[FoRK] Why is married filing separately even a thing? (in the US)

Stephen Williams sdw at lig.net
Sun Feb 9 23:48:38 PST 2014

Should have included this link:


There are some bizarre decisions in there:
> *Q15. How should registered domestic partners report community income from a business on Schedule C, Profit or Loss From 
> Business?*
> A15. Half of the income, deductions, and net earnings of a business operated by a registered domestic partner must be reported 
> by each registered domestic partner on a Schedule C (or Schedule C-EZ). In addition, each registered domestic partner owes 
> self-employment tax on half of the net earnings of the business. The self-employment tax rule under section 1402(a)(5) that 
> overrides community income treatment and attributes the income, deductions, and net earnings to the spouse who carries on the 
> trade or business does not apply to registered domestic partners.

Q22 reminds me to check to see whether I've deducted the interest on student loans for my children...

This seems relevant:
> *Q25. If a registered domestic partner is self-employed and pays health insurance premiums for both partners out of community 
> property funds, are both partners allowed a deduction under section 162(l) (deduction for self-employed health insurance)?*
> A25. If one of the registered domestic partners is a self-employed individual treated as an employee within the meaning of 
> section 401(c)(1)(the employee partner) and the other partner is not (the non-employee partner), the employee partner may be 
> allowed a deduction under section 162(l) for the cost of the employee partner’s health insurance paid out of community 
> funds. If the non-employee partner is also covered by the health insurance, the portion of the cost attributable to the 
> non-employee partner’s coverage is not deductible by either the employee partner or the non-employee partner under 
> section 162(l).

If you're self-employed, why not employ the domestic partner in some fashion and include health insurance as a fringe benefit? 
Especially in light of Q15.

What a mess.


On 2/9/14 11:28 PM, Stephen Williams wrote:
> On 2/9/14 9:09 PM, J. Andrew Rogers wrote:
>> On Feb 9, 2014, at 6:20 PM, Stephen Williams <sdw at lig.net> wrote:
>>> While consulting a couple years ago, after exhausting COBRA (which I was very lucky to sign up for 3 days before the end of 
>>> a 75% rebated/discounted rate during the recession), I took advantage of this through my SO's company.  I was hit with a 
>>> substantial (thousands) tax bill as the health insurance in that case is considered imputed income to the non-employee.
>> I’ve never heard of this consequence before but that may reflect selective enforcement.
> http://www.sfgate.com/business/networth/article/Who-pays-tax-on-domestic-partner-benefits-3259655.php
> http://www.myhss.org/member_services/imputedincome.html
> It's possible the IRS is turning a blind eye, but in our case it didn't matter much for us: Her company realized that it 
> should have been taxable and just essentially garnished her wages to collect for it.  Incorrect withholding liability is 
> nothing to mess with as the penalties and interest compound (I found out the hard way with my old C-corp in 1992 or so).  You 
> could still argue it, but you'd have to insist that the W2 was wrong, etc.  Messy.
>> This health benefit, at the state level, is organized under the “domestic partnership” concept created largely to support gay 
>> couples. The Federal government does not recognize these as marriages so there would seem to be some kind of equal protection 
>> problem here if gay couples are not similarly targeted for imputed income based on the absence of Federally recognized marriage.
>> And it gets even uglier in the case of marriages that are nominally recognized in some Federal contexts but not technically 
>> legally recognized in others. It is messy.
>>> It was still probably better than any alternative that I had at the time since it was impossible for me to buy an individual 
>>> policy before Obamacare. Now, it probably is better to buy such a policy rather than be on her policy.
>> If you saved money, you are a rare outlier.
> I have an employer plan currently but probably not forever.  At the end of the COBRA period, a few years ago now, I checked 
> every possibility for getting an individual plan: I was rejected by every company.  I failed to find a way to even get a quote 
> from the state high-risk plan system which I believe had a long waiting list anyway.  I'm very healthy, so that was fairly 
> bizarre to me, and showed the system was clearly broken.
>> I think it should be simple to buy appropriately priced health insurance; I don’t believe employment should be involved at 
>> all. However, Obamacare increased healthcare costs for my company 25-30% directly this year alone and another couple percent 
>> on payroll costs due to related tax changes that don’t actually help anyone. For zero improvement in benefits. I am unclear 
>> how this helps small business.
> Even if there was no direct change in benefits, which maybe is rare as many old plans would now be considered substandard, 
> there's still the bar against pre-existing condition denial, covering children to age 25, free preventative care and family 
> planning, and similar changes.  But different states are managing their markets much differently.  Insurance and regulation 
> are intertwined so much that there is a cloud of unintended consequences.  Many rates were much lower than expected in 
> California.
>> Everyone I know has been hit with this cost increase. For some it comes out of their paycheck if their company doesn’t eat 
>> it, and for others it comes as reduced hours or reduced benefits. Consequently, the above practice of being able to use 
>> domestic partnership policies to piggyback on companies willing to eat both the partner cost *and* the Obamacare cost 
>> increase is a seriously valuable perk. I have that perk but I also know what it costs.
>>> Interestingly, there are some loopholes around marriage and divorce that might support getting married and divorced multiple 
>>> times in certain circumstances.  One big one: divorce settlements and alimony are generally not taxable income.  The best 
>>> way to transfer money to someone tax free is to marry and perhaps divorce them or their parents.  Might explain a few 
>>> well-known examples.
>> I had not thought of this before. On its face, it seems like a tricky gambit due to the possibility of jurisdictional and 
>> common law issues. It would require good faith on both parties.
> Prenup?
> sdw
> _______________________________________________
> FoRK mailing list
> http://xent.com/mailman/listinfo/fork

Stephen D. Williams sdw at lig.net stephendwilliams at gmail.com LinkedIn: http://sdw.st/in
V:650-450-UNIX (8649) V:866.SDW.UNIX V:703.371.9362 F:703.995.0407
AIM:sdw Skype:StephenDWilliams Yahoo:sdwlignet Resume: http://sdw.st/gres
Personal: http://sdw.st facebook.com/sdwlig twitter.com/scienteer

More information about the FoRK mailing list