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Civil Unions and Taxes

 

How do civil union couples file income taxes?

Civil union couples must file New Jersey state income taxes using one of the two statuses: married/cu couple filing jointly or married/cu couple filing separately. (Couples can choose to use the status of married/cu couple filing separately, even if the couple is living together.) For federal income taxes, single and head of household are the only filing status options. Each partner in the civil union must file a return with the IRS as though they are single. Civil union couples are not permitted to file federal income taxes as married, either jointly or separately, because the federal government does not recognize the union as a legal marriage. Since state income tax calculations require information from one’s federal income tax return, civil union couples will be expected to prepare several income tax returns. Note that, if you do not already know whether filing jointly or separately will require your family to pay the least taxes, you will need to complete the forms for both filing statuses before choosing which forms to file with the New Jersey Division of Taxation.

How do civil union couples file joint income taxes in New Jersey?

New Jersey Filing Status: Married/CU Couple Filing Jointly

Step 1: Federal—Married. This will be used as a worksheet and not filed with either the IRS or the New Jersey Division of Taxation. Fill out a married filing jointly federal income tax return. This “married” federal return will only be used as a worksheet to gather financial information, specifically the adjusted gross income, for the New Jersey state income tax return.

Step 2: State—Married/CU Couple, Filing Joint Return. Prepare a joint New Jersey state income tax return, with the filing status of married/cu couple filing jointly. This will require using the “adjusted gross income” information from the “married” federal return (from Step 1). This state return will be filed with the NJ Division of Taxation.

Step 3. Federal—Single or Head of Household. Prepare two separate federal income tax returns, with the filing status of single or head of household, as appropriate, one for each partner in the civil union. These returns will be filed with the IRS.

CIVIL UNION INCOME TAXES—Option 1:
Filing Jointly for NJ and Single for Federal

How do civil union couples file separate income taxes in New Jersey?

New Jersey Filing Status: Married/CU Couple Filing Separately

Civil union couples also have the option of filing two separate income tax returns in New Jersey as married/cu couple filing separately. If a couple chooses to file separately for state taxes, they will need to fill out two un-filed federal income tax returns (one for each partner) with the filing status of married filing separately. Once again, these “married” federal returns will only be used as worksheets to gather information for the New Jersey return and will not be filed with either the IRS or the New Jersey Division on Taxation.

CIVIL UNION INCOME TAXES – Option 2:
Filing Separately for NJ and Single for Federal

Can I get help with preparing my income taxes?

Yes. The IRS provides free assistance in preparing income tax returns to low- and moderate-income individuals through its Volunteer Income Tax Assistance (VITA) program. To locate a VITA tax clinic near you, call 1-800-829-1040. By late January of each year, the IRS also provides a list on its Web site of the locations of the VITA programs.

Can civil union couples be covered by one partner’s group health insurance through an employer?

The civil union legislation includes a requirement that group health insurance be provided to civil union partners just as to married spouses. There is a federal law that may interfere with that requirement for group health coverage through some employers.

How do taxes affect a civil union couple’s choice to add one partner to a group health insurance plan?

A couple must consider the tax effects when deciding whether or not to include one civil union partner in the other’s group health insurance plan. If you receive benefits through an employer for your civil union spouse, domestic partner, or the children of your civil union spouse or domestic partner (who are not also your children), you must report the entire premium paid for the benefit as income on your federal tax return. The entire insurance premium includes both the share that the employer and the employee pays. The federal income tax amount listed on your W-2 will probably be already reduced by the amount of all health insurance premiums paid. You will have to add both the employer’s share and, if your premium is taken directly from you paycheck, your share of the premium to your annual income. You will either owe taxes on the income when you prepare your return, or your refund will be less because the taxes on this income will reduce your refund.

An example with group health insurance:

When a couple, Kate and Sara, is trying to decide how to obtain insurance for Kate, they consider that Sara’s employer would pay 90% of the group health insurance premium for Sara and her civil union partner, Kate. Kate’s employer would only pay 80% of Kate’s health insurance. If the entire insurance premium to add Kate to Sara’s group plan is $5,000 for the year, then the employer would pay $4,500 (90%) and Sara and Kate would pay $500. On the other hand, if the yearly premium for Kate’s insurance through her own job is $9,000, her job would pick up $7,650 (80%) and Kate would pay a total of $1,350 over the year The difference in the couple’s share of the insurance premiums would be about $850 less with Kate on Sara’s plan. So, it may seem like a good idea initially for Sara to add Kate to the health insurance offered through Sara’s job.

However, when tax time rolls around, things may look a little different. If Sara is in the lowest tax bracket, she would have to pay approximately 15% on the $4,500 in premiums paid by her employer, which is $675. If she is in the 25% bracket, she would have to pay $1,125 in federal taxes on the employer’s share of the premiums. If Sara’s employer pays Kate’s share of the premium with a pre-tax deduction from Sara’s income—as most employers do—Sara will have to pay federal income taxes (as well as Social Security and Medicare withholdings) on that amount, making the final tax burden even larger. The savings in the couple’s share of the insurance premiums, then, may be less than the added tax burden.

 

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