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Author Topic: recent IRS ruling about California domestic partners  (Read 697 times)

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Offline madbrain

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recent IRS ruling about California domestic partners
« on: June 23, 2010, 07:28:43 PM »
FYI : http://taxprof.typepad.com/taxprof_blog/2010/06/irs-income-of-.html

This is great news for those who are registered DPs in California, which is a community property state. Registered DPs in CA each own half of the other partner's income, since 2007. This created a huge problem with federal law which did not recognize the union between partners, and considered half of any excess income from one partner over $12,000 as a gift to the other partner, potentially taxed at a dissuasive 50% rate, once the lifetime limit is exhausted.

This is no longer the case. There are no longer any gift tax issues for domestic partners in CA.
CA DPs will still have to file 2 separate federal returns, but by splitting their income in half, the effective federal tax is exactly the same as for "married filing jointly". Unless the combined income is over about $400,000, in which case gay couples will actually owe even less federal income tax than heterosexual married couples do.

It's not clear to me what this ruling means to imputed income for domestic partner benefits, if anything. This is income that is recognized when employers pay for domestic partner health benefits. Wouldn't it be nice if tax no longer had to be paid on health benefit, just like for heterosexuals ? At least now with this ruling, it will no longer be the higher-earning partner paying the taxes on these benefits - the "imputed income" will be split in two and taxes paid separately by each, at a lower combined tax rate.

My partner and I hadn't registered as DPs with CA mainly because of some of the uncertainties around federal taxation, gift tax and community property/income issues, many of which are now resolved by this recent ruling.

Offline Hellraiser

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Re: recent IRS ruling about California domestic partners
« Reply #1 on: June 23, 2010, 07:40:40 PM »
FYI : http://taxprof.typepad.com/taxprof_blog/2010/06/irs-income-of-.html

This is great news for those who are registered DPs in California, which is a community property state. Registered DPs in CA each own half of the other partner's income, since 2007. This created a huge problem with federal law which did not recognize the union between partners, and considered half of any excess income from one partner over $12,000 as a gift to the other partner, potentially taxed at a dissuasive 50% rate, once the lifetime limit is exhausted.

This is no longer the case. There are no longer any gift tax issues for domestic partners in CA.
CA DPs will still have to file 2 separate federal returns, but by splitting their income in half, the effective federal tax is exactly the same as for "married filing jointly". Unless the combined income is over about $400,000, in which case gay couples will actually owe even less federal income tax than heterosexual married couples do.

It's not clear to me what this ruling means to imputed income for domestic partner benefits, if anything. This is income that is recognized when employers pay for domestic partner health benefits. Wouldn't it be nice if tax no longer had to be paid on health benefit, just like for heterosexuals ? At least now with this ruling, it will no longer be the higher-earning partner paying the taxes on these benefits - the "imputed income" will be split in two and taxes paid separately by each, at a lower combined tax rate.

My partner and I hadn't registered as DPs with CA mainly because of some of the uncertainties around federal taxation, gift tax and community property/income issues, many of which are now resolved by this recent ruling.


Let the heterosexuals all for prop 8 find out we're paying less taxes by not being married and I promise you they'll raise hell about that too.

Offline madbrain

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Re: recent IRS ruling about California domestic partners
« Reply #2 on: June 24, 2010, 04:04:57 AM »
Let the heterosexuals all for prop 8 find out we're paying less taxes by not being married and I promise you they'll raise hell about that too.

I think only the older generations will raise hell. But if they are over 62, heterosexual couples can register as domestic partners in CA as well, and enjoy the same lower taxes, as two single individuals each reporting exactly half their income.

However, they would also lose on many other federal benefits such as social security survivor benefits. I'd rather have the same rights and responsibilities, and the same tax rates. I believe the day will come.

 


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