RDP/SSMC

Registered Domestic Partners & Same Sex Married Couples

Caution: the following information should not be used or acted on without consulting a qualified tax preparer.

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As if life is not complicated enough, conflicting federal and state regulations have made it a nightmare for same sex couples to file their income tax returns. When those couples are California residents, community property rules complicate the situation even more.

At the present time, California RDP’s and SSMC’s are required to file a federal return using the Single or Head of Household filing status, and for their state return, they are to use the Married Filing Joint or Married Filing Separate Status.

As California residents, the IRS then requires that the couple’s total, combined income be divided so that half appears on each of their Federal returns, rather than each reporting their own income separately.

This treatment known as community property allocation varies for different types of income and may result in either major advantages or disadvantages.

For example consider a couple named Terry and Chris. Terry earns $75000 per year, and Chris is not working. Each will report $37500 as income , and each can claim the standard deduction for being single and their own exemption. There will be a very substantial tax saving over Terry filing single, even if Chris is claimed as a additional dependent exemption. Consider this illustration using 2010 rates:

                     Terry Alone           Terry as RDP            Chris as RDP

Income              $75000                 $37500                   $37500

Std Deduction        5700                     5700                     5700

Exemptions(s)       7300                     3650                      3650

Taxable Income  $62000                  $28150                 $28150

Tax                     $11688                   $3808                   $3808

Instead of paying $11688 on Terry’s income, they pay $3808 each total, $7616, and save $4072.

The likelihood of severe disadvantages appear as other factors such as Head of Household, Dependent Children, Earned Income Credit, Child Tax Credit or Child Care need to be considered.  Nearly every factor on returns for RDP and SSMC requires special treatment due to the conflicting Federal and State tax laws.

 At Jackson Hewitt, we have provided special training to key staff members on these issues. Contact us at 916-483-0100 or info@taxlearn.com, and we will call you to review your situation.