April 15, 2009

Massachusetts Tea Party Protests Unequal Tax Treatment of Same-Sex Married Couples

by Josh Barro

Today's Tax Day Tea Parties have attracted a lot of attention.  However, another group is holding a tax protest of its own on Boston Harbor today.

Join the Impact Massachusetts! will throw 1040 forms into the harbor to protest the federal government's non-recognition of gay marriages—and therefore its denial of certain tax advantages of marriage to same-sex couples.  Say the organizers, "Like the manipulative British taxes on tea, intentional federal discrimination against same-sex families represents a highly invasive form of social engineering worthy of King George himself."

The website for the tea party focuses on one tax disadvantage for same-sex couples: health insurance benefits provided to an employee's same-sex spouse are subject to federal income tax, while benefits provided to other family members are non-taxable.  However, same-sex married couples face at least three additional tax disadvantages that stem from federal non-recognition of their marriages:

• Many married couples receive a "marriage bonus" in the form of a lower joint tax liability than would apply if each partner were single.  This is usually the case when one partner has a much higher income than the other.  Same-sex couples must file federal returns as single, even if filing as married for state purposes, and so cannot benefit from a marriage bonus.
• Property given to one's spouse is exempt from federal gift tax and estate tax.  However, same-sex couples cannot benefit from this exemption.
• Same-sex married couples also face added costs to comply with the income tax.  This is because most such couples must complete four tax returns each year: a single federal return for each partner, a joint state return, and a "dummy" joint federal return—based on a scenario in which the couple is treated as married for federal purposes—that serves as the basis for the joint state return.  Most other married couples complete only two income tax returns, one state and one federal.

Last year, H&R Block got in some hot water because its Tax Cut software couldn't handle same-sex tax complexity in Connecticut.  But with the spread of gay marriage throughout New England, it's likely that tax preparers are becoming more and more familiar with the ins-and-outs of same-sex married tax filing.

More on taxes in Massachusetts.  Hat tip: Reason.