On June 26, 2013, the United States Supreme Court issued its decision in the case of The United States v. Windsor which essentially ruled the federal Defense of Marriage Act (DOMA) unconstitutional. Given the widespread national press this case received, we will not rehash the details of the case here, but in short, the Windsor case treats same-sex couples who are validly married under state law as married for federal purposes. While this case is viewed as a huge civil rights win, it could potentially be a huge financial win for same-sex couples, but the ruling has raised as many questions as it has answered particularly in states such as Ohio that do not currently recognize same-sex marriage.
From a purely tax perspective and especially for couples with a primary breadwinner, the tax advantages of being married for federal purposes generally trump filing separate returns. In the wake of Windsor, legally married same sex couples may actually now be required to file joint Federal returns just as their different sexed counterparts do or face the negative impact of married filing separately status. For those same sex couples legally married for state purposes, the following Federal tax benefits should now be available:
- Joint filing of income tax returns
- Spousal inherited IRAs & required minimum distributions
- Tax-free employer benefits
- Income, estate & gift tax relief for spousal transfers
- Deductible alimony
- Favorable divorce tax treatment
- Adoption tax credit
Additionally, a host of other Federal benefits including Social Security, Medicare, Medicaid, family medical leave, and military benefits may now be available for legally married same-sex couples.
Seem too good to be true? Possibly, at least for now for same-sex couples residing in Ohio. The couple in the Windsor case resided in New York which currently is among the 13 states that recognize same-sex marriage. It seems clear that legally married couples residing in states that recognize same sex marriage will be treated as married for federal purposes. However, further guidance is still needed for residents of states such as Ohio which currently has a constitutional amendment banning recognition of same sex marriage. It remains unclear whether the state in which the marriage took place or the state of domicile controls for federal purposes.
Guidance may be forthcoming. In a recent case from the Southern District of Ohio, Obergefell v. Kasich, the plaintiffs are challenging the constitutionality of the Ohio laws forbidding recognition of legal same sex marriages from other states. The judge overseeing the case issued a temporary restraining order barring the local Ohio registrar of death certificates from accepting a death certificate which did not recognize a legal same sex marriage solemnized outside of Ohio. The judge’s order points out that “throughout Ohio’s history, Ohio law has been clear: a marriage solemnized outside of Ohio is valid in Ohio if it is valid where solemnized.” [1] Ultimately, it remains to be seen how state law will be decided in Obergefell and similar cases, but the discussion has already begun on whether a same-sex marriage from another state will be valid under Ohio law.
The resolution of the various state issues will be one big factor driving the question: What steps should you take following Windsor? The other major factor is your individual circumstances. Are you currently married? Considering marriage? How much do you and your partner earn? Is your spouse already included in your estate plan? Have you made lifetime transfers to your partner? Legally married same sex couples may want to consider filing amended individual income, gift, and/or estate tax returns for years still open under statute or filing protective claims for refunds depending upon their answers to the above questions. Other planning items to consider include reviewing your health plan options given that many plans will now cover same-sex spouses, reviewing your estate plan and beneficiary designations, and filing for federal benefits such as social security. Non-married same-sex couples who have long desired to marry may find new financial incentive to move forward.
The Internal Revenue Service responded to Windsor by issuing a statement that additional guidance will be forthcoming. In the meantime, the professionals at Zinner & Co. LLP can help you analyze the tax and financial impact of these recent changes and advise on an appropriate course of action, so you are well positioned to take advantage of these new benefits as the situation evolves.
[1] Obergefell v. Kasich United State District Court Southern District of Ohio Western Division. Case No. 1:13-cv-501. Judge Timothy S. Black. July 22, 2013.
