Marriage comes with a variety of financial implications, some of which are still being worked out.
Gay couples who wed in Minnesota will gain access to the 1,138 federal legal advantages of marriage, and for most, these laws will save them tens of thousands of dollars over the decades.
Married people can get Social Security payments for their spouse after he or she dies; they don’t have to report the cost of health insurance premiums for their spouse as taxable income; and they can get exemptions from the estate tax and other credits and advantages.
“There’s a lot of aspects to it, but it tends to be mostly positive,” said Joe Rapacki, a tax accountant in Edina. “There’s probably more advantages than disadvantages.”
Of Minnesota’s 10,207 same-sex couples, about half will marry in the first three years, according to the Williams Institute, a think tank at UCLA’s law school focused on gay, lesbian, bisexual and transgender issues. Some 3,165 of those marriages will likely happen in the first 12 months.
Beyond the powerful symbolism of the right to marry, for many gay couples there will be financial reverberations, starting with taxes. The impact may be different for every couple.
“It can turn into less tax; it can turn into the same tax; and if you have two professionals with good incomes, you’re going to pay more,” said Lee Roehl, founder of ROR Tax Professionals in St. Louis Park.
The tax code starts to penalize married joint filers when their combined income is around $220,000, said Mike Cassidy, a tax specialist at ROR. But for most couples, especially those in which one spouse is the primary breadwinner, the advantages of marriage outweigh the penalty.
Bill Venne and Doug Kline have been together for 17 years and plan to marry Nov. 12, which is also the birthday they share. Venne is a fundraiser for the University of Minnesota, and Kline works for a Web development company.
“Doing taxes together is not going to cost us any money,” Venne said. “It’s a net benefit.”
The benefit is slight, but Venne said they would get married regardless of tax implications. “What the institution stands for is much more important to me than whether or not I’m going to make money off the U.S. government or state government,” Venne said.
Gay couples will have to answer a new round of questions — such as whether to switch to a spouse’s health insurance, and how to file taxes when one or both partners lives or works across the border in Wisconsin, where gay marriage is not legal.
Employers across the country are still awaiting word from the Internal Revenue Service on how to withhold taxes for gay couples in states where gay marriage is not recognized. The issue will have little effect on couples in Minnesota, but companies whose operations are sprawled across the country — like 3M, General Mills, Target and Best Buy — need to know.
“It’s when you operate outside of the state that it gets confusing,” said Ruth Marcott, a lawyer at Felhaber Law Firm in St. Paul who specializes in employee benefits.
For instance, the cost of insurance for domestic partners must be reported as taxable income, but for spouses as pretax. Minnesota employers with married gay employees in states where gay marriage is not legal still don’t know whether those workers can keep the cost of a spouse’s health insurance out of their reported taxable income. Even if employees can take advantage of health care benefits before federal income tax gets calculated, employers may have to calculate state taxes separately.
The American Benefits Council has asked for “prompt guidance” from the IRS on the matter, and asks that gay marriages be recognized so long as they were celebrated in a state where it’s legal. The Supreme Court decision on the Defense of Marriage Act does not require states to recognize gay marriage, so it’s quite possible that the IRS could decide to only recognize gay marriages in states where it’s legal.
Considering the mobility of the American workforce and the fact that some workers don’t live in the state where they work, the council is practically begging the IRS not to do this.
“Our members have indicated that it would be much more difficult and expensive for benefit plans to administer such a rule,” wrote Lynn Dudley, a senior vice president at the council, in a letter to the IRS, Department of Labor and Department of Human Services. “It would require employers to constantly track employees’ and retirees’ movements to avoid federal tax law and ERISA [Employee Retirement Income Security Act] issues.”
Some gay couples who now receive domestic partner benefits may see those benefits go away if they don’t get married. The Mayo Clinic said Wednesday that employees must get married to keep their partners eligible for health insurance, as long as same-sex marriage is legal in their state. The clinic has offered same-sex domestic partner health benefits for more than a decade, but does not offer those benefits to heterosexual domestic partners.
“That policy notes that marriage would be required if same-sex marriage became legal in the state where the couple lives,” said Bryan Anderson, a Mayo spokesman.
Many large companies offer same-sex domestic partner benefits, while fewer offer heterosexual domestic partner benefits, said Marcott. The reason organizations like the Mayo Clinic covered same-sex domestic partner benefits was in part because those couples could not marry.
“If the organization covered both same-sex and heterosexual domestic partnerships, I am seeing the organization keep those benefits,” Marcott said.
Aside from these issues, same-sex marriage should simplify the job of human resources departments. For instance, calculating withholding for domestic partners separately is a hassle for companies, as is creating a new payroll function for those employees, so fewer domestic partnerships and more marriages actually reduces the administrative burden.
“For HR people, in many respects this makes life easier,” Marcott said.
Three thousand new marriages would be about a 10 percent boost to the state marriage rate, where 30,122 couples made their vows in 2011, according to the National Vital Statistics System.
“It really should just look like a little surge of people getting married,” said Lee Badgett, director of the Center for Public Policy and Administration at the University of Massachusetts.
Whatever paper shuffling results, it will be dwarfed by the annual administrative burden of divorce, which claimed nearly 20,000 Minnesota marriages in 2011.
The Minnesota Department of Revenue says it too awaits IRS guidance on “transition issues.” But the basics are clear, and employers should recognize the tax filing status that employees give them, said Matt Massman, a deputy revenue commissioner for the state.
“It’ll be really straightforward,” Massman said. “They’ll be treated like married couples.”
Adam Belz • 612-673-4405 • Twitter: @adambelz
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