What You Should Know About Same-Sex Marriage Tax Benefits

The Supreme Court’s decision to legalize same-sex marriage in all 50 states in 2015 was undoubtedly a watershed moment in American society. It also had some major practical implications for same-sex couples, including the ability to file federal taxes using the married designation and filing status. 

Domestic partnerships and civil unions—although counted as legal relationships that are recognized on the state level—are not marriages and don’t qualify you to file federal taxes as a married couple. This means you can only use the marriage designation for tax filing if you are legally married.

The good news for most married same-sex couples is that they will see a lower tax bill as a result of the Supreme Court’s decision. However, those on the extreme ends of the income spectrum should know that this may not be true for them. Their tax liability may actually go up once they tie the knot.

The Basics

People in a same-sex union had to file separate 1040 forms with the Internal Revenue Service (IRS) prior to 2013, designating each as single. If they had a dependent, one partner could qualify for head of household status. But in 2013, the IRS ruled same-sex couples could submit a federal joint tax return instead. Since same-sex marriage became legal nationwide, the number of couples filing returns together has increased. Within two years of the IRS ruling, more than 250,000 same-sex couples filed joint tax returns.

Like other couples, if you're legally married by the end of the tax year, your days of filing as a single person are over. This means you must file a married tax return, either jointly or separately. The only way you can file as single is if you are in a domestic partnership, or civil union, or if you're separated by decree of the court—even if you're still not legally divorced.

The Marriage Bonus

What effect does marriage have on a couple's taxes? For newlyweds who make roughly the same amount of money, the difference could be minimal.

Consider a couple in which both spouses earn $40,000 per year in taxable income or $80,000 in total for both of them. Below is the calculation if they filed single tax returns for their 2023 income versus filing as married filing jointly, which combines their income.

A single filer earning $40,000 in 2023 would be taxed as follows:

• The first $11,000 ($10,275 in 2022) is taxed at 10%: ($11,000 * .10 = $1,100)
• The remaining amount over $11,000 to $44,725 ($41,775 in 2022) is taxed at 12%: ($29,000 * .12 = $3,480)
• In total: $4,580 ($1,100 + $3,480)

A married filing jointly couple earning $80,000 in 2023 would be taxed:

• The first $22,000 ($20,550 in 2022) is taxed at 10%: ($22,000 * .10 = $2,200)
• The remaining amount over $22,000 to $89,450 ($83,550 in 2022) is taxed at 12%: ($58,000 * .12 = $6,960)
• In total: $9,160 ($2,200 + $6,960)

If the couple had each filed as single people, they'd each pay $4,580 or $9,160 in total for both of them. If they had filed as married filing jointly, their taxes owed would also be $9,160.

Couples with a bigger disparity in wages might receive a marriage bonus because they can average out their earnings. With our progressive tax code, it might be enough to put the higher-income earner into a lower tax bracket. Also, the example above doesn't take into consideration deductions, such as individual retirement account (IRA) contributions or other factors that might reduce taxable income.

The Marriage Penalty

Unfortunately, not everyone benefits at tax time by saying "I do." In some circumstances, married status can have the opposite effect. Two high-income earners who make similar salaries can sometimes get bumped into a higher tax bracket. This is because the 37% federal tax bracket for married couples filing jointly does not begin at twice the income as the same bracket for unmarried individuals. Although the 37% federal income tax rate for the 2023 tax year kicks in for income over $578,125 ($539,900 in 2022) for singles, it kicks in for income over $$693,750 ($647,850 in 2022) for married couples filing jointly.

If their total income is large enough, wealthier couples could trigger the Medicare surtax, instituted in 2013. For married couples filing jointly, that amounts to 0.9% on earnings over $250,000. 

The marriage penalty doesn’t only affect the affluent, however. Newlyweds on the opposite end of the income spectrum may also be penalized by the IRS. That’s because adding up both spouse’s incomes could disqualify them from the earned income credit (EIC)—a tax benefit geared toward lower-income families. Here, too, the penalty tends to occur when couples make roughly the same amount of money.

Source: The Tax Foundation

Figure 1. Most newlyweds, if anything, will experience a marriage bonus by filing as a married taxpayer. However, some low-income and high-income couples can actually incur a marriage penalty if their incomes are similar. 

Filing Jointly

Like other married taxpayers, same-sex couples can file in one of two ways. They can submit a return as married filing jointly or married filing separately.

Typically, couples may benefit from filing a joint return since they’re able to average out their incomes. So, if one person makes substantially more than the other, there’s the potential for a tax break. Also, completing a joint 1040 is usually the best way for married people to lower their taxable income.

Couples who plan on raising a child together have an extra incentive to file a joint return. For example, it’s the only way they can claim a credit or an exclusion on expenses incurred when adopting a child together. The maximum credit allowed for adoptions represents the total amount of qualified adoption expenses, which is $15,950 for 2023, up from $14,890 for 2022.

And it’s generally the approach that allows taxpayers to obtain the child and dependent care tax credit. (There are some exceptions for couples who are legally separated.) Depending on the couple’s income, they may be able to claim a credit up to 35% of their qualifying expenditures. 

Other credits available include the aforementioned EIC and the American opportunity and lifetime learning credits (LLCs), both of which help alleviate the cost of higher education. However, for the tax year 2023, the Lifetime Learning Credit is phased out for taxpayers with modified adjusted gross income in excess of $80,000 ($160,000 for joint returns).

And don't forget the cost of filing itself. If you're using a tax preparer or tax software, you only have to pay for the preparation of one tax form instead of two.

Filing Separately

That’s not to say there’s never a reason for same-sex spouses to file separately. For example, one spouse wants to deduct some hefty out-of-pocket medical expenses. As the IRS only allows you to exclude healthcare costs that exceed 7.5% of your adjusted gross income, qualifying for the deduction would be easier with only one individual’s income.

Also, when you file a joint return, you’re responsible for your spouse’s tax liability. So you could be on the hook for any missed payments, under-reporting errors, or penalties—even if the other person earned all or most of the money that year.

The Bottom Line

Married same-sex couples now face the dilemma other spouses face: Whether to file their 1040 forms jointly or separately. While a combined return offers a lower tax bill in most cases, it doesn’t hurt to run the numbers both ways before submitting your form to the IRS.

It’s also useful to note that the IRS allows you to file amended returns for up to three years after the date you filed your original return or within two years after the date you paid the tax, whichever is later. So if you filed in a way that was not financially to your advantage, you might still be able to file an amended return and reap the financial rewards due to you.