Top earning gay couples could be paying more in Federal Income Tax as the Supreme Court weighs the legality of same-sex marriage. Currently, couples that have been married in States that recognize same-sex marriage are allowed to file jointly for State Income Tax purposes, but cannot file jointly for Federal purposes. The Federal Government does not recognize same-sex couples.
For wealthy gay couples, filing jointly will increase their income taxes. For example, couples that make more than $400,000.00 each would have to pay thousands in income tax. These high earning couples already are faced with high taxes at 39.6 percent, but when you add both couple’s salary, they will be in for a shock at how much they will currently have to pay in income tax.
The Supreme Court is considering two different cases that are challenging Federal law called the Defense of Marriage Act, which makes same-sex marriage illegal. The court is expected to rule on these cases by June.
Some benefits that same-sex couples would gain if the Supreme Court rules in their favor would be in regards to estate tax. Wealthy gay married couples would be able to delay estate taxes if their unions were legalized. In addition, they would be able to benefit from portability, which would allow them to pass their wealth to their surviving spouse and avoid estate taxes. Couples would also benefit from the estate marital deduction. Currently, gay couples have to form intricate trusts and must pay thousands of dollars to professionals to avoid estate taxes.
On the flip-side, gay couples would lose the ability to pass assets to their surviving spouse through grantor retained income trusts (GRIT). Congress in 1990 banned the use of GRITs for immediate family members because people were using them to discount their assets and reduce the amount of gift tax owed.
Same-sex couples would have more options for their retirement savings upon the death of their partner if their unions are legalized. The partner would be permitted to rollover the deceased spouse’s account into their own account and it would be tax free. Currently the surviving partner would have to take a taxable distribution from the account of the deceased partner.
There is good news and bad news for same-sex partners when it comes to gay marriage. It will be interesting to see what the Supreme Court says in their ruling later this year.
For more information visit www.smalleynco.com
If you have any questions you can email Craig W. Smalley E.A.
Author of the books: It Starts With an Idea – Tax Tips for Small Businesses, The Ultimate Real Estate Investor Tax Guide, The Complete Guide to the New Tax Law – American Taxpayer Relief Act of 2012, Everything You Wanted to Know about the IRS – Audits, Appeals and Collections, Tax Avoidance is Legal! The Complete Guide to Individual Income Tax, The Complete Guide to the Affordable Care Act’s Tax Provisions, The Complete Guide to Retirement Plans for Small Businesses, The Complete Guide to Estate, Gift and Trust Taxation, The Complete Guide to Hiring an Accountant, The Complete Guide to Subchapter S-Corporations,, and Free Money. All available exclusively on Kindle