Our guest blogger is Melissa Dunn, an LGBT Research and Communications intern at the Center for American Progress.
This Tax Season, gay and transgender- headed families are reminded that they are not equal in the eyes of the law. Because of the Defense of Marriage Act (DOMA), even in states that have achieved marriage equality, the federal tax code prevents legally married same-sex couples from filing together and qualifying for all of the same benefits of their straight married neighbors.
Last October, CAP coauthored “All Children Matter: How Legal and Social Inequalities Hurt LGBT Families,” a comprehensive report on the state of LGBT families with the Family Equality Council and the Movement Advancement Project. The follow up piece, “Unequal Taxation and Undue Burdens for LGBT Families,” focuses specifically on the income tax inequality faced by LGBT families. Below are the top five ways that marriage inequality hurts gay couples during tax season, according to those reports:
1. LGBT families are denied joint filing status and accompanying tax relief: Since married LGBT families are not legally recognized by federal law, they cannot receive the significant tax advantages of the “Married Filing Jointly” tax status, which means they have less money to meet the financial needs of their family. LGBT families can only file as “Single” or at best, “Head of Household,” even when they are married or in other legally recognized unions and partnerships.
2. LGBT families must misrepresent and “carve up” their families: Parents are forced to decide which parent “claims” their children for exemptions. To gain tax relief, some families must split their children between different tax returns. Other LGBT parents can only claim their children as “qualifying relatives,” or not at all. Heterosexual married families can simply file jointly, account for all children on one form, and check the exemption boxes.
3. Tax exemptions for spouses and dependents: In general, a taxpayer is allowed to claim one exemption for herself, one for a heterosexual spouse (if filing jointly and regardless of the spouse’s income) and one for each “qualifying child” or “qualifying relative.” For the 2011 tax year, each dependent reduced the taxpayer’s taxable income by $3,700, lowering the taxable income of a family of four by $14,800. For a family of four with an income of $45,000, this would reduce the tax due by about $2,220.
4. Education-related deductions and credits: The IRS offers a variety of tax credits, deductions, and savings plans to assist families with the expense of education. Several mechanisms are available for taxpayers, including reducing the amount of income tax that a taxpayer may have to pay (via tuition and fees deductions or credits such as the American Opportunity Credit), accumulating tax-free interest for education-related savings plans, or receiving tax-free education benefits (for instance, from an employer).
5. Earned income tax credit: According to the U.S. Census Bureau, the earned income tax credit lifted more than 3 million children out of poverty in 2010. The EITC is a fully refundable credit, which means that even when a family has no taxable income, the EITC can result in a refund check from the IRS. In addition to the federal EITC, 23 states and the District of Columbia have state EITC programs, and a recent study found that half of all families with children receive the EITC at some point.
DOMA must be repealed in order to update the tax codes unequal treatment of LGBT-headed families during tax season. Until then, tax reform is needed to expand access to many of the deductions and credits not afforded to LGBT-headed families and broaden definitions such as “qualifying child” or “qualifying person.” These changes will help remedy existing inequities and allow LGBT families to benefit from the family- focused tax advantages and incentives available at the federal and state level to other families.