By Constance Rossi and Briggs Stahl
The United States Supreme Court’s recent decision ― “Section 3 of the Federal Defense of Marriage Act (DOMA) violates the equal protection of the Fifth Amendment of the U.S. Constitution as applied to persons of the same sex who are legally married under the law of their state” ― opens the door for same-sex couples to enjoy many federal tax-related benefits previously available only to opposite-sex married couples. These benefits include income tax benefits, estate and gift tax benefits, and taxpayer-friendly employee benefits.
Under the ruling, individuals of the same sex will be considered to be lawfully married under the code as long as they were married in a state, which means any domestic or foreign jurisdiction having the legal authority to sanction marriage, even if they are domiciled in a state that does not recognize the validity of same-sex marriage. Due to our increasingly mobile society, it is important to have a uniform rule of recognition that can be applied with consistency by the IRS and taxpayers alike for all federal tax purposes.
A taxpayer’s filing status determines the right to many tax benefits relative to access and amounts. The filing status determines income tax bracket levels, the standard deduction, personal exemptions, and the adjusted gross income at which many of the tax benefits “phase-out.” In most cases, the taxpayer’s marital status is the deciding factor for the filing status.
Same-sex couples who are currently married under state law must file either a jointly or married filing separately return for 2013. They are barred for federal tax purposes from filing separate returns as single or head of household unless, like opposite-sex couples, they are divorced or have a final separation agreement in place by the end of 2013.
For 2012 and prior years, assuming the statute of limitations for amending a return has not expired, same-sex spouses who filed their return before September 16, 2013, may choose to amend their returns to file using a joint filing or married filing separately status. However, the returns are not required to be amended; this is optional.
Keep in mind that the benefits of filing a joint return may not always produce a better result than filing separately as unmarried individuals. One factor, known as the marriage penalty, is a problem for many opposite-sex married couples and same-sex married couples. Same-sex married couples also cannot turn a blind eye to any item that is listed on a joint return, triggering the consideration of joint and several liability. Innocent spouse status now comes into play with the decision to file joint returns.
Many same-sex married couples may find it beneficial to revisit their estate plans to make certain that interests passing to the other spouse qualify for all the tax benefits. The marital deduction can defer or eliminate transfer tax until the surviving spouse dies. The ability to transfer assets between same-sex married couples with no concern for lifetime gift tax consequences creates flexibility for estate planning.
Effective date issues of the ruling will consider the same-sex marriage effective retroactively to the date of the couple’s marriage under state law rather than the date of the Supreme Court’s decision, June 27, 2013.
