What SCOTUS Same-Sex Marriage Decision Means for Your Taxes

In the recent landmark case of Obergefell v. Hodges, the U.S. Supreme Court held that the Fourteenth Amendment of the U.S. Constitution guarantees the right to marry to same-sex couples. Thus, same-sex marriage is now permitted and recognized in all 50 states. The decision will no doubt have a profound impact on relationships and families, but what does it mean for tax purposes?

Federal taxes

For federal tax purposes, the answer is not much. Nothing has really changed.

Pursuant to the Supreme Court’s 2013 ruling in U.S. v. Windsor and the IRS’ subsequent Revenue Ruling 2013-17, same-sex marriages were already recognized for purposes of all federal laws, even if the married taxpayer resided in a state that did not recognize same-sex marriage (a so-called “non-recognition state”).

Accordingly, for federal tax purposes, same-sex spouses were already on even footing with opposite-sex spouses. They were required to file their income tax returns as either “married filing jointly” or “married filing separately.” And, for federal estate and gift tax purposes, they could already take advantage of certain marital benefits, such as the unlimited marital deduction, “gift-splitting” and “portability” of the estate tax exemption.

State taxes

The Obergefell decision does, however, impact taxes in former non-recognition states, such as Mississippi and Louisiana. Same-sex spouses residing in or earning income in these states have faced complex and confusing state compliance regimes.

For example, same-sex spouses filing jointly at the federal level were, in some cases, required to prepare pro-forma or “dummy” federal returns, reflecting single filing status, on which their state returns could then be based. Now that same-sex marriage is recognized in all states, taxpayers can expect to see more uniformity between tax filings at the federal and state levels, which should lead to less complexity and reduced tax preparation headaches.

Moreover, there are a few former non-recognition states which previously imposed an estate or inheritance tax on bequests to surviving same-sex spouses. These transfer taxes were not applicable to opposite-sex spouses, who qualified for certain marital deductions and exemptions. The result of the Obergefell decision will be to extend these deductions and exemptions to same-sex spouses, effectively eliminating this tax for these couples.

Amending returns

Same-sex married couples or surviving spouses should consult their tax advisors to explore whether amending their state returns from prior years could yield tax refunds. For income taxes, the state tax savings could be partially offset if taxpayers are required to amend their federal returns to reflect a corresponding reduction in their federal itemized deduction for state income tax paid.

More guidance is needed from the taxing authorities on this and other issues, including whether taxpayers will be permitted to file amended returns going back more than three years, which is the usual statute of limitations.

Contact me or another of Kaufman Rossin’s tax experts to find out if amending past tax returns in light of the Obergefell ruling makes sense for you.