By CNNMoney
Filed under: Taxes, Estate Planning, Social Security, Estate Tax, Income Tax, Tax Deductions
Should the Supreme Court overturn a federal law that defines marriage as solely between a man and a woman, some married same-sex couples will save $8,000 or more in income tax, a new analysis finds.
This week, the court will hear a case challenging the Defense of Marriage Act, a 1996 law that prevents same-sex couples from receiving more than 1,000 federal benefits that opposite-sex married couples receive.
This includes the right to file federal taxes jointly — which, depending on income, gives some married filers a “bonus” of thousands of dollars, while penalizing others.
A same-sex couple with combined income of $100,000, in which one person earns $70,000 and the other makes $30,000, currently pays an extra $1,625 a year by filing separately rather than jointly, according to an analysis H&R Block conducted for CNNMoney. The calculations assume a standard deduction, no children and no tax credits.
The extra tax liability jumps to nearly $8,000 when one spouse earns all $100,000 and the other reports no income. In this case, couples filing jointly owe tax of $11,858, while a same-sex couple filing separately owes $19,585 — a 65 percent difference.
Cutting Tax Liability in Half
“[There’s] a myth that any time married people file jointly they are worse off than filing singly, and that’s just not correct at all — sometimes they get a marriage bonus,” said Jackie Perlman, a principal analyst at H&R Block Inc. (HRB).
That’s because filing jointly merges the two incomes, shifting some of the higher-earning spouse’s income into a lower tax bracket. In some scenarios, couples would even cut their tax bills in half by filing jointly — typically when incomes are low, Perlman said.
As the gap between incomes shrinks, however, the difference in tax liability is less pronounced. In H&R Block’s scenario, no extra tax is owed when each spouse earns an income of $50,000 and they file jointly instead of individually.
Other couples would end up owing more by filing jointly, especially if they miss out on deductions or credits like the Earned Income Tax Credit and the Child Tax Credit because, when combined, their income is no longer low enough to qualify or receive the full benefit.
Another major tax issue at stake in the DOMA case is the estate tax. Currently, surviving spouses in federally-recognized marriages don’t have to pay taxes on their deceased spouse’s estate, while same-sex widows pay a 35 percent estate tax on anything in excess of a $5 million exemption.
The case challenging DOMA was filed by New Yorker Edith Windsor, who sued to get back the $363,000 in estate taxes she paid when her …read more
Source: FULL ARTICLE at DailyFinance