Last week, the Supreme Court, in a 77 page document, ruled that the Defense of Marriage Act (DOMA) was unconstitutional. The 1996 Defense of Marriage Act was passed when Bill Clinton was President and defined a legal marriage as consisting exclusively of a man and a woman. This was a big decision with fully yet-to-be-determined consequences. Along with the DOMA definition of a man and a woman went approximately 1,000 federal family benefits confined to only a man and a woman. Currently, however, 12 states, including Washington, New York, Iowa, Massachusetts, and the District of Columbia have passed laws allowing same-sex couples to marry. The majority of the remaining states either have laws banning same-sex marriages or a constitutional ban on same sex marriages. Michigan, by the way, is one of those states having a constitutional ban. According to the latest federal census, over 130,000 same-sex couples have taken advantage of the various states’ laws to marry. This federal/state differential has created confusion in the income tax world.
12 states and DC said a marriage between two men or two women was legal while the federal government said it was illegal. For starters, were same-sex married couples allowed to file a joint federal return or were they required to file single returns? Next, were same sex couples allowed the same estate tax benefits as their DOMA-defined brethren? The answer is no and no. Prior to the Supreme Court striking down DOMA, federal tax law trumped the states laws in that legally married same-sex couples were not allowed to file a joint tax return nor were they allowed estate tax spousal unlimited marital deduction provisions nor were allowed to take advantage of any of the 1,000 federal benefits that were afforded to a married man and woman. As of June 26, 2013, that world changed. The Supreme Court ruling was prompted by a case brought against the federal government by Edith Windsor of New York. She sued the federal government for a refund of $363,053 in estate tax that was paid when her same-sex spouse, Thea Spyer, passed away in 2009. Without DOMA in effect, Thea would have been able to pass on an unlimited amount of assets to Edith and no tax would have been due.
What are the consequences of striking down DOMA? Let’s count some of the ways. First, this was a state’s rights issue. By the logic of many people, DOMA was trodding on an area that was reserved to the states. Unless I’m mistaken, the Constitution is silent about marriage. Therefore, the federal government by passing a law defining marriage was acting in an unconstitutional manner.
Second, same-sex couples who are legally married in one of the 12 states and DC will be able to file joint federal tax returns and will not be able to file single returns. In most instances, it will be an advantage to file joint returns.
Third, legally married same-sex couples will qualify for the unlimited estate tax provisions concerning spousal assets.
Fourth, legally married same-sex couples where one spouse is a federal employee will qualify for various federal benefits such as spousal health insurance and other family benefits such as disability insurance and life insurance. As noted earlier, there are approximately 1,000 federal employment benefits that just became available. Fifth, will other same-sex couples where one spouse has passed away be able to file amended returns to claim a refund like Ms. Windsor? This is unclear. In fact, the entire issue of amended returns will have to be determined by the Internal Revenue Service. Will same-sex couples who did file single returns be allowed to file amended returns for past open years?
There are a myriad of tax provisions that may cause same-sex couples to want to file an amended return. We will wait until the IRS makes rulings in these areas.
Sixth, will same-sex couples qualify for spousal Social Security benefits? There are potential tremendous spousal and beneficiary benefits available to one spouse if the other spouse had a higher earnings history.
Seventh, what happens when a legally-married in New York, same-sex couple, move to Michigan? Will they be able to continue filing a joint Michigan return? Will they be able to qualify for spousal benefits here in Michigan? Striking down DOMA was relatively easy for the Supreme Court. Now we all must wait to see how the consequences of that action will play out. This is Jerry Coon signing off.
Jerry Coon is an Enrolled Agent and
a Registered Tax Return Preparer.
He owns Action Tax Service on
Northland Dr. in Rockford.
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