The recently issued IRS guidance for community property partners and same-sex spouses in California (and partners in Washington and Nevada) clarified an important substantive question that affects couples in all 16 jurisdictions where same-sex relationships are recognized. If under state law, your partner’s child is recognized as your stepchild, then that child is your stepchild for federal income tax purposes.
I blogged earlier about the IRS guidance that was issued for community property partners and same-sex spouses. See here. Of particular interest is Question 6.
Q-6: If a child is a qualifying child under section 152(c) of both parents who are registered domestic partners, which parent may claim the child as a dependent?
A-6: If a child is a qualifying child under section 152(c) of both parents who are registered domestic partners, either parent, but not both, may claim a dependency deduction for the qualifying child. If both parents claim a dependency deduction for the child on their income tax returns, the IRS will treat the child as the qualifying child of the parent with whom the child resides for the longer period of time. If the child resides with each parent for the same amount of time during the taxable year, the IRS will treat the child as the qualifying child of the parent with the higher adjusted gross income.
There are 16 jurisdictions (including D.C.) that recognize either same-sex marriage or an alternative status (civil union or registered domestic partnership) that treats the registered couple the same as spouses. In all of these jurisdictions, it is likely that a child of one partner will be deemed the stepchild of the other partner when that other partner is not otherwise a legal parent. This is important for federal income tax purposes, because the Internal Revenue Code includes stepchildren in its definition of “child.”
One of the most important consequences is the tax-free benefit of employer-provided health care benefits. Under the Affordable Care Act, passed by Congress in 2010, this tax free benefits was extended to cover all children of the employee who have not reached the age of 27. Under this new language, a child (including a stepchild) of a taxpayer can be covered by employer plans tax-free whether or not the child qualifies as a dependent or a “qualifying child.” See IRS Notice 2010-38 for further information.
