Along with new benefits would come a bigger tax bite, for some same-sex couples. Ruling will be a taxing issue, as well

If the Supreme Court decides to alter the way the federal government recognizes gay marriage, it could have an unexpected impact for some same-sex couples: higher taxes.

Taxes might seem a footnote in the two landmark same-sex marriage cases for which justices are hearing oral arguments this week.


But the origins of the challenge to the Defense of Marriage Act, otherwise known as United States v. Windsor, stem from a tax challenge. And a Supreme Court ruling on gay marriage could have a major impact on how same-sex couples deal with marriage tax issues.

Same-sex couples are excluded from federal benefits given to heterosexual married couples, including the estate tax exemption and Social Security and Medicare payments for spouses.

That would all change if justices rule that DOMA, or the other law in question — California’s Proposition 8 — violate the equal protection clause of the Constitution.

But along with new benefits would come a bigger tax bite, for some.

That’s because of the so-called marriage penalty. When couples with relatively equal incomes file jointly, the tax breaks they receive often are not as great as if they were filing as single.

For same-sex couples and their advocates, the possibility of higher taxes could be a small price to pay for social and cultural equality, and a small element of the broader debate over the right to marry. But it underscores the complicated policy implications of the government’s involvement in marriage.

“Income tax can work to their disadvantage,” said Roberton Williams, a fellow at the Tax Policy Center. “If you’re forced to file as a married couple, which what doing away with DOMA would mean, you’ll face a penalty.”

Justices heard oral arguments on Hollingsworth v. Perry on Tuesday, and will hear arguments on United States v. Windsor on Wednesday.

The decisions for both cases are expected in June at the end of the court’s term.

The second case, brought by New York state resident Edith Windsor, directly challenges DOMA — legislation signed into law by President Bill Clinton — based on a tax bill.

Windsor and her partner married in 2007, but the marriage was recognized only by the state, not the federal government. When Thea Clara Spyer died, she left her estate to Windsor, who was forced to pay $360,000 in taxes on the inheritance.

If the federal government had recognized their union as a marriage, Windsor would have owed nothing because spouses are granted an unlimited exemption to the estate tax.

Federal recognition of Windsor’s marriage would have led to a dramatically lower tax bill for her.

But if the Supreme Court decides the federal government has to grant people in same-sex marriages the same tax status as all married couples, that won’t necessarily be a good thing when tax season comes around.

“The joint return is not going to provide them a benefit,” University of Illinois law professor Richard Kaplan told POLITICO. Many same-sex couples “are in better shape right now by not being obligated to file a federal return as a married couple.”

Even with tax-deferred retirement vehicles like Roth IRAs, “the numbers are more attractive if you’re single than if you’re married,” Kaplan said.

But that doesn’t mean a rush of same-sex joint filers will flush the Treasury with cash.

The Congressional Budget Office estimated in 2004 that 1.2 million people identified as living in same-sex partnerships, and said that recognizing these couples as married would increase revenue by nearly $400 million over a five-year period.

If the IRS recognizes same-sex marriages, it will likely be revenue neutral or raise insignificant revenue, Kaplan predicted.

That’s because while the government might collect more from joint filers, it would also owe these couples benefits it currently doesn’t provide same-sex couples.

“Actually, the government could be paying out a lot more money, because some of these people will be getting benefits that they would not otherwise receive,” Kaplan said. “It’s hard to say this is a windfall or an unexpected expense for the government.”

And taxes would be dramatically simpler for same-sex partners living in some states that recognize their marriage if the law were overturned by the Supreme Court.

California, Nevada and Washington recognize either same-sex marriages or domestic partnerships because of their community property laws. In these three states, special tax rules are used to evaluate income for same-sex couples.

For tax purposes, married couples in California, Nevada and Washington must evenly split income among each filer, which bars them from claiming dependents and earning some tax credits.

“There are very odd things that happen because of the way things are administered by the IRS,” Williams said.

If the Supreme Court does overturn DOMA, same-sex couples will see a benefit with estate taxes — married couples have an unlimited exemption for passing on estates to their spouse without facing a tax penalty — and with other Social Security and Medicare benefits that spouses can receive from the primary beneficiary.

“The estate tax is one of the few unbridled benefits for married couples because of the unlimited exemption,” Kaplan said. “So there clearly is a huge benefit to being married.”