SCOTUS on Prop 8 and DOMA: The Financial Implications
"There's a lot of pieces to the tax and transfer system we have that's designed to help the lower income people in a marriage," said David Weisbach, a professor at the University of Chicago Law School who specializes in taxation. "The number of penalties that a gay couple could suffer because of DOMA could be huge."
The single biggest issue, according to Weisbach, is what's known as "the marriage bonus," a benefit that couples receive when they file as a single household instead of separately.
Under the tax code, everyone gets to exempt a certain amount of income from his or her taxes. In other words, you only pay on the money you made above a given number. The marriage bonus allows couples to double this amount of money exempt from taxation if they file with one, joint income rather than two individual ones. Although this doesn't do much good when both spouses are high earners, for the far more common situation where one person takes home more than his or her partner, the benefits can be significant.
For 2013, an individual making between $36,250 and $87,850 is taxed at 25%; income above that plops them in the 28% bracket. Marrieds filing jointly, on the other hand, can make up to $146,400 before hitting the 28% bracket."The way that our current structure works is that most of the time [people] get marriage bonuses," Weisbach said. "So we are essentially taxing a married gay couple at a higher rate than we are a straight couple."
Although there are innumerable, small ways that gay couples would see their finances change and improve under the marriage laws, two others stand out in particular: the estate tax and social security benefits. The estate tax is, in fact, at the heart of United States v. Windsor, in which the plaintiff Edith Windsor has sued the government to recover $363,000 that she had to pay the IRS after her wife's death. Had the federal government recognized her state of New York marriage, she would not have had to pay anything. This is an unlimited exemption under the tax code, according to Weisbach, and allows married couples to share assets fully that otherwise would be subject to taxation.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV