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Originally published March 3, 2012 at 8:01 PM | Page modified March 3, 2012 at 11:36 PM

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Being married doesn't count when gay partners do their taxes

Every year when tax time rolls around, such financial repercussions ripple through the households of same-sex couples who are married.

The Orlando Sentinel

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ORLANDO, Fla. — When Kathryn Norsworthy fills out her federal tax-return forms, she does so as a single person. So does her wife.

"When we file taxes, it's sort of like we're roommates," Norsworthy said of her inability to legally combine incomes with her partner of 17 years, Deena Flamm. "There's no legal connection."

There are many advantages to filing a joint tax return, tax experts say, but because same-sex marriages and partnerships, though legal in some states, are not recognized under the federal Defense of Marriage Act, gay couples don't have access to the same tax benefits available to married heterosexuals.

For example, Norsworthy and Flamm, who live in College Park, Fla., were married in Massachusetts in June. Norsworthy has had Flamm on her employer's health-care plan for more than a decade.

Yet when she files her federal tax return, she can't deduct the $2,000 cost of Flamm's medical coverage from her taxable income, as married couples who file jointly can do.

Every year when tax time rolls around, such financial repercussions ripple through the households of same-sex couples who are married.

But these issues are overshadowed within the gay-rights community by the larger, broader struggles over same-sex marriage and other partnership rights, said Randy Stephens, executive director of the Gay, Lesbian, Bisexual and Transgender Community Center of Central Florida.

So "unless you're an accountant or a tax attorney, it's just not something that's on your radar," Norsworthy said of the tax implications of her same-sex marriage.

It's a common scenario, said Gil Charney, a tax analyst with H&R Block's Tax Institute, the giant tax-prep company's independent research-and-analysis division.

Take a married gay couple with two children, for example. If they claim two dependents, have combined salaries of $100,000, and one of them files as a head of household and has the partner on an employer-supplied health-insurance plan at a cost of $5,000, the couple's tax liability will total $15,199, Charney said.

That would compare with $10,656 for a married heterosexual couple with two children, the same income and the same health insurance who file jointly on a single tax return.

Norsworthy and Flamm have consulted a lawyer to better understand the tax challenges they're up against. In particular, Norsworthy said, the issue of estate taxes is daunting.

By default, assets left behind by a husband or wife who dies are absorbed by the surviving spouse tax-free, Charney said. But when one of two same-sex partners dies, the surviving partner must pay taxes on the assets above a certain exempt amount.

Right now the federal estate-tax exemption covers the first $5.1 million of a person's estate. But next year the exemption is to drop to $1 million, according to the Internal Revenue Service.

Retirement funds encounter a similar situation, Charney said.

In the case of a legal, heterosexual marriage, the individual retirement account of a dead partner automatically goes to the surviving spouse, who has the option of deferring payments from the account until he or she is 70 ½ years old.

But in a same-sex partnership, the nonspouse beneficiary must start withdrawals immediately, missing out on interest that could have accumulated if the account had remained untouched.

Charney said that ultimately means a smaller retirement fund for the surviving partner.

"In the last year, especially, I've started to realize all of this," said Norsworthy, 58, referring to her anxiety over aging and the possibility of leaving her 52-year-old partner behind. "I have this regular feeling of insecurity about this matter that is sort of there all the time."

Massachusetts began marrying same-sex couples in 2004, and five other U.S. states have followed suit, as has the District of Columbia.

All seven jurisdictions allow married same-sex couples to file jointly and reap the same state tax benefits as their heterosexual counterparts.

Washington Gov. Chris Gregoire signed legislation Feb. 13 legalizing gay marriage, but it doesn't take effect until at least June 7, and opponents of same-sex-marriage in the state have filed Referendum 73 in an effort to repeal the law.

Currently, 12 states prohibit gay marriage by law, and 29 others have constitutional bans on the practice.

Stevens, who has seen many same-sex couples struggle with tax issues, doesn't think the situation will be addressed unless the Defense of Marriage Act is declared unconstitutional by the U.S. Supreme Court.

Recently, a federal judge struck down the law, but gay-marriage opponents were swift to appeal.

"In the past there have been bills on the floor to try and resolve the inequities, but I really cannot see Congress making provisions for these tax problems," he said.

Some same-sex couples are choosing to check the "married" box on their federal return and file jointly instead of reporting their status as single on separate returns, said Nadine Smith, executive director of Equality Florida, a gay, lesbian, bisexual and transsexual civil-rights organization.

"The government should not be in the position to make people lie about their marital status," Smith said. "This is money that could go toward educating our children, buying homes, starting a business."

But Charney warned that a same-sex couple filing a single federal return as married could be liable for additional taxes, penalties and interest — and could be subject to further IRS scrutiny.

Information from The Seattle Times archives is included this report.

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