DOMA is dead: The effect on same-sex married couples' taxes
Wednesday, June 26, 2013
Can you hear the cheering? It's still going on and it's coming from gay and lesbian couples, their families and friends and same-sex marriage supporters across the country who are thrilled that the U.S. Supreme Court today ruled the Defense of Marriage Act unconstitutional.
This federal law, enacted in 1996, defined for federal purposes a marriage as between one man and one woman.
Yeah, right. DOMA was enacted because the ship on expanding marriage had already set sail.
Gay and lesbian couples currently can get married in Connecticut, Iowa, Maine, Maryland, Massachusetts, New Hampshire, New York, Vermont, Washington and the District of Columbia. Same-sex couples will be able to say "I do" in Delaware beginning July 1, and effective Aug. 1 in Minnesota and Rhode Island.
With the Supreme Court's declaration that DOMA is dead, gay and lesbian couples who live in states that allow same-sex marriage can now receive federal benefits, including the option to file a joint federal tax return.
More states are likely to open up marriage to same-sex couples in the near future. As a bride of 31+ years, I welcome everyone to the hubby's and my mostly wonderful marital world!
And today the country's highest court -- or at least five of the justices -- got on board, rowing a judicial dingy up to the S.S. Marriage for All.
Post-DOMA steps: So now the big question is, what next?
Well, one person can expect a nice big check from the Internal Revenue Service.
Edith Windsor set the DOMA ruling in motion when, following the death in 2009 of her wife Thea Spyer, she filed suit against Uncle Sam based on a $363,053 federal estate tax bill.
Had Windsor been married to a man, she would have received his estate tax-free. But because DOMA didn't recognized the marriage of the two women, who had been together 44 years before marrying in 2007 in Toronto, Canada, and returning to their home in New York where same-sex marriage is legal, Windsor faced the big tax bill.
Lower courts agreed that the treatment was discriminatory and the tax matter ultimately moved to the Supreme Court, which today concurred.
What the high court said: "By seeking to injure the very class New York seeks to protect, DOMA violates basic due process and equal protection principles applicable to the Federal Government," wrote Justice Anthony Kennedy in the majority opinion.
"[DOMA's] unusual deviation from the tradition of recognizing and accepting state definitions of marriage operates to deprive same-sex couples of the benefits and responsibilities that come with federal recognition of their marriages," continued Kennedy.
"This is strong evidence of a law having the purpose and effect of disapproval of a class recognized and protected by state law. ... DOMA writes inequality into the entire United States Code."
Repayment with interest: And now the IRS will write Windsor a big check that will include, according to the calculations of my Twitter pal and CPA @AthleteTax, $46,600 in interest.
That figure, notes @AthleteTax, is based on payment, as is typically the case, of the estate tax bill nine months after Spyer's death.
While Windsor is the immediate beneficiary of the DOMA decision, other same-sex couples also will soon begin to see tax-related changes.
Amending formerly single 1040s: If legally married couples filed individual federal 1040 forms as single taxpayers, they now will send the IRS amended returns as jointly filing spouses.
This could pay off since there are several tax breaks that married couples are allowed. The change in status could affect the choice of standard vs. itemized deductions. And combined expenses might mean that some deductions that must meet a threshold now qualify.
Remember, though, under the statute of limitations for submitting Form 1040X, the couples can refile only for the last three years they were married.For future tax years, the same-sex couples will have the choice of filing a joint tax return or as married filing separately in the rare instance where that married tax status works better.
And note that the federal filing options are available only to same-sex couples who live in states that sanction their marriages. The Supreme Court's ruling does not change the laws in the majority of jurisdictions that prevent same-sex couples from marrying.
California wedding dreaming: California will rejoin the list of states where same-sex vows are allowed (I didn't forget!) thanks to another same-sex Supreme Court decision handed down today.
The high court didn't decide the merits of Proposition 8, the 2008 ballot initiative that repealed California's sanctions of gay and lesbian marriages. Rather the justices, in another 5-4 decision, ruled that the couples who took the case to court in Hollingsworth v. Perry didn't have the standing, that is, the legal right, to do so.
That meant that the lower court ruling vacating Proposition 8 stands. And same-sex weddings on the Left Coast should resume within a month.
In fact, 25 days is the time frame expected before the effects, tax and otherwise, of both DOMA and the Prop 8 decisions take effect.
But keep in mind that we're talking about governments here. So don't expect these bureaucracies to have everything in place as quickly as you might like. There are regulations to be written and rewritten, as well as forms to change, procedures to implement and state and federal personnel to train.
If you're a couple planning to take advantage of the DOMA ruling, maybe you should consider a slightly longer engagement.
You also might find these items of interest:
While the IRS hasn't made any formal statements yet, it is expected that for 2013 those with a "valid marriage" will be required to file MFJ or MFS and will be allowed, but not required, to amend returns that are still open for amendment. As evidenced by the comments here, the most significant unknown question is what will define a federally recognized marriage, by the IRS. We don't know whether it will be the state of domicile or the state of celebration (marriage). So far, the Office of Personnel and Citizenship and Immigration departments have defined it by the state of celebration. Recent statements made by the Defense Department also imply definition by state of celebration. The Social Security Administration on the other hand defines marriage by the state of domicile. However, they, too, have made statements indicating possible policy amendments to move to a celebration definition.
Posted by: Erin Louis CPA | Tuesday, August 13, 2013 at 06:38 PM
You wrote, "And note that the federal filing options are available only to same-sex couples who live in states that sanction their marriages. "
So, if the couple is married in MA but moves to VA they cannot file a joint Federal return since VA does not recognize same-sex marriages?
From a practitioner standpoint, we need to know the answer to this question so we can help our clients file accurate returns should they move into our state from a state that recognizes same-sex marriages.
Posted by: John Going | Thursday, June 27, 2013 at 12:33 PM
You said, "And note that the federal filing options are available only to same-sex couples who live in states that sanction their marriages. The Supreme Court's ruling does not change the laws in the majority of jurisdictions that prevent same-sex couples from marrying." But what if a couple married in Vermont and live in Texas? Aren't they married for federal tax purposes? I ask because I am a TCE volunteer in Texas.
Posted by: Crystal | Thursday, June 27, 2013 at 08:57 AM
Have you given any thought to how this will affect multi-state couples or couples who move from one state to another. I am just starting to think about couples married in a state that allows same-sex marriage and moves to TX. Granted, we don't have a state income tax but the federal government won't recognize their marriage any longer. What happens to their assets and will some type of valuation be necessary to establish basis once they become individual taxpayers for federal purposes. Do we assume a 50/50 split of the assets even if the contributions to, say, a jointly owned mutual fund weren't equal? It just seems like it won't be cut-and-dry when this happens. It might be a moot question because I could see recruiting might become more difficult to convince someone in a same-sex marriage to move to a place like Texas.
Posted by: Brian | Thursday, June 27, 2013 at 12:01 AM
Point, John. I'm still in the speculative phase obviously! Correction made.
Posted by: Kay | Wednesday, June 26, 2013 at 09:39 PM
You wrote, "If legally married couples filed individual federal 1040 forms as single taxpayers, they now can send the IRS amended returns as jointly filing spouses".
Does that mean that married gay and lesbian couples 'must' file amended returns, either married filing separate or joint. If you are married, I don't believe the law allows a married taxpayer to file as single.
Posted by: John | Wednesday, June 26, 2013 at 09:32 PM