Volume 25 Issue 5 --September/October 2013
The United States Supreme Court decision
holding certain provisions of the Defense of Marriage Act (DOMA)
unconstitutional has created an interesting crazy-quilt of federal and
state tax consequences.
Because of DOMA, the IRS and other federal
agencies were required to treat same-sex couples, even if legally
married under state law, as unmarried for federal law purposes. That is
no longer the case.
What does this mean for the taxation of same
sex couples?
In the wake of the Supreme Court decision, the
IRS has ruled that it will treat as married any same-sex couple that
was married in a state that recognizes such marriages, even if they are
no longer living in a state that recognizes same-sex marriage.
For example, if a same-sex couple was formally
married in a state like New York that authorizes such marriages and
then moves to Florida, a state that does not recognize such marriages,
the couple is still treated as married for federal tax purposes.
This rule does not apply to domestic
partnerships, civil unions and other formal relationships recognized
under various state laws. It applies only to legal marriages.
For 2013, such couples must file their federal
tax returns as married, either married filing jointly or married filing
separately. For earlier years, the couple has the option of filing
amended returns for all open years during which they were legally
married.
The situation on the state tax side is less
clear. The Supreme Court did not strike down provisions of DOMA that
permit states to refuse to recognize same-sex marriages recognized in
other states. As of a few weeks ago, 14 states and the District of
Columbia, along with a few counties in several other states, formally
recognize same-sex marriages, while the remaining 37 states do not.
Because there are ongoing legal challenges, this count could change any
time.
At the time of this writing, some states have
issued guidance on the taxation of same-sex couples, and the results
are not consistent.
For states like New York that recognize
same-sex marriages, the situation is fairly straightforward. Rules
similar to the federal filing rules apply, although there may be different starting dates
for recognizing same-sex couples as married.
In the states that do not recognize same-sex
marriage and use federal income as the starting point for computing
state tax, so far there appear to be at least two different approaches
among those states that have addressed the issue.
For example, Oklahoma has announced that
even if a same-sex couple files a federal return as married, they must
file separate state income tax returns. Apparently this rule requires
preparing separate, hypothetical federal returns similar to what would
have been filed before the change in federal law and attaching them to
the Oklahoma return.
Utah and Louisiana have announced that those
states will apparently follow a similar approach.
In North Dakota same-sex couples who file
married federal returns must file separate state returns and complete a
special schedule to allocate the couple’s income between the spouses.
Wisconsin and Kansas appear to be taking an
approach similar to that of North Dakota.
Somewhat mysteriously, the Colorado Department
of Revenue said that even though the state does not recognize same-sex
marriage, both federal and state returns must have the same filing
status, but a few hours later, the Department withdrew that statement.
In some states, such as Idaho, there appear to
be ongoing legal disputes concerning the recognition of couples that
are legally married in other states.
While most of the states that do not recognize
same-sex marriage have yet to issue official guidance, it can probably
be expected that most of these states will take one of the two
approaches outlined above — filing separate state returns and attaching
either hypothetical federal individual
returns or a special state schedule to allocate income. No
doubt this issue will continue to evolve.
For federal returns and returns in states where
married filing is permitted, there are tax planning opportunities with
respect to earlier tax years. While
filing federal returns with married status is required for 2013, in
many cases it may be possible and desirable to file
amended returns to claim married status for earlier years
that are still open for refund purposes.
If you have questions about tax reporting for same sex couples please call the Tax & Business Professionals.
«The information in this article is current as of the end of October, 2013.»
While designed to be accurate, this publication is not intended to constitute the rendering of legal, accounting, or other professional services or to serve as a substitute for such services.
Redistribution or other commercial use of the material contained in Tax & Business Insights is expressly prohibited without the written permission of Tax and Business Professionals, Inc.
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