For same-sex couples contemplating marriage, tying the knot confers many legal rights and benefits. Since 2004, nine states and the District of Columbia permit same-sex marriage. But from a financial perspective, such benefits are limited since gay marriages are currently not recognized under federal law. In fact, same-sex marriage has both pros and cons when it comes to finances.
The Good News
For those living in a state that permits gay marriage there are a number of benefits.
- You may pay less state income tax. Traditional married couples have the option of filing their federal and state tax returns jointly. That means they can share deductions for children, mortgage payments, and other items that can generate significant state tax savings, especially for couples with lower incomes. The same applies to same-sex couples in states that recognize gay marriage, however, only at the state level.
- Your health insurance bill could go down. Shared coverage can save thousands of dollars a year in health insurance premiums. Some insurance companies require marriage for shared coverage. Others may offer coverage to domestic partners and same-sex unions, but the value of a partner’s benefits may have to be reported as taxable income. Although rules vary by state, same-sex couples generally qualify for shared coverage in states that recognize gay marriage, and need not report benefits as taxable income on the state level.
- You’ll be first in line to inherit your spouse’s assets. Under most states’ laws, a spouse is the first in line of inheritance, even in the absence of a will. Surviving spouses can also make certain critical decisions following the death of a spouse.
- You won’t owe state estate taxes if your spouse dies. Spouses of traditional marriages generally don’t pay estate tax on either the state or federal level for amounts inherited. For same-sex spouses in states that recognize gay marriage, no state “death tax” will apply. However, on the federal level, estate taxes may still apply since the IRS does not recognize same-sex spouses.
- You may benefit from financial protections in the case of divorce. Like traditional married couples, same-sex married couples are subject to a state’s divorce laws, which typically require equitable distribution of assets and spousal support or alimony. Such protections can be viewed as a positive or a negative, depending on whether you’d be the receiver or payer.
The Bad News
- You won’t enjoy any of the federal tax benefits of marriage. This includes the right to file jointly or claim spousal exemption from the federal estate tax. Nor can you establish a joint IRA or other tax-advantaged retirement savings account.
- Filing your income taxes will be more complex. Same-sex married couples may file their state tax returns jointly, but still need to file separate federal tax returns (either as single or head of household). That means you cannot piggyback your state tax filing off your federal return, making tax preparation even more complex, time consuming, and costly than it already is.
- You cannot collect residual Social Security benefits. For traditional married couples, the Social Security benefits of a deceased spouse go to the surviving spouse. Widowed spouses, as well as those who divorced after at least 10 years of marriage, are entitled to their spouse’s Social Security benefits if they are greater than their own. None of this is the case with same-sex married couples, who are entitled to none of these survivor benefits.
These represent only a few key financial plusses and minuses of same-sex marriage. According to the Government Accountability Office, there are more than 1,000 rights and protections that are conferred to U.S. citizens upon marriage by the federal government, that are not available to their same-sex counterparts. Also note that tax rules vary from state to state, even among those states that do recognize same-sex marriages. So if you’re gay and thinking of tying the knot, do it for love, not money!