The federal government continues to deny federal marriage tax benefits to same-sex couples registered under Oregon’s domestic partnership law, despite an earlier opinion that opposite-sex couples in civil unions would count as married.
Bowing to the U.S. Supreme Court ruling from June that struck down the Defense of Marriage Act, the Internal Revenue Service ruled in August that same-sex couples married in other states may receive federal tax benefits even if they live in Oregon or other states without laws allowing gay marriage.
These benefits include the ability to buy health insurance premiums and pay into health savings accounts for spouses without having that income subject to federal income and payroll taxes.
But couples joined under Oregon’s domestic partnership law, or similar civil union laws in Colorado or Illinois — which grant couples all the same state benefits and responsibilities of marriage — will not have their unions recognized and will continue to be taxed on income designated for their partner’s health benefits, according to the recent Internal Revenue Service decision.
The IRS decision contradicts an earlier opinion regarding the federal recognition of opposite-sex civil unions in Illinois, in which these couples would be treated as married for federal tax purposes.
In a 2011 letter to an Illinois tax accountant, a U.S. Treasury employee confirmed that opposite-sex couples who have an Illinois civil union could file their federal income taxes as married, since Illinois’ law treats couples in civil unions the same as married spouses.
Tax-free premiums are something straight couples may take for granted, but it’s one in a laundry list of items that gay and lesbian couples have been denied because of the Defense of Marriage Act, as well as state laws preventing them from marrying.
Illinois’s civil union law is very similar to Oregon’s domestic partnership law — granting couples all the state benefits of marriage under a separate term.
“Dilemmas like these are the reasons that all states should allow all committed couples to marry rather than treating some unions as second class,” said Becky Straus of the American Civil Liberties Union, Oregon branch.
Illinois allows straight as well as gay couples to file for a civil union. Oregon domestic partnerships are restricted to same-sex couples, but unmarried opposite-sex couples may register in Multnomah County and receive some benefits of domestic partnership.
Straus and other advocates point their attention to November 2014, when a likely ballot referendum would ask voters to overturn the state constitutional ban enacted in 2004 and add Oregon to the growing list of states that allow gay marriage outright.
“It’s a confusing jumbled system, and it needs to change,” said Peter Zuckerman, media manager for Basic Rights Oregon, an LGBT advocacy group. “Marriage is the most clear-cut way to be recognized as a family.”
But until that happens, gay Oregonians with domestic partnerships will face a tax penalty unless the IRS and the Obama Administration widen their rules for federal treatment of these unions.
Wyden Steps up Support
U.S. Sen. Ron Wyden has co-sponsored legislation with Sen. Chuck Schumer, D-New York, that would create tax parity for couples in domestic partnerships, who already receive a tax break on Oregon income taxes for partner’s healthcare premiums.
Senate Bill 728 has eight sponsors, including Republican Sen. Susan Collins of Maine. U.S. Rep. Earl Blumenauer, D-Oregon, introduced a companion measure in the House with Rep. Jim McDermott, D-Washington.
Wyden’s office said the bill was unlikely to be passed in its current form, but the senator believes a federal tax change recognizing civil unions and Oregon’s domestic partnership law could be passed as part of a comprehensive tax reform that’s been mentioned in current negotiations over the federal government shutdown.
“He believes that the federal tax code should recognize a same-sex couple on the same terms as every other married couple,” said Tom Caiazza, Wyden’s spokesman. “Similarly, those who have solemnized their commitment in a civil union at the state level should be considered married for federal tax purposes.”
The Democratic Wyden was the first U.S. senator to announce his support for same-sex marriage and one of the few senators of either party to vote against the Defense of Marriage Act when President Clinton signed it into law in 1996.
Meanwhile, private and public employers are expected to comply with the federal tax change, and start allowing gay couples married in states like Washington or California to forgo paying federal taxes on income spent on health premiums for spouses.
The Oregon Educators Benefit Board announced last week that it would follow the Public Employees Benefit Board in changing its bylaws to allow same-sex couples married in other states to list their partner as a spouse and receive the full health premium tax benefit.
“To get the best tax benefit in Oregon, it’s best to be registered as a domestic partner and married in another state,” said Kathy Loretz, a PEBB administrator. Oregonians in domestic partnerships have received state income tax benefits since they were created in 2008.
Registering for an Oregon domestic partnership requires a notarized form. Fees vary by county and are typically the same price as a marriage license.
Gay couples do have another option if they want to receive federal recognition of their relationship — they can buy a marriage license in another state, such as California or Washington. These states do not have residency requirements, and licenses can cost as little as $35.
Loretz, who has a daughter joined in a same-sex domestic partnership, said she elected to go that route with her partner: “They’re going to get married in California.”
Christopher David Gray can be reached at [email protected].
