How the Supreme Court Ruling Cuts the Cost of Being Gay

Photo (cc) by qthomasbower

Welcome to the marriage penalty, gay couples! And the end of the health care benefit tax penalty, along with added Social Security benefits — at least in the 13 states where gay marriage wasn’t formerly legally recognized.

While emotions overflow about last week’s Supreme Court ruling, it’s easy to overlook the real-world impact of the decision on gay couples. From a personal finance perspective, being a gay couple is complex. But it will be a bit less complicated now.

(For more on gotchas that typical consumers face, visit Bob Sullivan’s Gotcha archive.)

A couple’s lifetime cost of being gay was calculated in a great piece written several years ago by Tara Siegel Bernard and Ron Lieber. In its worst-case scenario, the price tag was nearly half a million dollars. Under other circumstances, the gay couple penalty fell to about $41,000. The article was based on a series of assumptions that you should read on your own. It also predated the 2013 Supreme Court ruling that struck down parts of the Defense of Marriage Act, which were very costly to gay couples. Since then, the lifetime cost of being gay has depended a lot on where you live.

Friday’s ruling means gay couples will no longer have to pay a tax penalty when one spouse has employer-provided health care coverage. Before 2013, all gay couples were subject to the health benefit federal tax penalty. If an employee enrolled a gay partner in health insurance, the added cost of the plan borne by the employer was considered imputed income and subject to local, state and federal tax. Opposite-sex spousal coverage is tax free.

To see how painful this could be, an anonymous gay friend of mine got a kick in the teeth when her spouse lost her job not too long ago. While she was lucky enough to get the spouse added to her company’s health benefits, a second kick came when she found out she had to pay taxes on $400 additional “income” per month.

After the 2013 ruling, the federal tax obligation on this benefit was eliminated, but some state tax obligations remained.

“If your state does not recognize your marriage, you will probably have to pay state income taxes on these benefits,” says Lambda Legal, in an excellent blog on the topic from earlier this year.

Friday’s ruling makes gay spouses eligible for tax-free health coverage benefits in all 50 states.

The 2013 Supreme Court ruling had also cleared the way for Social Security spousal benefits, but because the Social Security Administration eligibility is determined by state residence, the SSA is bound to honor the marriage status recognized by states, so the new rules didn’t apply in the 13 states that were gay marriage holdouts. (The Social Security Administration had been encouraging gay couples in those states to apply for benefits anyway, in the event the rules changed.)

“Spousal benefits” means that after a death, the surviving spouse can claim their partner’s benefit in place of her or his own if the check is bigger. The lower-earning spouse can also have his or her benefit increased to 50 percent of the higher-earning spouse while both are alive.

The ruling clears the way for gay couples in all states to file joint tax returns as married. Before today, gay couples could file federal returns as married (again, since 2013), but rules varied wildly on state taxes. (If you are brave, visit this page and try to digest the author’s impressive chart.)

So taxes will be simpler. That might not be a reason to celebrate, however. Many couples who wed are unpleasantly surprised by the marriage penalty. It impacts couples where one partner earns considerably more than the other, lifting the lower-paid partner into a higher tax bracket.

It’s no small concern. Back in 2004 (OK, admittedly it’s old, but it provides some guidance), the Congressional Budget Office looked at the revenue impact of legalizing gay marriage. While a total of 1,138 potentially expensive federal benefits would be newly eligible to gay couples, the added tax collected via the marriage penalty would more than cover the cost. Back then, the CBO estimated that legalizing gay marriage would actually add $700 million annually to federal coffers.

Finally, Friday’s ruling clears up confusion over death taxes, too. Gay couples have been exempt from federal death taxes since 2013 — all assets could be transferred to a surviving spouse tax free. State death taxes, which are usually a bigger concern because they kick in at lower asset levels, were another matter, however. Gay couples had faced added tax liability in states where their marriages weren’t recognized; they are now on equal footing with opposite-sex couples.

Significantly, the ruling removed ambiguity about what tax and financial rules govern gay couples. Previously, couples who were married in a state that recognized gay marriage could end up with different rights when moving to, or even traveling within, a state that did not.

Be sure to consult a professional if you have any questions about your tax situation, particularly when it comes to estate planning.

Learn something from this article? Be sure to share it on your Facebook page!

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
20 Great Part-Time Jobs for Retirees
20 Great Part-Time Jobs for Retirees

Maybe you’re not ready to leave the workplace entirely.

How to Get the Best Possible Deal on Car Insurance
How to Get the Best Possible Deal on Car Insurance

This is the last article on understanding and shopping for car insurance that you’ll ever need.

13 Things Seniors Can Get for Free — or Almost Free
13 Things Seniors Can Get for Free — or Almost Free

There are many ways to get cheap or free services and goods after reaching a certain age.

How to Get Rid of 6 Hard-to-Sell Things
How to Get Rid of 6 Hard-to-Sell Things

Find out where to sell, donate or recycle items — and feel good about it.

15 Amazon Purchases That We Are Loving Right Now
15 Amazon Purchases That We Are Loving Right Now

These practical products make everyday life a little easier.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
9 Things You’ll Never See at Costco Again
9 Things You’ll Never See at Costco Again

The warehouse store offers an enormous selection, but these products aren’t coming back.

11 Things Retirees Should Always Buy at Costco
11 Things Retirees Should Always Buy at Costco

This leader in bulk shopping is a great place to find discounts in the fixed-income years.

Over 50? The CDC Says You Need These 4 Vaccines
Over 50? The CDC Says You Need These 4 Vaccines

Fall is the time to schedule vaccines that can keep you healthy — and even save your life.

11 Household Items That Go Bad — or Become Dangerous
11 Household Items That Go Bad — or Become Dangerous

When you get the impulse to stockpile these everyday items, pay close attention to their expiration dates.

8 Things You Can Get for Free at Pharmacies
8 Things You Can Get for Free at Pharmacies

In this age of higher-priced drugs and complex health care systems, a trip to the pharmacy can spark worry. Freebies sure do help.

7 Ways to Boost Your Credit Score Fast
7 Ways to Boost Your Credit Score Fast

Your financial security might soon depend upon the strength of your credit score.

These Are the 4 Best Medicare Advantage Plans for 2020
These Are the 4 Best Medicare Advantage Plans for 2020

Medicare Advantage customers themselves rate these plans highest.

11 Senior Discounts for Anyone Age 55 or Older
11 Senior Discounts for Anyone Age 55 or Older

There is no need to wait until you’re 65 to take advantage of so-called “senior” discounts.

The 10 Most Commonly Stolen Vehicles in America
The 10 Most Commonly Stolen Vehicles in America

A new model parks atop the list of vehicles that thieves love to pilfer.

9 Deep Discounts Available on Amazon This Friday
9 Deep Discounts Available on Amazon This Friday

These items are all steeply discounted — but the deals won’t last long.

19 High-Paying Jobs You Can Get With a 2-Year Degree
19 High-Paying Jobs You Can Get With a 2-Year Degree

These jobs pay more than the typical job in the U.S. — and no bachelor’s degree is required.

The 15 Worst States for Retirees in 2020
The 15 Worst States for Retirees in 2020

Based on dozens of metrics tied to affordability, quality of life and health care, these are not ideal places to spend retirement.

5 Ways to Get Amazon Prime for Free
5 Ways to Get Amazon Prime for Free

Hesitant to drop $119 a year on an Amazon Prime membership? Here’s how to get it for free.

26 States That Do Not Tax Social Security Income
26 States That Do Not Tax Social Security Income

These states won’t tax any of your Social Security income — and in some cases, other types of retirement income.

10 Reasons Why You Should Actually Retire at 62
10 Reasons Why You Should Actually Retire at 62

If you can, here are several good reasons to retire earlier than we’re told to.

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

5 Keys to Making Your Car Last for 200,000 Miles
5 Keys to Making Your Car Last for 200,000 Miles

Pushing your car to 200,000 miles — and beyond — can save you piles of cash. Here’s how to get there.

7 Surprising Features That Boost Your Home Value
7 Surprising Features That Boost Your Home Value

You can add value to your home without hiring a contractor to do expensive renovations.

5 Things That Make Life More Meaningful for Retirees
5 Things That Make Life More Meaningful for Retirees

Retirees agree: These are the things that give them purpose and fulfillment in their golden years.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.