its decision in late June, striking down a section of the Defense of Marriage Act, it opened the door for federal agencies to review how they treated married same-sex couples.

Eager to see how the IRS would implement the court's ruling, Rizzo and Cooper continued to push back when they needed to file their taxes for fiscal year 2012.

"We kept filing extensions with the IRS because we were waiting for their ruling. We waited until October 13, a few days before the final deadline to file, just to irritate them," said Rizzo.

In late August the IRS and U.S. Department of the Treasury announced it would treat same-sex couples that legally married in jurisdictions that recognize their marriages as married for federal tax purposes. The agencies also announced married LGBT couples could amend their 2010, 2011, and 2012 tax returns and seek refunds if they overpaid their taxes because they weren't allowed to file as married for those years.

The refunds could be substantial for those couples eligible for tax deductions and credits such as the Earned Income Tax Credit. For 2013 the credit is worth up to $6,044.

"It is a change for almost every gay couple in the country. Depending on what state you are in, there might be a change to your state taxes as well," said Joseph Henchman, the vice president for state projects at the Tax Foundation, a nonpartisan research think tank in Washington, D.C. "Being able to file jointly means there will be a little bit less paperwork. In a lot of cases it will probably even save them money."

Since they had waited to file their 2012 returns, Rizzo and Cooper were able to file as married and saw their bill from their tax preparer decrease. No longer did their accountant need to create four tax returns for the women in order to file their federal and state taxes.

"It came out very close in terms of how much we paid in taxes. It did save us on accounting fees," said Rizzo.

California has long allowed married same-sex couples, as well as those in domestic partnerships, to file their state tax returns as married. Since the 2010 tax season the IRS has recognized community property for registered domestic partners and married same-sex couples in a number of states, including California.

But the process for determining how to split a couple's income was so laborious that online tax filing services, such as Intuit's TurboTax, were unable to handle the returns for those LGBT couples impacted. Many same-sex couples resorted to using accountants to help them figure out their returns and faced bills close to $1,000 or more as well as having to pay additional taxes.

Due to the IRS decision last year, TurboTax is not only welcoming back same-sex couples as clients this year, the company has created an easy-to-use online tool to help married same-sex couples determine if they are owed refunds due to overpaying their taxes since 2010.

"You can do it on your own and we give you the three years of tax software for free," said Lisa Greene-Lewis, a CPA and the TurboTax blog editor. "If you need help, our credentialed tax experts will do it. The cost is $99 per amended return."

TurboTax has also updated its software to handle married same-sex couple's federal returns. It asks couples to specify they are a married same-sex couple not only to determine their federal return but also for figuring out their state income tax returns.

"We are always dealing with tax law changes so it is easy for us to make those changes," said Greene-Lewis. "With states, we keep in close contact with state revenue departments so we can update our software to be in compliance with those laws."

Just how many married same-sex couples will benefit from the IRS' decision is difficult to ascertain. Data collection on married LGBT couples is limited and differs by state.

Last June the Pew Research Center estimated there were at least 71,165 married same-sex couples in the U.S. The Williams Institute, an LGBT think tank at UCLA, has estimated there are at least 114,100 married same-sex couples living in the U.S.

As the Bay Area Reporter noted in December, California does not record information on the gender of married couples and, therefore, it is not known how many same-sex married couples reside in the Golden State.

An estimated 18,000 same-sex couples did marry in 2008 during the brief period when such marriages were legal that year in California.

San Francisco officials have begun tracking the number of same-sex couples marrying in their county. During the period of Friday, June 28, 2013, when same-sex marriages resumed in California, and Tuesday, February 11, 2014, the Assessor-Recorder's office tallied 2,661 self-reported same-sex marriage licenses that had been filed. (Some couples opt for confidential marriage licenses, which do not show up in the public tally.)

Because the IRS ruled it would not allow domestic partners to file as if they were married, city officials believe many of the couples that sought to marry before the end of 2013 were domestic partners seeking to take advantage of the new tax rules for married same-sex couples.

"If you are in a domestic partnership, it might be a good time to think about taking the plunge and going for marriage as that opens up the door to being able to file jointly at the federal level," the Tax Foundation's Henchman advised.

Married same-sex couples who may encounter more confusion this tax season are those that live in one of the 22 states that don't recognize same-sex marriage and require a person's state tax filing status to mirror the one on their federal return. Those states have issued guidance on the issue, but LGBT residents in those states may encounter headaches in filing their state taxes this year.

"In those states you are going to have to go through a few hoops. That may leave a bad taste for some people who won't be able to file jointly at the state level," said Henchman. "Just as the federal dummy returns in the past were a pain for couples, now potentially there will be pain going forward until those states recognize same-sex marriage."

The Tax Foundation's guidance for same-sex couples can be downloaded at taxfoundation.org/article/states-provide-income-tax-filing-guidance-same-sex-couples.

To access TurboTax's refund calculator for married same-sex couples, visit turbotax.intuit.com/tax-tools/calculators/taxcaster/past/