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June 27, 2013
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exceeds the applicable threshold amount (see chart, below) for the year ($1,250 for married persons filing separately).

Net Capital Gains/ Net Investment Income. AGI thresholds are also used in taxing investment-type income:

■ Net Capital Gains are taxed at the 20 percent maximum rate at levels beyond which income would otherwise be pushed into the 39.6 percent bracket

(for 2013, that applicable threshold amount is $450,000 AGI for married individuals filing joint returns and surviving spouses, $425,000 for heads of households, $400,000 for single individuals, and $225,000 for married individuals filing separate returns. (The “regular” 15 percent capital gains rate is likewise reduced to zero percent for taxpayers in the 10 percent bracket— a benefit that can be used by same-sex couples where one partner has very little income).

■ Net Investment Income, as defined under new Code Section 1411, is taxed starting in 2013 at 3.8 percent, keyed to a modified AGI threshold based on filing status ($250,000 for joint filers; $125,000 for married, filing separately; and $200,000 for all others).

Deduction/Credit Thresholds. Thresholds are also commonly used to restrict deductions, credits and other benefits based upon adjusted gross income and filing status:

2013 AGI (MAGI) PHASEOUT THRESHOLD START POINTS

[Column Headers: Joint Return | Single | Married Filing Separately]
Itemized Deductions: $300,000 | $250,000 | $150,000
Personal Exemptions: $300,000 | $250,000 | $150,000
Maximum Net Capital Gains: $450,000 | $400,000 | $225,000
Net Investment Income Surtax: $250,000 | $200,000 | $125,000
Additional Medicare Tax: $250,000 | $200,000 | $125,000
Child Tax Credit: $110,000 | $75,000 | $55,000
American Opportunity Credit: $160,000 | $80,000 | $0
Lifetime Learning Credit: $107,000 | $53,000 | $0
IRA Deduction (plan participants): $95,000 | $59,000 | *
Roth IRA Eligibility: $178,000 | $112,000 | **

*Deduction determined under single status if not living with spouse at anytime during tax year; otherwise partial deduction if MAGI is less than $10,000 and no deduction if MAGI is $10,000 or more
**$10,000 if lived with spouse at anytime during tax year; $112,000 if did not live with spouse at anytime during tax year

IMPACT. In dealing with threshold amounts, a benefits/drawbacks analysis generally depends upon the extent to which that portion of any tax benefit below a threshold amount would otherwise go unused by one of the partners if filing separately. With certain deductions, credits or contribution levels, however, electing “married filing separately” status may relegate each spouse to $0 benefit depending upon circumstances.

OTHER SAME-SEX COUPLE INCOME TAX ISSUES

Being married for federal tax purposes—exclusive of the right to any particular filing status—can also give rise to additional tax benefits and restrictions. The following situations may be particularly relevant in the case of married same-sex couples after the Supreme Court’s Windsor decision:

Dependency Exemptions. In 2012, the IRS explained on its website that if a child is a qualifying child under Code Sec. 152(c) and both parents are same-sex partners, either parent, but not both, may claim a dependency deduction for the qualifying child if separate returns are filed. If both parents can otherwise claim a dependency deduction for the child on their income tax returns, the IRS will treat the child as the qualifying child of the parent with whom the child resides for the longer period of time. If the child resides with each parent for the same amount of time during the tax year, the IRS will treat the child as the qualifying child of the parent with the higher adjusted gross income.

“Same-sex couples may find that the benefits of filing a joint return may not always be greater than filing separately...”

CCH Tax Briefing
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