Tax Filing Tips for Same-Sex Couples in California, Nevada, or Washington

While federal law precludes same sex partners from filing their taxes as a married couple, community property laws in three states let you get a little bit closer.  California, Nevada and Washington each extend community property laws to cover legally recognized same sex marriages and registered domestic partners. 

In these states, each partner reports their share of community property income and withholding, which is then divided on a Community Property Worksheet.  This worksheet gets filed with your federal tax return.  While each taxpayer still files as ‘Single’, the worksheet relates the community property divisions to each partner’s federal tax return.

The process is a bit confusing.   The first thing you notice is that your reported income doesn’t match your W-2’s.   Of course, it spirals from there if you have 1099 income or use additional schedules, such as income from a business, like Schedule C.  Doesn’t make sense, right?  How can you file as a single person and not have your income match your tax documents?

Well, it’s also confusing to the IRS.  I found out the hard way that you will probably get in trouble if you e-file your return.  Current IRS rules may not accept e-filed returns when tax withholding payments are allocated between the two individual federal returns in a community property state. 

I got the dreaded IRS rejection letter with a bill for $3,000 for my 2010 return.  I’m now in the process of explaining to them their own community property rules.  One thing I have learned – you should print your tax return with the community property worksheet and mail them (not e-file) to the IRS.

The good news for me is that the IRS Office of Chief Counsel issued a memorandum on May 28, 2010 stating that with the modification of the California Registered Domestic Partners Act on January 1, 2007, which extended full community property treatment to registered domestic partners, taxpayers like me are actually supposed to prepare their single federal tax returns based on the state’s community property rules.  

I don’t know if filing community property returns will benefit every couple, but it did for us!  So unfortunately living as a same-sex couple still requires us to take extra steps to achieve what married folk get automatically.  I guess the good news is that some benefits are actually starting to trickle down to us, after 25 years of partnerhood!