One of the principle legal questions left in the wake of the United States Supreme Court’s decision striking down key portions of the Defense of Marriage Act (United States v. Windsor) was the tax impact it would have on same-sex spouses. That is, would the IRS now recognize the marriages of same-sex spouses who live in any state, or only in those states that legally recognize same-sex marriages?
For example, if a same-sex couple was married in Massachusetts (which recognizes same-sex marriage) but lives in Florida (which does not recognize such marriages), would the IRS consider them married?
The IRS has answered this question with a resounding yes, ruling that it will recognize the married status of legally married same-sex couples, regardless of what state they now live in. (IRS Revenue Ruling 2013-17.)
The IRS says that, if a same-sex couple was legally married in a state that recognizes their marriage, they will be treated as married for all federal tax purposes. The ruling applies regardless of whether the couple lives in a state that recognizes same-sex marriage or a state that does not recognize same-sex marriage.
However, the ruling does not apply to same-sex couples who, instead of getting married, entered into registered domestic partnerships, civil unions or similar formal relationships recognized under state law. Such couples are still considered unmarried for federal tax purposes.
Currently, the following states recognize same-sex marriages:
- California (June 17, 2008)
- Connecticut (April 16, 2009)
- Delaware (July 1, 2013)
- Iowa (April 27, 2009)
- Maine (Nov. 6, 2012)
- Maryland (Jan. 1, 2013)
- Massachusetts (May 17, 2004)
- Minnesota (Aug. 1, 2013)
- New Hampshire (Jan. 1, 2010)
- New York (July 24, 2011)
- Rhode Island (Aug. 1, 2013)
- Vermont (Sept. 1, 2009)
- Washington (Dec. 6, 2012)
- District of Columbia (March 3, 2010)
As a result of the IRS ruling, legally married same-sex couples must now file their tax returns either as “married, filing jointly” or “married, filing separately.” Such couples will also be treated as married for purposes of claiming personal and dependency exemptions, taking the standard deduction, employee benefits, contributing to an IRA, and claiming the earned income tax credit or child tax credit.
The ruling also has important tax implications for same-sex couples who own real estate. For example, same-sex spouses who own a home and have a mortgage together will be able to claim the home mortgage interest deduction jointly on their joint tax return, like any other married couple. There is no need to split the deduction between them on their individual returns.
Additionally, same-sex spouses who file jointly will qualify for the $500,000 home-sale tax exclusion, instead of the $250,000 exclusion for single taxpayers. If one spouse dies, the surviving spouse qualifies for the $500,000 exemption if the home is sold within two years.
Same-sex couples now have the option of amending their tax returns for past years to file as married, filing jointly. However, this is not required; and some same-sex couples may be better off not doing so.
The statute of limitations for filing refund claims is ordinarily three years from the date the return was filed or two years from the date the tax was paid, whichever is later. Thus, refund claims can still be filed for tax years 2010, 2011 and 2012. Couples who filed protective claims for earlier years may file refunds for those years as well.
Also, employees who purchased same-sex spouse health insurance coverage from their employers on an after-tax basis may treat the amounts paid for that coverage as pretax and excludable from income.
Stephen Fishman is a tax expert, attorney and author who has published 18 books, including “Working for Yourself: Law & Taxes for Contractors, Freelancers and Consultants,” “Deduct It,” “Working as an Independent Contractor” and “Working with Independent Contractors.