In June, the U.S. Supreme Court issued a ruling for the Windsor v. United States case. The court found a section or provision of the federal Defense of Marriage Act, (DOMA), which defined marriage as between a man and a woman, to be unconstitutional.
The Windsor case involved Edith Windsor and Thea Spyer, who married in Canada in 2007, after being in a relationship for 40 years. When Spyer died in 2009, Windsor was forced to pay $363,053 in federal taxes on Spyer’s estate, which she would not have had to pay if she’d been Spyer’s husband. She argued that DOMA, which prevented her from being considered Spyer’s spouse for federal purposes, cost her $363,053. Below are some key benefits that same-sex married couples are now entitled to under the Windsor decision: Social Security Death or disability has a devastating impact. For a spouse who previously relied on the deceased or disabled spouse’s earnings to maintain the household, the financial impact can be catastrophic. S.S. benefits are based on your own earning history OR the earning history of your spouse. A surviving spouse or disabled spouse is entitled to benefits based on his or her spouse’s earnings. Until the Windsor decision, a disabled spouse or a surviving spouse, in a same-sex marriage, did not have access to spousal Social Security benefits. Spousal rollover of IRA IRAs and 401ks allow contribution to a retirement account tax-free, with contributions growing tax free. When the account owner reaches age 70.5, he or she must start taking withdrawals, and pay tax on the amount withdrawn. If a married person dies, and owned an IRA or other qualified retirement account, the surviving spouse, as beneficiary of the account, has the right to take that retirement account as his or her own and may defer withdrawals until reaching age 70.5. This means the funds in the account continue to grow income tax free. This is a terrific tax benefit that was denied to same-sex spouses prior to the Windsor decision. Joint federal income tax return Due to the Windsor decision, same-sex married couples are able to file joint federal income tax returns. Filing a joint return usually reduces federal income taxes, especially when one spouse has a high income and the other has a low or no income. On the other hand, federal income tax will typically be increased when both spouses have high income. For example, in 2013, single taxpayers reach the 33 percent tax bracket at $184,000 of income, but married couples did not hit the highest bracket until their income reached $223,000. It may be possible for same-sex couples to amend some prior years’ tax returns and collect significant refunds. Employment benefits Spouses of federal employees are entitled to many benefits, including health insurance, dental and vision, life insurance, COBRA and more. These benefits are described on the federal employees' website, which now includes a statement indicating that, following the Supreme Court’s repeal of section 3 of DOMA, the government “will now be able to extend certain benefits to federal employees and annuitants who have legally married a spouse of the same sex.” Estate and gift tax The Windsor case is an estate tax case. Federal estate tax law allows for an unlimited deduction for assets that pass to a surviving spouse either by gift during life, or at death. This means that a surviving spouse never pays any estate tax upon the death of the first spouse. However, when Edith Windsor’s spouse, Thea Spyer, passed away and left her estate to Edith, the IRS denied the estate the marital deduction and assessed $363,000 of estate tax against Ms. Spyer’s estate. Ms. Windsor paid and then successfully sued for a refund. The case made history. Same-sex married couples now have the same right to the unlimited estate and gift tax deduction as heterosexual couples. What to do…what’s next? While the ruling has changed the lives of many, it has also raised issues that will likely take years and more court cases to resolve. Couples need to ask themselves many questions, such as: Should we get married? Should we amend our previously filed tax returns? Should we change our wills or trust? Should we alter the way our investments are vested or titled? Overall, many financial arrangements previously made should be reviewed. And since the ruling, there have been a number of lawsuits citing the Windsor case as a basis for granting same-sex married couples the same rights as opposite sex married couples in other areas of the law. In states that do not recognize same-sex marriage there may be additional difficulties to overcome. However, the Windsor decision is a significant step in providing same-sex spouses with the same security and benefits traditional married couples enjoy. |