From Social Security to pre-tax payroll items, there are many post-DOMA financial changes for same sex spouses. NY1's Money Matters reporter Tara Lynn Wagner filed this second half of a two-part series.
Aside from income and estate taxes, there are many other changes for same sex couples now that the federal Defense Of Marriage Act has been struck down. Take, for instance, health insurance. The cost of covering a spouse under a company policy is a pre-tax payroll item, but only for recognized spouses.
"Any amount that was paid for health care insurance for a dependent spouse that wasn't recognized was an after-tax benefit, so it cost more. Now that there's federal recognition, those spouses will be treated just like any other spouse and it's a pre-tax item, which is a little cheaper," says Michael Vito, a partner in Lowenstein Sandler's trusts and estates practice group.
Previously, the spouse being covered had to pay taxes on the cost of the policy because the value was considered income. The same was true for money spent on household expenses.
"If somebody was paying all the household costs, that was a gift to the other party. You know, a stay-at-home parent, even though they were raising the child, that was a 'gift' to them every time they paid the grocery bill," says Janis Cowhey McDonagh, a trusts and estates partner at Marcum LLP.
There are some questions that still need to be answered, like whether or not a same-sex spouse will be entitled to Social Security benefits. The answer depends.
"The simple case is if you were married in New York, which has full recognition, yes, you'll now qualify for Social Security benefits just like any other spouse," Vito says.
What if you got married in a state where same-sex marriage is legal but live in another state where it's not? Not all parts of the federal government may recognize your union.
"That is the biggest question out there right now, because the IRS right now defines a marriage as whether it's recognized by the state where you reside, whereas the Department Of Defense, immigration, it's defined where the marriage actually took place, the place of the ceremony," says McDonagh.
Officials with both the Social Security Administration and the IRS say they are reviewing the decision under the guidance of the Department Of Justice. In the meantime, financial professionals are advising their clients to look forward as well as back. Have your preparer review your last few tax returns.
"If, as a result of the federal recognition, you would have paid less taxes, I would go back and claim a refund for those years," Vito says.
Also, revisit one's estate plan to make sure it reflects the new environment.