Sunday, January 15, 2006

Taxes and the Unmarried Couple

This article from the Tooele Transcript Bulletin is about the tax consequences of being an unmarried couple with children. Evidently, the rules have changed, and you can no longer claim your shack-up honey's children as dependents for tax purposes.

This rule evidently has the largest impact on poorer people, who qualify for an Earned Income Tax Credit. Their returns are reviewed because of a high probability of fraud (the report on which this article is based asserts that about 2/3 of the claims reviewed were found to be totally legit).
“The median Adjusted Gross Income of these taxpayers was $13,330, and the median refund was $3,519. Thus, the refund constituted, on average, more than 26 percent of the claimant’s [income] for the year, and the taxpayers were required to wait, on average, more than eight and a half months to receive their refunds.”
I am not a tax accountant, but I've done my own taxes for years (sometimes actually with a pencil), and as far as I know, the EIC is a tax credit that actually results in you getting back more money than was withheld from your paycheck. So this is not money they actually earned; this is free government money being handed out to the working poor. All you have to do is file your taxes, and the more dependents the better. So these poor schmoes were evidently smart enough to realize they'd get more money if they claimed their honey's dependents as their own on their taxes.
Given the new rule, unmarried couples may need to change the way they file their taxes. If guardians have no biological or marital ties to a child, they are not eligible to claim them as an exemption, use them to claim head of household status, or to file for Earned Income Credits.

“The key word is ‘Earned,’” Reader said, “as in you have to have some wages and you have to have dependent children. It’s a credit for the working family.”

A typical couple who would be affected by the change might be unmarried, where the mother has children from a previous relationship and her partner is the primary breadwinner. In previous years, the breadwinner would be able to claim the children to reduce his or her taxes. Beginning this year, that’s not allowed.

One solution to the problem that would be an option for most couples is to form a common law marriage at your accountant’s office.

“It’s almost like they made the rule so everyone has to run out and get married,” Reader said. [emphasis added]

No, that's not what it's "almost like." It's "almost like" they're no longer going to look the other way while people find a girlfriend with children and move in with them so they can get all the milk without buying the whole cow. That, after all, is the point of shacking up-- to get all the benefits of marriage without actually getting a marriage. Well, color me unsympathetic if people who are too lazy to step up to the altar and put in what little bit of work it takes to get a marriage legalized are kicked off the gravy train. And it is a VERY little bit of work, too:

“We can marry them basically at the tax table,” said Rodney Carter, also of H&R Block in Tooele. “We have the option of ‘married filing joint.’”

Carter explained that Utah recognizes common law marriages which are remarkably easy to create. To form that type of union, a couple may file joint taxes and exhibit other forms of financial entanglement. Under this strategy, either party within the couple may claim the children as dependents, for head of household status, or EIC.
They don't even have to go down to City Hall, pay the modest marriage license fee, or find some judge or mail-order clergyman to marry them. All they have to do is act like they're married, which they are already doing anyway in every way but on paper. But they don't want to do it, because it would mean they would actually have some sort of legal obligation to each other. So it all boils down to that they want all the perks (which, aside from the obvious sexual and financial ones, include being able to "borrow" your honey's kids for tax purposes) but they don't want any commitment whatsoever. And somehow, when it comes down to tax time, they'll be smart and gladly claim all the exemptions they think they can just to schmooze a few grand off the government; but as soon as the government closes the loophole, they're suddenly too dumb to understand why their tax returns are getting reviewed. Riiiiiiiiiight.

They'll share their bed, their house, their income, and their kids, but they won't share a lousy tax return??