Tax time: new federal rules for domestic partners

Thom and I filed our taxes earlier this week, and a new twist is that the IRS now wants couples like us—registered domestic partners (RDPs) in community-property states—to split their income on their federal returns. This affects Washington, Nevada, and California. From Publication 555 (Rev. December 2010):

For 2010, a RDP in Nevada, Washington, or California (or a person in California who is married to a person of the same sex) generally must follow state community property laws and report half the combined community income of the individual and his or her RDP (or California same-sex spouse).

It’s great (and just) that the IRS recognizes state community-property rights (i.e., as with married couples, any earned income and deductions are considered to be held jointly), but by virtue of the Defense of Marriage Act (DOMA), which bars federal recognition of same-sex marriage, gay couples still have to file as single persons. That means unlike federally recognized married couples, we can’t file one joint federal return. (Well, in any case we’re not married in California by virtue of Prop 8, but that’s a whole ‘nother issue.) No, that would be too easy. We still have to file separate returns while evenly splitting our income and other community property, and taking into account any separate property (like inheritance, assets gained before the partnership, associated interest, etc.).

So we filed by mail and included a cover letter explaining our situation, just in case some IRS agents aren’t up to speed with the new rules, and a worksheet showing the allocation of our community vs. separate property. The bottom line is, due to our particular circumstances, we have a lower tax liability this year compared to last year under the completely single-person tax treatment, but it would be nice if we could file one federal return and not have to do the extra accounting.

California gives RDPs basically the same rights as married spouses, and for the last two years we’ve filed our state tax returns jointly (and electronically). Easy peasy. For this—not just convenience but more importantly, equality—and a whole lot of other reasons, DOMA has got to go.

» See also: Lambda Legal FAQ (PDF); New York Times Bucks blog entry, “Tax Season Gets Trickier for Some Gay Couples“.

Taxes are taxing

Yay, I’m done with my taxes. I had started my federal return a while ago, and today went back to it and filed electronically. Then I filed my California return electronically as well. The state return was convenient, especially since I didn’t have any differing federal vs. state adjustments to reconcile, but some of the state e-file instructions were confusing. If I had followed the “enter amount from line X from Form 1040” kind of instructions blindly without also reading some of the regular form instructions on their site, I would’ve over-reported a big subtraction to my income.

My first inkling something was wrong was when it said that I qualified for a renter’s credit (which I normally don’t qualify for) and that I was expecting a full refund of all my state tax withholding! I wish! But I went back a few pages, saw what was going on, and changed some of the numbers. I’m getting a small refund. Good enough.

Next year’s process for this tax year will be interesting. Thom and I became registered domestic partners this year, and in California RDPs must file with the same status as married couples. OK, fine. But of course the federal government doesn’t recognize same-sex couples, so we will both have to file as single there and also create a draft “married” tax return on which to base our state taxes. Fun!

Factoid: As an example of the non-recognition, health insurance premiums for partners are federally taxed (where they otherwise wouldn’t be for married spouses); at least California doesn’t tax this, since tax treatment of registered domestic partners is basically equal to that of spouses.

Well, we’ll cross that bridge when we get to it. For now, I’m going to enjoy anticipating my refunds and stimulating the economy.