Gay couples get equal tax treatment

Posted by Laura Meckler on wsj.com:

"The Internal Revenue Service has ruled that same-sex couples must be treated the same as heterosexual couples under a feature of California tax law. Advocates for the change say it is the first time the agency has acknowledged gay couples as a unit for tax purposes.

"The change reverses a 2006 IRS ruling and opens a tax benefit to many same-sex couples that wasn't available before. It may affect couples in Nevada and Washington state, as well.

"Specifically, the agency said nearly 58,000 couples who are registered as domestic partners in California must combine their income and each report half of it on their separate tax returns. Same-sex couples account for an estimated 95% of the state's domestic partnerships; partnership status is also available to heterosexual couples in which one partner is over age 62.

"For the first time ever, I'm able to file federal taxes that, in a small way, acknowledges what's going on in my relationship," said Eric Rey of Berkeley, Calif. Mr. Rey and his partner requested the IRS ruling, first during the Bush administration and again this year.

 

... "the tax issue is more complicated in California, one of nine states with community-property rules. Those rules require married couples to treat all income as joint property for a variety of purposes. If they are filing taxes separately, the Supreme Court has said they must combine their incomes together and then divide the sum equally.

"Beginning in 2005, California law directed that these same community property rules apply to registered domestic partners.

"Applying this rule to federal taxes offers clear tax benefits for people such as Mr. Rey—an executive who said he earns much more than his partner does—because it brings him into a lower tax bracket. In 2007, he said, applying this standard would have cut his federal tax liability in half and more than doubled his partner's tax bill. Taken together, it would have saved them about $7,000, he said.

... "An IRS spokesman said the shift is due to a 2007 change in state law. That change dealt with the way the state calculates income for California taxes. Nevada and Washington state are also community-property states that recognize domestic partnerships, and so couples there may also be affected."

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