IRS adopts state domestic-partner property law
Thursday, June 3, 2010
In a significant move for same-sex couples, the Internal Revenue Service has decided to recognize California’s community property law and treat the income earned by California registered domestic partners as community property income for federal income tax purposes.
The decision, which was issued in a private-letter ruling on Friday, reverses a position the IRS took in 2006, when it said California’s registered domestic partners should each report on their own federal tax return only the income they personally earned, not one-half of their community income.
The new decision does not require or even allow California’s registered domestic partners to file their federal tax return as married filing jointly or married filing separately, as they must do with their state tax returns. They must each still file a single federal return, but each should now report one-half of their community income.
Suppose one partner earns $100,000 and the other earns $60,000. In the past, each reported only the income he or she earned. In the future, each would report $80,000, which is half their combined income. Each would also be entitled to half of the combined income tax withheld from their paychecks.