For one, same-sex couples can now file joint federal tax returns if the couple lives in a state that recognizes their marriage. It should be noted, however, that joint returns aren’t always beneficial. If both partners in a same-sex marriage have high taxable incomes, filing a joint return could result in more taxes being paid. For example, the modified adjusted gross income threshold amounts for calculating the net investment income tax, which applies for tax years after 2012, is $200,000 for taxpayers filing as single, $250,000 for couples filing joint returns, and $125,000 in the case of a married taxpayer filing a separate return.
In light of these considerations, we need to to assess the impact of filing a joint return for 2013. We should also review whether it would be beneficial for you to file amended returns for prior tax years for which you were married and for which the statute of limitations remains open.
Another result of the Supreme Court decision is that tax-free employer provided benefits to married same-sex partners that were previously includible in income under federal law are now excludible from income, so refunds can be claimed on this basis.
Also, the estate of a partner in a same-sex marriage is entitled to the marital deduction, which means the partner’s estate passes tax-free to his or her spouse. Other benefits of the Court’s decision include married same-sex partners now being eligible to receive federal benefits if their partner is a federal employee, as well as partners now being eligible for social security survivor benefits upon the death of a partner.
The DOMA ruling has also opened a Pandora’s box of tax questions which will be answered by future IRS guidance and court decisions:
(1) It is uncertain whether a same-sex couple that lives
in a state that doesn’t recognize same-sex marriages but travels to a
state that does recognize such marriages and gets married, will be
treated as married for federal tax purposes.
(2) If an individual is married to a same-sex partner in
a state like New York that recognizes such marriages, the fair market
value of employee benefits received as a result of such marriage are
excludible from the non-employee spouse’s income. But, it’s unclear what
happens if the employee is transferred to a state that doesn’t
recognize same-sex marriages. For example, could previously tax-free
spousal benefits be converted to taxable non-spouse benefits?
(3) For the current year, it’s not clear what happens if
one partner in a same-sex marriage has already filed his or her 2012
Form 1040 as single while the other partner is on a valid extension,
with the expectation of filing by the October 15 deadline. Assuming they
don't choose to amend both to married filing jointly (MFJ) (which
presumably would be allowed), can the spouse on extension file as single
or is the spouse required to file as married filing separately (MFS)?
(4) If one partner in a same-sex marriage amends his or
her return from single to MFS (e.g. to reclaim imputed income from a
spouse’s employment benefits), it’s unclear whether the other is also
forced to amend his or her return.
(5) It’s unclear what happens in a situation where a
same-sex couple has a child and one spouse filed as head of household in
prior years and received child tax credits and earned income credits.
For example, is the couple now required to amend as MFJ or MFS and could
the spouse who took the credits be forced to return such credits?
(6) From an employer’s perspective, it’s uncertain how
the Windsor decision will affect employment benefit plans for employers
in different states. For example, will private companies need to
consider providing spousal benefits to same-sex married employees
regardless of which state the employee lives in?
We expect there will be a lot of future guidance on these and other issues.
While the full impact of the Supreme Court’s decision will not be known for a while, there are important and time-sensitive planning opportunities available now with respect to your taxes.
Please call me at your earliest convenience so we can discuss the impact this decision has on your particular situation.
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