Docstoc

On February 1_ 2008_ the Oregon Family Fairness Act went into

Document Sample
On February 1_ 2008_ the Oregon Family Fairness Act went into Powered By Docstoc
					                    Registered Domestic Partners (RDP) in Oregon
Legislative History

The 2007 Oregon Legislature passed the Oregon Family Fairness Act which created registered
domestic partnerships. A registered domestic partnership is “a civil contract entered
into…between two individuals of the same sex who are at least 18 years of age, who are
otherwise capable and at least one of whom is a resident of Oregon.”

Oregon does not recognize civil unions, domestic partnerships, or same-sex marriages certified
in other states. If you have moved to Oregon and need information on registered domestic
partnerships, please visit the Department of Human Services website at
http://www.ore gon.gov/DHS/ph/chs/order/dp.shtml.

Filing Your 2008 Oregon Income Tax Return

Did you enter into an Oregon Registered Domestic Partnership (RDP) on or before December
31, 2008? If so, this circular contains important tax information for you to consider concerning
your 2008 Oregon income tax return.




                                             You are required to use one of the following filing
statuses for Oregon:

• Registered domestic partners filing jointly, or
• Registered domestic partner filing separately.

When you file jointly with your partner, you may be able to take advantage of additional tax
benefits, but you will also be subject to additional tax responsibilities. For example, like married
joint filers, registered domestic partners filing jointly will be held jointly and severally liable for
their entire tax liability.

To correctly figure your Oregon tax liability, you need to complete a federal income tax return
“as if” you are married filing jointly or married filing separately. Use the information you
calculated on the “as if” federal return to complete your Oregon income tax return. The “as if”
return will not be submitted to the IRS, but a copy needs to be included with your Oregon tax
return.

General Filing Instructions

If you were an RDP under Oregon law on December 31, 2008, or if you were an RDP during
2008 and your partner died and you did not enter into a new RDP or marry during 2008, please
follow these directions for filing your 2008 income tax return:
1. Complete your federal forms (1040, 1040A, 1040EZ) for each partner using the
   appropriate federal filing status, such as single or head of household. File these returns
   with the IRS.
2. Use another federal form to complete a return that assumes you were allowed to file a
   joint or separate federal return. Use all the same IRS rules and procedures that apply to
   married couples. This is called the “as if” federal return. Important! Do not file this “as
   if” form with the IRS.
3. Complete your Oregon return jointly (using the registered domestic partner filing jointly
   status) or separately (using the registered domestic partner filing separate status) or other
   filing status if you qualify. Your filing status must match the status you use on the “as if”
   federal return. Information used to fill out the Oregon returns must be taken from the “as
   if” federal return and not the individual federal returns that you actually filed with the
   IRS (except for the federal income tax liability subtraction – see below for more
   information).

   If you file your taxes using software…

       Information about filing electronically (E-File) – We encourage you to file
       electronically when possible. Some software packages support RDP filings. You
       should consult your software provider before purchasing software to ensure that RDP
       filings are available. If a tax professional will file your returns on your behalf, you
       should ask if their software supports RDP filings. Be sure to take the following steps
       to ensure that your income tax returns are filed correctly.
       1. Do not file your federal and Oregon electronic returns together. Each RDP must
            file individual federal forms with the IRS in accordance with federal law. This
            probably means that each RDP must file a separate federal return.
       2. When you have completed filing your federal returns, complete your “as if”
            federal return and complete your Oregon return. Use the information from your
            “as if” return to complete your Oregon return. When filing electronically for
            Oregon, it is very important that you file your electronic return as a “state only”
            submission.

       Information when you file by mailing your return (2D Barcode) – You should
       consult your software provider before purchasing software to ensure that RDP filings
       are available. If you use a tax professional to prepare you returns, you should contact
       them to see if the software they use supports RDP filings. When you have completed
       and reviewed your returns on your computer, follow the instructions under “Filing
       Paper Returns” (below).

   If you file your taxes by submitting forms to the Department of Revenue (either by
   mail or in person)…

   Filing Paper Returns – Follow these steps to ensure that your income tax returns are filed
   correctly.
       1. File your individual federal forms with the IRS.
       2. After completing your “as if” federal return, use the appropriate Oregon form (40,
           40S, 40N or 40P) to file jointly or separately. Use the information from your “as
           if” return to complete your Oregon return(s).


                                                                                              2
           3. Submit the following to the Oregon Department of Revenue:
               Your original federal return(s), labeled “RDP ORIGINAL”,
               Your “as if” federal return, labeled “RDP FOR OREGON ONLY”, and
               Your original Oregon return.

           If you and your RDP file separate Oregon returns, please send the returns in the same
           envelope but do not staple your separate returns to each other.

What Changes Can You Expect?

Federal law limits certain deductions, exclusions, and credits based on filing status and/or federal
adjusted gross income. Many of the limits are the same for single filers as for joint filers. For
married persons choosing to file separately, the limits are usually half the amount allowed for
single or married joint filers.

As an RDP, you are no longer eligible to use the single filing status on your Oregon return. The
change in your filing status and federal adjusted gross income may require adjustments to your
return. This circular highlights changes to common credits, deductions, or issues that you will
want to be aware of as you prepare and file your taxes, including:

   Capital Gains and Losses
   Earned Income Credit (EIC)
   Federal Income Tax Subtraction
   Individual Retirement Accounts (IRA)
   Medical and Dental Expenses
   Medical Insurance Premiums Paid For A Partner by an Employer (Imputed Income)
   Passive Real Estate Loss
   Pension Plans
   Principal Residence Gain Exclusion
   Special Oregon Medical Deduction
   Student Loan Interest
   Working Family Child Care Credit (WFC)

To assist you in completing your Oregon return, consider the following examples concerning the
above listed deductions, exclusions, and credits.

Important: The examples only demonstrate some of the situations in which the change in your
filing status and federal adjusted income could impact your Oregon tax return. When completing
your “as if” federal return, make sure to carefully follow all rules and regulations pertaining to
married filing jointly or married filing separately persons in the IRS instructions to correctly
determine your Oregon tax liability.

It is very important to keep all copies of “as if” returns with your tax records for future reference.

Capital Gains and Losses




                                                                                                     3
Did you have a capital gain or loss, including any capital gain distributions or a capital loss
carryover from 2007? If so, you must complete an “as if” federal Schedule D.

Capital losses offset any capital gains. For joint and single filers, if the losses exceed the gains,
you may deduct up to $3,000 ($1,500 for married/RDP filing separately) of the excess loss as a
deduction on your federal return. This may result in RDPs needing to deduct a different amount
on their individually filed federal returns than on their “as if” joint federal return. Consider the
following examples:

Example 1: Casey and Pat are Oregon RDPs. For federal purposes, both Casey and Pat use a
single filing status. In 2008, Casey and Pat each sold securities (stocks) resulting in long-term
capital losses of $4,200 and $2,500, respectively. On their individual federal returns, Casey’s
capital loss is limited to $3,000 leaving $1,200 in long-term capital loss carryover for 2009 while
Pat can deduct the entire $2,500.

When Casey and Pat recalculate their capital loss for their “as if” federal joint return, they are
limited to a $3,000 capital loss deduction for 2008. Casey and Pat’s total capital losses are
$6,700 ($4,200 + $2,500) and their long-term capital loss carryover (for Oregon purposes) for
2009 is $3,700.

If Casey and Pat choose to file separately, each is limited to a $1,500 capital loss deduction on
their “as if” federal return.

Casey and Pat use the following schedule to keep track of their capital gains and losses for their
federal and “as if” federal returns.

                                    2008 Net Capital   Loss    taken as a    2009 Carryover
                                    Gain or Loss       deduction on return
Casey’s individual federal return   $4,200             $3,000                $1,200
Pat’s individual federal return     $2,500             $2,500                $0
Casey’s “as if” RDP filing          $4,200             $1,500                $2,700
separate federal return used to
compute Oregon tax
Pat’s “as if” RDP filing separate   $2,500             $1,500                $1,000
federal return used to compute
Oregon tax
Casey & Pat’s “as if” RDP filing    $6,700             $3,000                $3,700
jointly federal return used to
compute Oregon tax

Important: Keep track of the carryover differences to correctly calculate capital gain or loss in
future tax years for Oregon.

Earned Income Tax Credit (EIC)

You may have qualified for the earned income credit on your actual federal return, but you may
not qualify for it on your Oregon return. The Oregon earned income credit is based on your
federal earned income credit from your “as if” federal return.




                                                                                                   4
Example 2: Sam and Rick are Oregon RDPs. Sam has one child and is above the EIC income
threshold for single filers and was not able to claim the EIC on his original federal return. Rick
also has one child and claimed an EIC of $2,112 on his original federal return. On their joint “as
if” federal return, Sam and Rick’s combined income claiming two children qualifies them for a
federal EIC of $3,500. Sam and Rick’s EIC on their 2008 joint Oregon return will be 6% of the
amount on their joint “as if” federal return.

Federal Income Tax Liability Subtraction

Oregon allows a subtraction for your current year’s federal income tax liability after credits. The
subtraction for 2008 is limited to $5,600 ($2,800 for married/RDP filing separately). The
amount of your subtraction is the amount that you and your RDP actually paid in federal income
tax. Do not use the amount calculated on your “as if” return; instead use the sum of the federal
tax amounts from both RDP’s federal returns actually filed with the IRS.

Federal tax rebate (economic stimulus payment) – The tax rebates that were sent by the IRS in
2008 are a reduction to your 2008 federal income tax liability. The rebates must be taken into
account when you figure your 2008 federal tax subtraction.

Example 3: John and Greg are Oregon RDPs. In May 2008, John and Greg each received a
federal rebate of $600. On their federal tax returns, John reports a federal income tax liability of
$2,500 and Greg reports a liability of $3,400. When figuring their federal tax subtraction on their
2008 joint Oregon return, John and Greg will be required to reduce the subtraction by the rebates
they received.

John and Greg calculate their federal income tax liability subtraction as follows:
1.     Federal tax liability from both federal 1040 returns filed with the IRS       $5,900
2.     Additional tax on qualified plans                                                 -0-
3.     Add lines 1 and 2                                                             $5,900
4.     Tax rebates received from the federal government ($600 each)                  $1,200
5.     Subtract line 4 from line 3 (if less than -0-, then enter -0-)                $4,700
6.     Enter $5,600 ($2,800 if married or RDP filing separately)                     $5,600
7.     Enter the smaller of line 5 or line 6                                         $4,700

John and Greg can claim a federal income tax subtraction of $4,700 on their joint Oregon return.

Individual Retirement Account (IRA) Contributions

Because the amount a taxpayer can deduct for contributions to a traditional individual retirement
account is different for married taxpayers, an RDP filing joint may need to deduct a different
amount on their joint “as if” federal return than on their individual federal returns. An RDP filing
separately may have a lower deduction on their separate “as if” return.

Example 4: George and Rob are Oregon RDPs. George contributes $3,000 to a traditional IRA.
George cannot deduct any of the contributions because he has exceeded the income limitation for
single filers.




                                                                                                  5
Rob contributed $2,000 to a traditional IRA. Rob’s income is low enough that he can deduct all
$2,000 in contributions as a single filer.

On George and Rob’s “as if” joint federal return they are allowed to deduct all $5,000 in
contributions because their joint income does not exceed the income limitation for joint filers.

Example 5: Randi and Leslie are Oregon RDPs. Randi makes contributions of $3,000 to a
traditional IRA. Randi’s income is low enough for a single filer that she can deduct all $3,000 in
contributions.

Leslie also contributed $3,000 to a traditional IRA. Leslie can also deduct all $3,000 in
contributions as a single filer.

Randi and Leslie decide to file separately for Oregon. After applying the federal limits for
married filing separately, neither can deduct any of their IRA contributions because their income
exceeds the income limitation.

Please refer to the 2008 IRS Publication 590 for all instructions, limitation amounts, and
worksheets for determining IRA deductions.

Medical and Dental Expenses

You may deduct qualified medical and dental expenses you paid for yourself, your spouse or
RDP, and your dependents. As a result, you may have a different amount on your federal “as if”
Schedule A than your actual federal Schedule A.

Example 6: For federal purposes, Jennifer and Mallory used a single filing status and itemized
deductions. Jennifer pays for both her and Mallory’s medical expenses. On Jennifer’s individual
return, she deducted only her medical and dental expenses. She cannot deduct Mallory’s medical
expenses on her actual federal return because Mallory is not a dependent on her return and is not
recognized the same as a spouse under federal law. Mallory claimed the standard deduction on
her actual federal return.

Jennifer and Mallory decide to file separately for Oregon. On Jennifer’s “as if” federal Schedule
A, Jennifer can include the medical and dental expenses paid for Mallory. Because Jennifer and
Mallory have chosen to file as RDP filing separately, Mallory must also itemize deductions on
her “as if” federal and Oregon returns.

Medical Insurance Premiums Paid For Your Partner by an Employer

Oregon does not tax you on any medical insurance premiums paid by your employer for your
RDP that are included in your income. Federal law, however, requires that these amounts be
included in your income unless your partner is a dependent, so you must take the following steps
to exclude them on your “as if” federal return if these amounts are included in your income and
your partner is not a dependent:
    1. Check to determine the amount your employer included in Box 1 of your Form W-2 for
        health insurance premiums paid for your RDP beginning with the month that you became
        registered as a domestic partner in Oregon.


                                                                                                6
   2. Determine the amount your employer paid for health insurance premiums for your RDP
      for the month of January, 2008 (before the Oregon Family Fairness Act went into effect).
      If your RDP qualified for insurance benefits as your dependent instead of your domestic
      partner, there should be no imputed income from that month on your Form W-2.
   3. Add the amounts from #1 and #2. Enter that sum as a negative amount on the “Other
      Income” line of your “as if” federal return. Identify the subtraction as “imputed income”.

Example 7: Alex received $4,800 in imputed income in 2008 for health benefits for Brian that
was paid by Alex’s employer. The employer included the $4,800 in Alex’s W-2 and he has
included that amount as wages on his federal return. Alex and Brian became Oregon RDPs in
June, 2008. Alex does not have to pay tax on the imputed income for January, 2008 (paid before
the Oregon Family Fairness Act became effective) or after Alex became a RDP. Alex’s monthly
imputed income was $400 ($4,800 divided by 12 months). The amount on the “other income”
line of Alex and Brian’s joint “as if” federal return is a negative $3,200 ($400 times 8 months).

Passive Activity Loss Limitations on Rental Real Estate Activity

The rules and limits for deducting a loss when you actively participated in a passive rental real
estate activity are different for married taxpayers.

Example 8: Cindy and Dorothy are Oregon RDPs. In 2008, Cindy had partnership income of
$8,000, and a $30,000 loss from rental real estate activities. Cindy can use the rental activity loss
to offset the $8,000 in passive income from the partnership. The remaining $22,000 in loss can
then be used to offset nonpassive income such as wages.

Dorothy had a $13,000 loss from rental real estate activities. Dorothy’s income is low enough
that she can use the $13,000 to offset nonpassive income.

On their “as if” federal joint return, Cindy and Dorothy have a total passive activity loss of
$43,000 from rental activities in which they actively participated. Of that amount, $8,000 can be
used to offset Cindy’s passive partnership income. However, Cindy and Dorothy’s joint income
exceeds the income limitation and they are not allowed to offset any nonpassive income. They
also would not be allowed to offset nonpassive income if they filed separately.

Important: Keep track of the unused passive activity loss difference to correctly offset passive
income in future tax years for Oregon.

Pension Plans

Some qualified pension plans may prohibit certain asset transactions unless they are part of a
survivor benefit plan or from a court ordered division (generally divorce or property division).
Because federal law does not recognize an RDP in the same manner as a spouse, you may have
taxable income or penalties. You should check with your tax professional regarding both the
federal and state tax consequences of a court ordered division.

Principle Residence Gain Exclusion (IRC § 121)




                                                                                                   7
Note that the limits for the amount of gain that can be excluded from gross income on the sale or
exchange of a principle residence are different for taxpayers who are married filing jointly.

Example 9: Dominic and Trent are Oregon RDPs. Dominic and Trent each own a 50% interest
in a house. They sell their house for a gain of $260,000. They each meet the requirements for
ownership and use to exclude the gain on the sale of the residence from gross income. Both
Dominic and Trent, each using a single filing status, can exclude $130,000 of gain on their
respective federal returns.

Dominic and Trent can exclude the entire $260,000 on their “as if” federal joint return as well.

Example 10: Sally and Mona are Oregon RDPs. Sally and Mona share a home that is owned by
Sally. Sally sells the house for a gain of $300,000. Sally meets the ownership and use
requirements and, therefore, can exclude $250,000 of gain using the single filing status and must
recognize $50,000 of gain in gross income on her federal return. Mona has lived with Sally for
three years, but is not an owner.

On their joint “as if” federal return, Sally and Mona can exclude the entire $300,000 allowed to
married filing joint taxpayers when both meet the use requirements and one meets the ownership
requirements.

Special Oregon Medical Deduction




Student Loan Interest

Take note that the phase out of the deduction for interest paid on a qualified student loan is
different for married taxpayers which may affect how much you will be able to deduct for
Oregon purposes. There is no deduction allowed for those using the married/RDP filing
separately filing status.

Working Family Child Care Credit (WFC)

If you claimed the WFC in previous years, make sure that you still qualify. Remember: Both you
and your RDP must be working or attending school to qualify for this credit unless one of you
meets the disability exception. If you decide to file separately, you may not qualify for this
credit. Make sure you use your “as if” return to complete form WFC.




                                                                                                   8
Registered Domestic Partnership Frequently Asked Questions

   1. How do I become a registered domestic partner (RDP) in Oregon?

   Information on how to become a RDP in Oregon is available at the Department of Human
   Services website at http://www.oregon.gov/DHS/ph/chs/order/dp.shtml.

   2. What does the Oregon Family Fairness Act say about the taxation of RDPs?

   In general, Oregon now affords the same rights and responsibilities to RDPs that
   previously were available only to married individuals. For Oregon tax purposes, the
   same rules that apply to married individuals now also apply to RDPs. However, because
   the federal government does not recognize domestic partners as married individuals for
   federal tax (IRS) purposes, RDPs will continue to file as unmarried individuals on their
   federal returns and then create an “as if” federal return from which they will use
   information to complete their Oregon return.

   3. Does Oregon recognize a domestic partnership, civil union, or marriage formed
      in another state?

   No. In order to be recognized in Oregon, a domestic partnership must be registered in
   Oregon.

   4. Can I file a joint Oregon return with my domestic partner for tax years prior to
      2008?

   No. RDPs cannot file a married filing joint or married filing separate return for tax
   years prior to 2008. For those years, a RDP is required to use the same filing status for
   state income tax purposes that was used or would have been used for federal income tax
   purposes. For tax years beginning on or after January 1, 2008, RDPs are required to use
   the same filing status in Oregon as they use on their federal “as if” return..

   5. Are all domestic partners required to file joint or married filing separate returns
      under the new law?

   No. Only domestic partners who are registered with an Oregon county clerk are required
   to file using the registered domestic partner filing joint or registered domestic partner
   filing separate filing status. Unregistered domestic partners may not file RDP filing
   jointly or RDP filing seperatley for Oregon.

   6. Will registered domestic partners (RDPs) use the same filing status rules as married
      individuals when filing Oregon returns?



                                                                                               9
Yes. You will be treated in all respects as if you were married for purposes of Oregon
income tax. However, you must choose the filing status “registered domestic partner
filing jointly” or “registered domestic partner filing separately”, so that your return will
process accurately and quickly.

7. Can RDPs file an Oregon tax return with the same filing status as they use on their
   federal return?

No. The new Oregon law requires RDPs to be subject to the same filing requirements as
married taxpayers You will use the same filing status on the Oregon return as you do on
your “as if” federal return.

8. What if my employer pays for my partner’s medical insurance? Am I still able
   to subtract that from my Oregon income?

Yes, but you must be a registered domestic partner under Oregon law in order to subtract
the amount paid by an employer for a partner’s health insurance premiums. You may
subtract the premiums for January, 2008 plus all other months beginning with the month
you became an Oregon registered domestic partner, if you remain registered domestic
partners on December 31, 2008, or if your registered domestic partner died during 2008
and you did not enter into a new registered domestic partnership or marriage during
2008. If your registered domestic partnership was dissolved during 2008, you may
subtract the premiums only for the months in which the registered domestic partnership
was in effect (in addition to January, 2008).

If you are not an Oregon RDP, you may only subtract the amount of premiums paid until
the Oregon Family Fairness Act became effective (February 1, 2008).

9. Do RDPs combine the number of exemptions they claim on their separate
   federal returns to arrive at the total number of exemptions they claim on their
   Oregon return?

Yes. Your “as if” federal return will be filled out as if you were married, so all personal,
blind, senior, and dependent exemptions should be combined on the RDP filing joint
Oregon return.

10. Can an RDP who lives with their partner and files head of household (HOH) for
    federal purposes use the HOH filing status for state purposes as well?

No. If your RDP lived with you and your child, stepchild, adopted child, or eligible
foster child, at any time during the last 6 months of the year, you do not qualify to use
the HOH filing status for Oregon purposes.

11. Are there any situations where an RDP can file as head of household (HOH) on a
    Oregon return?




                                                                                               10
Yes. RDPs can file HOH on an Oregon return if they maintain the main home for their
child, stepchild, adopted child, or eligible foster child and are “considered not in a
registered domestic partnership.”

To be “considered not in a registered domestic partnership” you must meet all of the
requirements that a married taxpayer must meet to be “considered unmarried” for
federal tax purposes. These requirements are:

    Your RDP did not live in your home during the last six months of the tax year and
     was not temporarily absent.
    You file a separate return.
    You pay more than half the cost of keeping up your home for the tax year.
    Your home was the main home of your child, stepchild, or eligible foster child for
     more than half the year.
    You must be able to claim an exemption for the child (or you would have been able to
     claim the child’s exemption except that the noncustodial parent can claim the child).

For details on filing HOH see IRS Publication 501.

12. If one RDP dies, can the surviving RDP file a joint return?

Yes. If an RDP dies, the surviving RDP can file in Oregon as registered domestic
partner filing jointly for the year the RDP dies, if he or she does not enter into a new
registered domestic partnership or marriage by the end of the year.

13. How do RDPs who file an Oregon joint return combine their incomes, deductions,
    credits, etc., from their separate federal returns to complete their Oregon return?

RDPs will create a federal “as if” return that shows what their federal return would look like
if the federal tax law treated RDPs the same as married couples. This “as if” return is then
use to complete the Oregon tax return and compute Oregon tax

14. Will RDPs need to update their Employees Withholding Allowance (W-4)?

Although revising the withholding allowance for Oregon purposes is not required, RDPs
may update their filing status withholding allowances on a W-4 Form to avoid over or
under withholding of Oregon income taxes. This can be done by asking your employer
for a W-4 form and writing “for Oregon purposes only” on the top of the form and
submitting to your employer’s payroll office.

15. Can an RDP who files an Oregon married/RDP filing joint return exclude up to
    $500,000 of capital gain on the sale of a principal residence for Oregon purposes?

Yes, if the RDP is able to meet the capital gain exclusion rules when preparing the
RDP’s “as if” federal return, the RDP may exclude that amount on the Oregon return.
For more information, see IRS Publication 523.




                                                                                           11
16. Can an RDP who filed a joint return apply for relief under Oregon's innocent
    spouse provisions?

Yes, Oregon innocent spouse provisions apply to anyone who files a married/RDP filing
joint return.

17. My partner and I filed an Oregon joint tax return and our refund was offset for
    a state debt that my partner owes. How can I get my portion of the refund
    back?

In order for the Department of Revenue to consider your request, you must write to request
an apportionment within 30 days of the date of the notice telling you your refund has been
applied to your partner's outstanding debt. Mail the request to the address shown on the
notice.

18. If a court orders termination of a registered domestic partnership and an Oregon
    Court awards spousal support (alimony), what is the tax treatment of these
    payments?

If the payment satisfies the requirements under tax law for alimony, for Oregon
purposes (and the “as if” return) it would be deducted by the payor and included by the
payee. However, federal treatment of these payments is uncertain and both affected
persons should consult with their tax professionals.




                                                                                             12

				
DOCUMENT INFO
Shared By:
Categories:
Stats:
views:18
posted:4/13/2010
language:English
pages:12