Most of us never think about filing a joint tax return as a “right” when we are married. We just do it, especially if we think we can save money filing jointly which is usually the case for a married couple. Sometimes married couples file separately, especially if they don’t know or want to know anything about each others financial affairs or don’t want them to know anything about their own affairs. But what if you have not been allowed a choice in how you file your taxes because your marriage is not recognized in your state?
That is the question facing many same-sex married couples. Their marriage is legal in the state or country they married in, but the state they live in does not recognize their marriage. The rights of same- sex married tax payers changed in June, 2013 when the US Supreme Court struck down the part of DOMA (Defense of Marriage Act) in the case of United States vs. Windsor (US 6/26/13 No. 12-307, 133 S. Ct. 2675 – Supreme Court 2013) which prohibited the federal government from recognizing same sax marriages performed in the states. Another part of DOMA that is still valid does not require a state to recognize a same-sex marriage from another state. So how do the same-sex married couples get to file their taxes under the inconsistent laws of the various states?
In the last decade California had some periods of time where same- sex marriages were legal, but then those rights were taken away under Proposition 8 until this past June when the US Supreme Court’s decision in Hollingsworth v. Perry (133 S. Ct. 2652 – Supreme Court 2013) allowed for the lifting of the ban on same-sex marriages in California.
Before the US Supreme Court held DOMA to be discriminatory, married same-sex couples in California could file jointly for state purposes because California recognized their marriages but had to file as single taxpayers on their federal returns. Now, in California, with the evisceration of DOMA and the Supreme Court holding the federal government can no longer discriminate against different types of marriages, same-sex married couples can file both sets of tax returns as married jointly. But, this is not generally true if they live in one of the other 38 states which does not recognize same-sex marriage. Each state has their own laws about how their citizens can file their tax returns.
Let’s say a same-sex married couple lives in Texas. They have to file their state taxes as single, but can they file their federal taxes as married jointly even though Texas does not recognize same-sex marriages? The answer is ‘yes’ because there is now a new IRS regulation, 2013-17, that recognizes a marriage if it was legal in the state or country of “celebration”. So, if a couple was married in Iowa which recognizes same-sex marriage but now live in and file taxes in South Dakota which does not recognize their marriage, they may file as married jointly on their federal return.
Same-sex couples in the 36 states which do not recognize same-sex marriage now will have the same problem California residents used to have – they will have to prepare two entirely separate tax returns for the foreseeable future until their state recognizes the same-sex marriages of the other states.
The IRS regulations and court holdings reported since June 2013 already recognize federal tax benefits for same-sex marriages besides the basic tax filing status in current cases. One question that has not been answered is what will happen to everyone who was previously taxed on their spouse’s benefits as a same-sex married partner when heterosexual married couples enjoyed those same benefits tax- free? Can they get back the extra tax they paid for receipt of their spouse’s pension payments or health insurance benefits by filing an amended tax return? Amended returns can only be submitted for three years – what if the extra tax which discriminated against same-sex married spouses was collected prior to that period? Ms. Windsor’s Wife died but she had to pay a huge inheritance tax on their assets including the house they owned together because the IRS, part of the federal government, was not allowed to recognize her marriage under DOMA. Are the rights she won going to be retroactive for other same-sex spouses who previous to the new decision paid a huge tax on their inheritances from their legal spouses?