After Obergefell: Tax Implications for Same-Sex Couples

By: Thomas S. Groth, Esq

[NOTE: I am a Connecticut Lawyer who is authorized to practice in front of the IRS and admitted to US Tax Court and US District Court in Connecticut, but I am not YOUR lawyer. This post contains general information only and should not be relied upon for your particular situation. You should speak to your own attorney, or call me with any questions. Opinions are my own, not necessarily the Firm’s.]

Photo Credit: My good friends, Kevin and Jack on their honeymoon.

Same-sex marriage is legal in all 50 states. Now what?

You’ve probably heard already about the Supreme Court ruling last week, in Obergefell v. Hodges, which held that same-sex couples have a constitutional right to marry. So what does this mean for same-sex couples? Keep reading to find out.

 

(For a great plain-language primer about the holding of the case, see this article on SCOTUSBLOG.)

First, some background of the tax treatment of same-sex married couples before Obergefell – Federal portion of DOMA Struck down under Windsor, and the IRS response.

On August 29, 2013, in response to the Supreme Court’s decision in  Windsor (striking down section 3 of the Defense of Marriage Act) the IRS used its administrative powers for good (a rare thing!), when it issued Revenue Ruling 2013-17. In that Revenue Ruling, the IRS determined that couples who were legally married in one state did not need to fear losing their federal tax benefits if they moved to a state (or returned to a home state) that did not recognize same-sex marriage. Basically, as long as a gay couple was recognized as legally married somewhere in the U.S., it did not matter – for federal tax purposes – where that couple lived. The couple was considered married in the eyes of the Internal Revenue Service even if that couple lived in a state with a ban on same-sex  marriages.

Tax situations at the state level, however, were still a little bit dicey in states with same-sex marriage bans. Same-sex married couples in Kentucky, for example, were still required to file state tax returns as if they were single. (As if being required to file a state tax return as “single” wasn’t insulting enough, same-sex couples in states like Kentucky, actually had to prepare fake Federal tax returns in order to prepare and file their state tax returns -because in states like Kentucky, taxable income is determined by reference to a taxpayer’s federal return.) So, gay couples legally married in a state like Connecticut, but living in a state like Kentucky, were forced to pretend they weren’t actually married when dealing with the state government. Not anymore.

After Obergefell, the days of same-sex couples being treated different for tax purposes on the state-level are over.

Now that the Supreme Court has declared that same-sex marriage is a constitutional right, states can no longer pretend that couples who were married in a more enlightened state are actually single. This means that same-sex married couples in Kentucky no longer have to prepare a fake federal tax return just to comply with the law of their home state. It also means that states like Kentucky will need to start issuing marriage licenses to same-sex couples.

Interestingly enough, same-sex divorce is now legal in all 50-states.

You read that correctly. Now that existing same-sex marriages are required to be recognized in all 50 states, same-sex married couples now have access to family court. Previously, if a married gay couple lived in a state that did not recognize that couple’s marriage, they could not dissolve their marriage in that state. So, for example, in Ohio, same-sex married couples can now actually get divorced, and Ohio divorce attorneys are rejoicing!

That means alimony, child support, and visitation rights. Oh, and don’t forget to handle any lingering tax issues in the divorce agreement! A proper divorce agreement will go a long way if one spouse needs to file an innocent spouse claim. (Joint and several liability is a real thing.)

Some lingering issues for same-sex domestic partnerships and civil unions

As I discussed earlier Revenue Ruling 2013-17 recognized same-sex marriages for federal tax purposes. However, if it was not called a marriage, partners in state-recognized same-sex unions (with all of the rights that come along with marriage except the privilege to use the actual word) were not considered married for federal tax purposes. This allowed one partner in a same-sex  civil unions in states like Hawaii  and Delaware to qualify for the Earned Income Tax Credit (and Obamacare subsidies) on the federal level by filing as single – even while they filed joint returns on the state level and enjoyed most of the state-level benefits of “married life.” That hasn’t changed yet, but it probably will soon.

Some same-sex couples might actually be “married” already despite lacking any formal paperwork

Same-sex couples might find that they are now “married” under the common law of their home states. States with existing gay marriage bans on the books might have some same-sex married couples by default. Common law marriages are recognized in Alabama, Colorado, D.C., Iowa, Kansas, Montana, Rhode Island, South Carolina, Texas and Utah. When a couple holds itself out as married in a state that recognizes common law marriages (and generally meets some other requirements), that couple is married for state law purposes. So its possible that some gay couples will find themselves shifting from being socially married to being legally married for state and federal purposes as a result of Obergefell.

Opportunities for all married couples.

So, now that we’re all on the same page. Let’s just do away with the “same-sex marriage.” label. As I’ve been typing that phrase over and over again throughout this article, I’ve realized how silly the label is. I mean, how many times do you hear the term “mixed-race marriage” these days?

After Obergefell, if you’re married, you’re married. It’s really that simple.

So, for all of the married couples out there that finally do not need to lie to their home states and pretend they aren’t married anymore, congrats!

And here’s a few things you might want to remember:

  1. This (probably) means less paperwork.
  2. Estate Planning (probably) just got simpler.
  3. It’s (probably) time to file amended state (and possibly federal) tax returns. Don’t leave money on the table!
  4. Filing for divorce in your home state  (if you live in Arkansas, Georgia, Kentucky, Louisiana, Michigan, Mississippi, Nebraska, North Dakota, Ohio, South Dakota, Tennessee, or Texas) just got a lot easier.

One final thought – I’m writing this from the first (and one of the few) states that put an end to the different-sex marriage mandate the way the dissenters in Obergefell would prefer that different-sex marriage definitions be repealed – through legislation. And while I’m  proud of the legislature in the nutmeg state for having the will, and proud of the people of Connecticut for supporting it. I also think it just makes sense that it would happen here. This is the constitution state, after all – and the constitution is all about individual rights. But just remember that there was a time in the dark days of Connecticut history where we needed the Supreme Court to step in and allow our married citizens to use contraception without risking criminal prosecution. Thanks for that SCOTUS, we haven’t forgotten what you did for us there. And I am sure the rest of the country will always remember what you did for them here.