In the inaugural
edition of The Advocate’s new financial
column, financial planners Joe Kapp and Nick
Burkholder explain where the government gets you
financially—and how you can get the government in
return.
Until that great
day when same-sex marriage is legal across the land, gay
couples will continue to be screwed by the federal
government when it comes to taxes and benefits like
Social Security. In fact, the U.S. General Accounting
Office says that marital status affects more than
1,100 federal benefits, rights, and privileges—all of
which are denied gay couples.
Here are the five
biggest financial inequalities you can thank Uncle Sam
for—and how best to get around them.
1.Taxation of domestic-partner benefits
More and more
companies—indeed, over 40% of Fortune 500 companies
alone—provide health insurance, long-term care, and
other benefits to the partners of gay
employees—but in the eyes of the Internal Revenue
Service, such benefits are considered additional income and
are subject to taxes. Your married office buddy? His
wife’s benefits are untaxed.
What to do: Before adding your partner to your
company’s benefits plan, consult with HR about the
tax impact and ways to minimize it. Lobby for the Tax
Equity for Health Plan Beneficiaries Act of 2007,
which is currently pending in Congress.
2. No federal pension or Social Security
survivorship benefits
The average
annual Social Security benefit is $12,024—and if you
died tomorrow, your partner would get none of it.
Expect to draw a pension from the federal government?
Count that out too. That’s what happened to
Dean Hara, the legal spouse (under state law) of former
Massachusetts congressman Gerry Studds, who was denied
a $62,000-a-year pension when Studds died last year.
What to do: Consider purchasing life insurance
to replace the income that you would have otherwise been
entitled to receive.
3. No unlimited gifting between partners
One of the
advantages of being in a committed relationship is sharing
your money if you want. But while financial transfers
between married partners are untaxed, guess what?
Those very same transfers between same-sex partners
are. If one of you pays substantially more than your
partner on something you own together, the IRS can consider
that a “gift” and tax that amount. You
get an exemption up to $12,000 a year; the government
gets to sink its teeth into anything above that.
What to do: Try to equalize payments for
household and living expenses and be cautious about jointly
held accounts—using funds deposited by one
partner could trigger unintended gift taxes.
4. No unlimited marital deduction for gay
couples’ estates
Gay couples also
get hit when it comes to the passage of one partner’s
estate to the other upon death. With married couples, the
deceased spouse’s assets pass to the surviving
spouse without triggering federal estate taxes. But
for same-sex couples, any assets above the
exemption—currently $2 million—can be taxed up
to a whopping 45%. And the exemption is surprisingly
easy to exceed, considering that life insurance,
retirement funds, other investments, and any business assets
are factored in along with your primary residence.
What to do: Get expert help and properly
structure all assets you want to pass from one partner to
the other on death. Getting the fine print in order
can minimize the tax bite.
5. Inheritance taxes leveled by states
When the feds
aren’t getting you, many states are—by
imposing an inheritance tax for assets left to
beneficiaries who are not legally family. The state of
Maryland, for instance, charges a 10% inheritance tax;
Pennsylvania’s rate is 15%. This is yet another area
where heterosexual married couples have less or
nothing to worry about.
What to do: Upon retirement, consider moving to
a locale that does not impose such taxes, like Florida or
South Dakota.
This
article is for information only and is not
financial, legal, or tax advice. Readers should
obtain advice specific to their situation before making
any financial, legal, or tax decisions.
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Joe Kapp and Nick Burkholder (who is straight) own a
financial planning practice in the Washington,
D.C., area with a large gay and lesbian clientele.
Kapp is also president of PEN, D.C.’s LGBT
Chamber of Commerce. They will be writing
regularly about personal finance and answering
readers’ questions, which you can e-mail to
yourmoney@planetoutinc.com. And watch Advocate.com for
additional coverage.