taxes

As laws clash, gay parents find tax breaks

same sex couple with child
Highlights
  • The federal ban on same-sex marriage results in tax benefits for some gay families.
  • Gay parents may use head-of-household filing status to maximum advantage.
  • The inability to file jointly can mean a tax break for gay couples who adopt.

If Mitchell and Cameron of TV's "Modern Family" lived in the real world, they would be scratching their heads over the confusing welter of laws faced by families headed by gay couples. But when they sit down with their accountant, they might be grinning because these conflicting laws can provide gay and lesbian parents with a big break on their income taxes.

"Sometimes same-sex couples with children have an advantage," says Tina Salandra, whose New York City accounting firm, Numerical, specializes in taxes for gays and lesbians.

Federal gay marriage ban complicates things

Like hundreds of thousands of other same-sex couples, Mitchell and Cameron are raising a child. In their fictional case, they have an adopted daughter from Vietnam named Lily and are considering adopting a second child.

In real life, same-sex couples with kids have to deal with financial and legal confusion primarily created by the Defense of Marriage Act, a 1996 law that prohibits the federal government from recognizing same-sex marriages, according to accountants and tax attorneys. Though state laws allow same-sex couples to marry legally in a growing number of places -- currently Massachusetts, Iowa, Vermont, Connecticut, New Hampshire, New York, Washington, D.C., and Washington state -- the Internal Revenue Service has to treat same-sex spouses as if they were strangers. (Maryland will join the same-sex marriage states when a new law takes effect in January 2013.)

Among many other things, the federal law bars legally married same-sex couples from receiving the same Social Security and federal pension benefits that married heterosexuals can. Same-sex spouses also pay taxes on health insurance benefits and gifts that married heterosexuals never pay.

However, the law may sometimes cut gay families a few breaks. The biggest can come from the fact that legally married same-sex couples are prohibited from filing their taxes jointly.

"Because gay couples cannot file a joint (federal) return, they are not subject to the 'marriage penalty,'" Salandra says.

Married heterosexuals can be subject to a higher tax rate than single taxpayers because their combined income can push them into a higher tax bracket. Heterosexual married couples do not have to opt for the convenience of filing jointly. But even if they claim the status of married-filing-separately, they may still pay higher taxes because they fall into different, more demanding tax brackets than single taxpayers.

Head of household: Boon for gay parents?

Gay and lesbian parents can reduce their taxes in even more ways, Salandra says.

If one parent provides more than 50 percent of a child's financial support, that parent can claim head-of-household filing status and get a higher standard deduction and lower tax rate than single taxpayers. In a same-sex household with two or more children, each partner may be able to claim head-of-household status.

However, the IRS has been challenging these kinds of filings recently, says Wendy Hartmann, a tax and estate attorney with the Los Angeles firm of Bennett & Erdman. Couples contemplating this sort of move should contact their tax advisers.

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