Tax Implications of the Supreme Court's 2015 Same Sex Marriage Ruling

Marriage equality in all 50 states has implications for state income taxes

WASHINGTON, DC - JUNE 26: Plaintiff Jim Obergefell holds a photo of his late husband John Arthur as he speaks to members of the media after the U.S. Supreme Court handed down a ruling regarding same-sex marriage June 26, 2015 outside the Supreme Court in Washington, DC. The high court ruled that same-sex couples have the right to marry in all 50 states. (Photo by Alex Wong/Getty Images)
••• © Alex Wong / Getty Images

On June 26, 2015, the Supreme Court ruled in Obergefell v. Hodges that the 14th Amendment of the U.S. Constitution requires all states to license marriages between two people. All states must recognize marriages lawfully performed in another state or country. All people have a right to marry regardless of gender.

Jason Dinesen, an enrolled agent in Indianola, Iowa, says that tax filings will be easier because there's "no such thing as same sex marriage anymore." From a tax perspective, people are either married or they're not.

All tax returns are now prepared and filed using one of the married filing statuses when taxpayers are married. There are non-tax benefits, too. Same sex married couples are now eligible for Social Security benefits based on a spouse's earnings history in all 50 states. They're also eligible to take leaves of absence from work under the federal Family and Medical Leave Act to care for their spouse and they're eligible for veteran's benefits as surviving spouses.

The IRS Definition of Married

Of course, it can't be that easy. This is the tax code after all.

Life has a way of changing so the Internal Revenue Service has some pretty specific rules to determine who's married and who's not. Obviously, you must have legally tied the knot. But what if you then separate?

You're still married, according to the IRS, as long as you don't have a final decree or judgment of divorce or a court-ordered decree of separate maintenance by the last day of the tax year. Temporary court orders issued during the divorce process don't count. You can have one or more of these and still be considered married.

You're still considered married for the entire tax year even if your spouse dies during the tax year.

You and your spouse do not have to reside together. But if you haven't done so during the last six months of the tax year, you might qualify for the advantageous head of household filing status. You would not have to file a married return in this case.

To further complicate things, you don't actually have to have "legally" married in 10 states and the District of Columbia. In other words, you didn't take out a marriage license and stand before a justice of the peace or a clergy member. These states—Alabama, Colorado, Iowa, Kansas, Montana, Oklahoma, Pennsylvania, Rhode Island, South Carolina, and Texas—recognize common law marriages.

The IRS says these spouses are just as married for tax purposes as those who did take out a marriage license but check local law to make sure you really are common law spouses. Certain rules apply and they can vary by state.

Registered domestic partners are not considered married by the IRS, nor are civil union partners or any other arrangement that's not considered a marriage under their state's laws.

This Wasn't Actually a Huge Federal Change

The IRS had previously announced back in 2013 that it would recognize the validity of all marriages for federal tax purposes in Revenue Ruling 2013-17. This was in response to another Supreme Court decision in United States v. Windsor. Same sex married couples have been required to file their federal 1040s as married persons since that time. Any tax issues subsequent to the 2015 decision would be at the state level.

Amending Previous Returns

There shouldn't be any tax changes in states where same sex marriages were already legally recognized prior to 2015. Couples in these states have been able to file both their federal and state returns as married persons. But you might still have an opportunity to amend previously filed state tax returns in states where same sex marriage was not recognized at that time to change your filing status and recalculate your tax.

Filing amended returns can be beneficial if taxpayers would receive additional refunds from the state due to their changed marital status. Check your state's statute of limitations to find out if you still qualify to file an amended return. Some states follow federal rules for amended returns while other states have their own rules.

The federal rule is that people have three years from the original filing deadline to file an amended return and still get a refund. For example, 2015 tax returns had an original filing deadline of April 15, 2016. If you add three years to that, it brings you up to April 15, 2019. You would still have time to file an amended return for that year.

Your state might also have implemented special rules for same sex couples who want to amend their returns so check with a tax professional to make sure where you stand.

Additionally, you might be able to now file an amended return to seek a refund without regard to the statute of limitations if you filed a protective claim—that claim protected you from the expiring statute of limitations.

Other Things to Watch Out For

There could conceivably be differences in a few other areas if you've been filing married federal returns but unmarried state returns. These include your basis in nondeductible IRAs, capital losses, basis in property or investments transferred between the spouses, or passive activity loss limitations.

Different carryover amounts will remain if you're not going to amend your returns so check with a tax professional.

Inheritance Tax Issues

Only two states that prohibited same sex marriage have an inheritance tax—Kentucky and Nebraska. Tennessee previously had an inheritance tax but it was repealed in 2016. You might want to review your estate plan and make any necessary adjustments. Spouses are exempt from inheritance taxes in all states that impose them as of 2018.

Review Your Withholding

Don't neglect to submit a new, revised W-4 to your employer to adjust your withholding allowances to married status. But Dinesen cautions that sometimes a taxpayer might need the higher withholding that comes from the single withholding calculations so review your state level withholding and adjust it accordingly for your expected state tax liability.

Planning Ahead

The Obergefell case means that same sex married couples have the same tax planning opportunities and pitfalls as heterosexual married couples. Signing a joint tax return comes with joint and several liabilities. For couples who are currently unmarried, it would make sense to review all the tax benefits and drawbacks of getting married before you do so.

The adoption credit is a prime example. You can't take the credit when you adopt your spouse's child but if you adopt the child before you get married, you might qualify for the adoption credit. The bottom line: plan accordingly.