Source: Associated Press via CNN.com, Business Week
Tonight is the night when last-minute tax filers in the US struggle with the paperwork they've put off for months. And it's a night when tens of thousands of gay couples face the stark economic reality of disparate treatment of committed couples by federal and state governments.

Associated Press runs a story today picked up by dozens of newspapers and by CNN.com on the tax disparities faced by gay couples even in the few states that recognize their relationships.

Gay couples often pay higher taxes, AP reports, because they don't get the federal tax benefits that go with marriage.

While the debate over government recognition of gay marriage is a political hot-button with arguments about morality, civil rights and tradition, the tax issue is a mostly practical one for hundreds of thousands of same-sex couples, AP reports.

Gay couples do enjoy similar tax advantages to other married couples in Massachusetts, which recognizes marriage for gay and lesbian couples, and in the nine states that offer some form of civil unions or domestic partnerships that give some or all the legal protections of marriage.

Those protections include allowing gay couples to file state taxes jointly -- and potentially save them money. But they can also make tax filing more complicated for the couples.

That's because the state protections do not help with federal taxes. Under the 1996 Defense of Marriage Act, the government defines marriage as being allowed only between a man and a woman.

"You're running one household," John Traier, a partner in the Butler, New Jersey, accounting firm Hammond & Traier told Associated Press. "But the federal government and a lot of states treat them as two households."

The same is true for straight unmarried straight couples who are living together.

Joe Salmonese, executive director of the Human Rights Campaign, explained the problem in a commentary written for Business Week:

Several states recognize same-sex couples, including Massachusetts, which has full marriage rights. Nonetheless, because gay marriage isn’t recognized nationally, families in these states are forced to calculate their incomes separately for federal and state tax purposes, and file as individuals with the IRS. Gay couples pay equally into Social Security but are excluded from spousal and survivor benefits. These partners are also subject to state inheritance taxes, which have a lower threshold than the federal estate tax and can result in funds being transferred from investments to the government, homes being sold off, and leaving aging individuals with fewer resources of their own.

The AP story details two main effects of the different treatment under federal law.

One is the tax rate. Take two couples where one partner has a taxable income of $20,000 and the other makes $40,000. If they can file their federal taxes jointly, the tax bill would be $8,217.50. Filing separately, the combined bill would be $9,032.50 -- more than $800 higher.

Another disparity comes with the federal government's treatment of employer-provided health insurance, which also affects unmarried heterosexual couples.

To offer one example, AP talked with Dan Jessup, a project manager at JPMorgan Chase in Indiana. His partner, Bob Chenoweth, is self-employed, running two businesses out of the couple's Mooresville, Indiana, home. So Chenoweth gets health insurance through Chase.

But Jessup is required to count the company's cost of his partner's benefits as additional income for tax purposes.

State and federal taxes on those benefits cost about $1,800 per year, Jessup told AP.

"I certainly think about it every payday," when the extra withholding is taken from his paycheck, he said. "If you think about 10 years, $18,000 is a lot of money. That could buy me a pretty nice car."

The tax on benefits for domestic partners also applies to employers. Companies including Chase are endorsing the Human Rights Campaign's push for a bill that would end the tax on health plan benefits for people who are neither the spouse nor legal dependent of the employee, AP reports. Versions of the bill have been introduced in Congress in the last three sessions, but have never moved out of committee.

A government analysis estimated the bill would cost about $10 billion in lost federal tax revenue over 10 years. Advocates for the bill say it would create savings elsewhere, including reducing the Medicaid rolls.

"It’s time for the law to catch up with demographics --same-sex couples live in 99% of U.S. counties—and with good business practice." Salmonese argued in his Business Week commentary. "Every right, protection, and obligation of marriage should be open to same-sex couples. It’s not only the right thing to do, it’s the right way to do business."

Full article: Gay couples face higher tax bills | CNN.com (AP)
Debate Room: Gay Marriage Makes Financial Sense | Business Week