THE BLOG
07/02/2013 08:48 pm ET Updated Sep 01, 2013

A Look at How Marital Status Affects Your Tax Return in Light of the Recent DOMA Decision

If you are one of the many U.S. taxpayers impacted by the recent Supreme Court decision on the Defense of Marriage Act (DOMA), you may be owed money from the IRS. But there is still quite a bit of clarity needed before that can happen. For example -- WHO will the IRS consider married for federal tax purposes? What about State taxes? Can taxpayers go back and amend prior tax returns or only go forward? So before you start spending all of that new tax refund money, the rules need to get a lot clearer.

Getting married is a big life change and your marital status has a big impact financially when you file your taxes. Although there certainly seems to be the potential for new and improved tax filing positions, there also could be some possible pitfalls for many taxpayers. So, before we get to how it may work, let's look at some general considerations for how tax law applies to those taxpayers who are married versus those who are single.

Generally speaking under the old tax rules, and likely under the new rules as they get further clarified by the IRS as a result of the DOMA ruling, if you are legally married before midnight on Dec. 31, you are considered married for the entire year. On the flip side, if you are divorced or legally separated by midnight of Dec. 31, you are considered single. You don't have to live with your spouse during the year to be considered married, you just have to be married. The key will be the IRS definition of "married" and how it applies on the tax return -- a key point to be clarified soon by the IRS.

Having said that, once they're hitched, married taxpayers can no longer file as Single. Their new tax status becomes one of the following: Married Filing Jointly, Married Filing Separately, or if you meet certain strict qualifications, Head of Household (but that is a topic for another time). For now we will focus on Married versus Single tax considerations. It's worth noting that you may never claim your spouse as a dependent when you are married. Oftentimes taxpayers think that if only one spouse works, the other may be claimed as a dependent, but this is not the case. You can, however, file a joint return even when only one taxpayer worked.

Let's look at the tax differences of married filing jointly taxpayers versus two single taxpayers.

  • If your income is greater than or equal to $50,000 each, you may pay less tax on two returns for single taxpayers. The married filing jointly tax rates have the largest spread for each tax bracket. However, taxpayers with a similar income of $50,000 or more often pay more taxes because they will have more income in the higher tax bracket. So married taxpayers filing jointly may pay higher taxes than if single.
  • For those couples over age 62 who receive social security benefits, you may pay more taxes on more of the received Social Security benefits than on two single separate tax returns for single taxpayers. The "base" amount, the amount of income you have before Social Security benefits become taxable, is $25,000 for a single taxpayer, but only $32,000 for married taxpayers filing jointly, effectively lowering the threshold $18,000 when combining both incomes. In addition, eighty-five percent of benefits may be taxable when your income is $34,000 if Single and $44,000 when filing jointly. In summary, getting married and combining income may require you to pay taxes on more of your Social Security benefits.
  • Beginning in 2013, up to eighty percent of itemized deductions phase out or get denied from being deductible when adjusted gross income reaches $250,000 for single taxpayers, $275,000 for Head of Household taxpayers and $300,000 for Married Filing Jointly taxpayers. Two single high-earner taxpayers may preserve more of their itemized deductions than getting married and filing a joint return, or a married filing separate return.
  • When you combine your income, it may put you over the $250,000 income threshold forcing the additional Medicare taxes. Beginning with the 2013 tax return, high income taxpayers will be subject to an additional .9 percent Medicare surtax on earned income greater than $250,000 for joint taxpayers and $200,000 for single taxpayers. The 3.9 percent Medicare surtax on investment income is effective on excess investment income greater than the same thresholds as the additional Medicare tax for high earners.
  • Like the itemized deductions, personal exemptions will phase out and may not be used when Married Filing Jointly taxpayers' adjusted gross income exceeds $300,000. The phase-out range for taxpayers filing single is $250,000.
  • If you claim deductions or credits such as the child tax credits, earned income tax credit, the education credits, and the IRA, student loan interest and the tuition and fees deductions, that may be impacted by phase-out levels, you may be able to preserve some, or all of the benefits, on the lower income earner by remaining single.
  • Married taxpayers may be able to invest up to $5,500 ($6,500 if the spouse is age 50 or older) into an IRA for their non-working spouse. This allows a way to save money for both taxpayers in a tax-favored IRA.

These just name a few of the differences between the two filing statuses that can affect your refund amount or balance due. The rules for married taxpayers versus single have always been complex and this new ruling certainly adds to the tax law and rules complexity. But where there is complexity in the tax law, there is opportunity to understand the rules and if they apply to you, possibly lower your taxes. The benefit of tax complexity is in many cases greater fairness and equity under the law. Then again, if you do not pay attention to the rules, new or old, you may find yourself paying more taxes than are needed. Pay attention to the developments coming in the next weeks and months as a result of the new DOMA ruling and if they apply to you -- especially if the IRS allows retroactive treatment for prior year tax returns, get some professional tax help if you need it and consider going back and getting some refunded taxes. It is, after all, your money.