IRS Grants Same-Sex Couples Equal Tax Treatment

Same-sex couples in California will now face equal taxation to heterosexual couples. The Internal Revenue Service (IRS) made this ruling due to a feature of California tax law. The recent ruling is the first time the IRS is acknowledging gay couples as a unit and taxing them accordingly.

According to the IRS, almost 58,000 domestic partners in California must now combine their income and each report half on their tax returns. About 95 percent of these domestic partnerships are same-sex couples (the other five percent are heterosexual couples with one partner over age 62).

Generally, even same-sex couples who are legally married can’t file joint federal tax returns. The 1996 Defense of Marriage Act defines marriage between one man and one woman and disallows federal agencies from recognizing other forms of marriage.

But California has community-property rules that complicate things, requiring that income be considered joint property for any married couples. In 2005, California law specified that the community-property rules apply to registered domestic partners. Until now, the IRS didn’t allow same-sex partners in California to file their taxes using their joint income, despite California law.

The ruling may also affect same-sex partners in Nevada and Washington State, where there are similar community-property laws and recognition of domestic partnerships. California is one of nine states with community-property laws.

While this ruling conflicts with the Defense of Marriage Act (DOMA), it has huge potential benefits for same-sex couples in California. It has potential to save same-sex couples vast amounts of money. It’s also a large step forward for a government agency as big as the IRS to recognize same-sex couples much the same as heterosexual couples. While most same-sex partners in the United States still face tax discrimination, the IRS ruling provides a glimmer of hope that, eventually, all same-sex partners will be taxed the same as their heterosexual counterparts.

Photo credit: Pacdog