Tuesday, February 22, 2011

The Gay Marriage Subsidy

Due to odd complications of state laws and the federal "Defense of Marriage Act", gay domestic partners in three states, Washington, California and Nevada, can actually pay less taxes than married "straight" couples. Here's how it works:
All three states recognize domestic partnerships and also have what is known as community-property law. Community property refers to a system of ownership in nine states that usually attributes income and property acquired during marriage equally to both partners, regardless of who earned it. (The nine states are Arizona, California, Idaho, Louisiana, New Mexico, Nevada, Texas, Washington and Wisconsin.)

The three states also now apply community-property laws to registered domestic partners. So the Internal Revenue Service—which must follow state property laws—has ruled that these couples should figure their total community income and split it down the middle, starting in 2010.

That is where the benefit comes in. Although domestic partners must divide their income equally, the federal Defense of Marriage Act prevents the IRS from treating these couples as married joint filers. So for 2010 and after, each partner will claim half the community income but still file as single or head of household.

The result, in many cases, is a federal tax savings because a couple will avoid the marriage penalty that often raises taxes for two-earner heterosexual married couples.
A wise man once said "If you want less of something tax it, if you want more subsidize it." You can understand a lot of government policies if you keep that simple concept in mind.

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