12 Top Tax Tips for Same Sex Couples

By ZM Ishmurzina

The Defense of Marriage Act, also known as the DOMA was overturned by the Supreme Court in June of 2013. As a result of it, equal healthcare and tax rights have been extended to same sex marriages as to opposite sex marriages.

This court decision affects not only US taxpayers living in the USA but American expats married to nonresidents. Consequently, it outlines how same sex couples can file federal income tax returns as well as amend prior year tax returns.  These rights now require same sex couples to file their federal tax return as Married Filing Separately (MFS) or Married Filing Jointly (MFJ) just as opposite-sex couples do.

12 Top Key Tax Issues for Same Sex Couples living in the USA and American Expats

Are the tax rights available to same sex marriages in all states as well as US military?

These tax rights are available to same sex couples residing in a state that does not recognize their marriage as long as the same sex marriage was formed in the state that considers this marriage legal.

According to the Pentagon, the same tax and healthcare rights have been extended to same sex couples enlisted in the US Military. Moreover, if military members serve in a state that does not recognize same sex marriages, they will be allowed to take 10-day leave to travel to another state in order to get a legal marriage license.

Are these tax rights available to American expats living abroad?

The Supreme Court ruling covers US taxpayers residing in the USA as well as American expats living abroad. US expats in a same-sex marriage that live and work overseas are allowed to have the same rights as if they were living and working stateside. The Department of Treasury and the Internal Revenue Service both recognize US Expats that reside in another country and were married in a state or country where same sex marriages are legal. This ruling applies even if American expats in same sex marriage in a country where same-sex marriages are illegal.

What are the tax benefits for married filing jointly in case of same sex couples?

Filing a joint return allows a US taxpayer or an American expat to take an advantage of several benefits, such as married couple are allowed higher deductions and exclusions.

Can each partner in same sex marriage claim the foreign earned income exclusion?

As long as each partner in same sex couple meets the requirements like bona fide residence test or physical presence test, each American expat can claim the foreign earned income exclusion. As a married couple, American expats in same sex marriage can exclude up to $202,600 in a tax year 2016 when they file a joint return. Each American expats can exclude up to 101,300 of foreign income in a tax year 2016.

Are spouses in same sex marriage required to file the FBAR?

Yes, FinCEN Form 114 must be filed by an American expat in a same sex marriage if the aggregate value of foreign financial assets exceeds $10,000 at any time during the year.

Are same sex couples required to file an amended return?

Same sex couples are not required to file an amended return but it will be beneficial to do so if there is a refund due.

For the purpose of federal taxes, when does the IRS consider same sex marriage legal?

In regards to federal tax purposes, foreign and state law are taken into consideration by the IRS in determining the married status. The general rule the IRS follows in regards to same sex marriage is if it is legal in the domestic or foreign jurisdiction where the marriage took place. Even if the same-sex married couple is currently living in a domestic or foreign locale, the location of their legal marriage holds precedence.

Can same-sex spouses use married filing joint or married filing separately status when filing their federal tax returns?

Yes. Starting with the 2013 tax year, in general, same-sex spouses are required to file either MFS (married filing separately) or MFJ(married filing jointly) status. In general, starting with the 2012 tax year and all previous years, same-sex spouses that had filed an original tax return on September 16, 2013 or after (reference the effective date of Rev. Rul. 2013-17) are required to file as MFS or MFJ status.

For a tax year 2012, the same sex spouses that had filed a tax return prior to September 16, 2013, have the option to amend their filing status on previous federal tax returns. For taxes filed 2011 and prior, same sex couples are allowed to file an amended return to change their filing status if the period of limitations has not expired for filing amendments.

The standard limitation for filing for a refund is the later of the following situations: 2 years from the date that the taxes were paid and 3 years from the original filing date if there was a refund. More information on filing an amended return, please review Tax Topic 308, Amended Returns.

Can a joint return be filed by a taxpayer and their same sex spouse if they reside in a state that does not allow same sex marriage but their marriage took place in a state that recognizes same sex couples?

Yes. Per the IRS, the general rule is that a same sex marriage is recognized if it was legally entered in the domestic or foreign location that allows a same sex marriage. This general rule holds even if the same-sex married couple is living in a jurisdiction, domestic or foreign, that does not recognize same sex marriages as legal. More information about married filing jointly or married filing separately can be found in Q2.

Can a same sex spouse be claimed as a dependent on the taxpayer’s income tax return?

No. The spouse of the taxpayer cannot be claimed as a dependent on their tax return.

Can the filing status of “head of household” be used on a same sex couples tax return?

The head of household status cannot be used by a married taxpayer in same sex couples. However, a married taxpayer can be considered unmarried and can file as Head of Household if a taxpayer can prove the following:

  1. They did not live with their spouse the last half of the year
  2. They provided over half the household costs as the principal residence for a dependent child the last half of the year.

More details are available in Publication 501.

If same sex spouses file married filing separately and they and they have a child, which parent can claim the dependent child on the federal tax return?

A6. If a child is considered a qualifying child under section 152(c) of both parents, only one parent may claim a deduction for the dependent child. If both parents in same sex marriage claim the same child on the federal tax return, then the IRS will audit the returns. Additionally, the IRS will grant the deduction to which parent the child resided with the longest during the said tax year. If the child spent equal amount of time between the parents, the parent with the higher AGI will be allowed to claim the dependent deduction.

Conclusion

Same sex couples living in the USA and abroad are advised to contact an experienced CPA to assist them with IRS tax filing requirements. CPAs and EAs at Artio Partners will be pleased to assist partners in same sex marriage with various tax issues including foreign filing requirements like FBAR and FATCA.