LGBT Couples Can Apply for Retroactive Tax Refunds
With the looming possibility that the U.S. Supreme Court might strike down the Defense of Marriage Act sometime this term, married same-sex couples could suddenly find themselves eligible for a host of federal tax benefits. Even better, if couples file what is known as a protective tax refund claim with the IRS before the end of the year, they could potentially pick up some extra dollars going as far back as 2009.
DOMA, the 1996 Clinton-era law banning federal recognition of gay marriage, has already been found unconstitutional by federal courts twice this year. Should the Supreme Court follow suit, either this year or sometime in the future, already-married couples who have filed the protective refund claim could see a retroactive windfall based on the advantages that married couples have under federal tax law.
“A protective refund is a special procedure that allows you to file a claim based on a potential change in law to preserve your rights,” explains David M. Hryck, a tax attorney and partner at New York City-based firm SNR Denton. “Generally taxpayers have three years to go back and claim a refund on a return. If there was a mistake made or deductions were left out, or there was a change in law, they can amend their returns back up until the statute of limitations.”
There are a number of benefits that could fatten spouses’ wallets if their marriage becomes federally recognized. “For example, if you’re doing estate planning, one spouse can transfer property to another tax free,” Hryck says, “as opposed to unmarried people transferring gifts to one another, or transfers at death where there’s generally a gift tax or estate tax.”
With Equality Comes Tax Breaks
Additionally, married couples’ year-to-year taxes can bring back a bigger refund. “They could file joint income tax returns and in some cases that could lower their tax liability,” says Hryck. “Married couples could get a greater charitable tax contribution together because it’s based on a percentage of income, and there may be some benefits to dealing with IRAs.”
Currently nine states plus Washington D.C. will grant marriages to same-sex couples, with Maine, Maryland and Washington state the latest to join the club thanks to ballot referendums this election day. Additionally, couples who have been legally joined under civil unions or domestic partnerships might also be eligible for federal marriage benefits if DOMA gets tossed out.
Newly re-elected President Barack Obama has already voiced his support for gay marriage, and ordered the Justice Department not to defend DOMA in court. Instead, Republican congressmen hired a group to argue that the law should stay in place. The Supreme Court has not yet indicated when it might hear arguments or issue a ruling.
Even if a ruling doesn’t come for several years, couples can lock in their back refunds with the protective claim. Filings may be complicated, so spouses may want to look into hiring an accountant or good tax attorney to make sure they set themselves up to get the full refund to which they might be entitled.