By Chris Hoenig
If there’s a federal tax law where marriage is a factor, all legally married same-gender couples will be treated as a married couple, regardless of where they live.
“Married LGBT couples will now have access to all the same federal tax benefits, privileges and potential liabilities as a married heterosexual couple,” Wells Fargo Advisors First Vice President Kyle Young told DiversityInc. Young is one of the writers of a regular column from Wells Fargo (No. 25 on the DiversityInc Top 50 Companies for Diversity) providing financial insight for LGBT couple that appears on DiversityInc.com.
The guidelines, announced by way of a Treasury Department press release, cover legally recognized marriages that took place in any of the states that allow same-gender marriages, as well as Washington, D.C., or any U.S. territory. Same-gender couples legally married in a foreign country are also treated as married for tax purposes under the new rules.
“Today’s ruling provides certainty and clear, coherent tax-filing guidance for all legally married same-sex couples nationwide. It provides access to benefits, responsibilities and protections under federal tax law that all Americans deserve,” said Treasury Secretary Jacob Lew. “This ruling also assures legally married same-sex couples that they can move freely throughout the country knowing that their federal filing status will not change.”
Not only can same-gender couples now file joint tax returns (or under “married filing separately” status), but all other federal tax provisions are also applied equally. These include gift and estate taxes, personal and dependency exemptions, standard deduction and employee benefits, IRA contribution, and earned-income tax-credit or child-tax-credit claims. In addition, employees who purchased health-insurance coverage from their employer for their spouse on an after-tax basis can treat those payments as pre-tax and exclude them from income.
All legally married same-gender couples can file amended tax returns under IRS guidelines, going as far back as tax year 2010 for some. Amended returns are not required to be filed.
While the new guidelines provide clarity and federal benefits for married LGBT couples, there are couples who will still not have the same tax benefits. “I do not believe the decisions today will have any impact at all on same-gender civil unions or domestic partnerships,” Young said. This includes in states like New Jersey, where civil unions are treated as the equivalent of marriage on the state level, but not by the federal government.
Not a Slam Dunk After DOMA Ruling
A twisted maze of federal guidelines meant that there was no guarantee that all legally married same-gender couples would enjoy federal tax benefits after the Supreme Court overturned the Defense of Marriage Act (DOMA) in June.
Some federal agencies determine a couples’ marital status based on the state they reside in. Under those guidelines, same-gender couples who were legally married in one state but live in a state that doesn’t recognize the marriage (married in New York but live in Kansas, for example) would not be treated as a married couple, regardless of the Supreme Court’s ruling. “Historically, the IRS has used one’s state of residence to determine applicable tax rules/regulations. If the IRS had decided to continue this thinking, it is believed that only those LGBT couples residing in one of the 13 states that recognize same-gender marriages would have access to federal tax rules and protections,” Young said. “The rulings announced today paint a much brighter picture for some LGBT married couples.”
Some couples, but not all. “There are many couples that may find additional tax liabilities associated with the newfound married filing status,” Young said.
The Department of Defense, Department of Veteran Affairs, and Immigration and Customs Enforcement (ICE) are some of the agencies that have typically used the state in which the couple was married, or “state of celebration,” as their guideline for determining marital status.