The Supreme Court, the Defense Of Marriage Act, and Tax Planning

If you’ve either been living under a rock or on another planet in 2013, I want to let you know about a momentous event that happened about a half year ago. The U.S. Supreme Court held that Section 3 of the Defense of Marriage Act (DOMA), which required same-sex spouses to be treated as unmarried for purposes of federal law, was unconstitutional. Obviously there are many federal laws, and a lot that have been affected by this ruling, but I’ll try to lay out a few things to keep in mind, as they relate to tax laws and tax planning.

For Federal tax purposes, IRS will generally recognize as married, same-sex couples who were married in a state, the District of Columbia, a U.S. territory, or a foreign country that authorizes same-sex marriages. Note that the determining factor is where the couple marries, not where the couple is domiciled (generally, where they live). As an example, a same-sex couple lives in VA but gets married in DC. For federal tax purposes they will be considered married. On the flip side of this, IRS will not recognize as married, same-sex couples who have entered into a registered domestic partnership, civil union, or other similar formal relationship under state law “that is not denominated as a marriage under the laws of that state.”

O.K., you’re a same-sex couple, you’ve gotten married in a state that recognizes same-sex marriages, so for federal tax purposes, now what? Under this ruling, legally married same-sex couples will be treated as married for all Federal tax purposes, including income, gift, and estate taxes. Some of provisions that need to be considered are filing status, claiming personal and dependency exemptions, the standard deduction, contributing to an IRA, earned income tax credit, child tax credit, and many others.

I’m guessing that you’re now wondering when all of this goes into effect (did I guess correctly?). The answer is, it already did. IRS’s revenue ruling (2013-17) is generally effective on or after September 16, 2013. One thing that can be done immediately is to look back to any tax year for which the statute of limitations has not yet expired (generally three years) and determine whether amending tax returns will result in tax refunds. If it will, amended returns can be filed. Note that for 2012 or prior year “original” returns filed before 9/16/13, same-sex couples may choose (but are not required) to amend returns.

If a same-sex couple files an “original” 2012 or prior year return on or after 9/16/13, they must file the return as married filing jointly or as married filing separately. As with opposite sex couples, the date of the marriage will be the determining factor for what year married returns will start, and for which years single (or possibly head of household) would apply.

For the upcoming 2013 tax return filing season, legally married same-sex couples must file as married filing jointly or married filing separately. Single filing status does not apply, period.

Having said all of that, you now ask “what about the states”, right? The answer is, we’re not sure yet. Virginia recently issued a statement unequivocally saying that same-sex marriages are not recognized in the state. VA legally married same-sex couples (for Federal purposes) will have to file married returns for Federal purposes (joint or separate) and for VA purposes will have to file as single (or head of household, if applicable). This scenario will be the same for any state that doesn’t recognize same-sex marriages. Check your state’s laws to determine applicability.

I could go on for another 600 words, but I’ve barely scratched the surface of discussing planning points and opportunities. You should consult with your favorite tax professional (whose name hopefully starts with Jay and ends with Reiner) about details that you need to know as you move into the upcoming filing season and tax years beyond. Please send a link to this article to any friends, family, or associates who could benefit by it.

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