New IRS Ruling on Tax Filing for Same-Sex Marriages

When the Supreme Court invalidated a key section of the Defense of Marriage Act (DOMA) in July, it left a lot of thorny tax questions. I addressed some of them in my column.

Here’s what we knew at that time:

• Married same-sex couples living in a state that allows gay marriage (a “marriage state”) would file “married” on their federal tax return.
• Those same couples could file amended returns for previous tax years (when they weren’t allowed to file a joint return) and get a refund if doing so would reduce their tax.

Here’s what we didn’t know:

• If a same-sex couple gets married in Washington (a marriage state) and moves to Texas (a non-marriage state), does the IRS consider them married or unmarried?

Well, now we know. According to an IRS ruling late last week, all legal same-sex marriages will be recognized by the IRS, regardless of what state the couple currently lives in.

“Given our increasingly mobile society, it is important to have a uniform rule of recognition that can be applied with certainty by the Service and taxpayers alike for all Federal tax purposes,” wrote the IRS in its decision.

The decision affects federal income tax, estate tax, and spousal benefits for federal employees. It does not affect couples in a civil union or registered domestic partnership.

After we say “I do,” what do we do?

Let’s say you’re a same-sex couple who got married in 2013 and live in a marriage state.

This is pretty simple: you’ll file as Married on your 2013 federal income tax return and state income tax return, if your state has an income tax.

Nearly every married couple should file as Married Filing Jointly rather than Married Filing Separately, because filing separately makes you ineligible for various tax credits and, therefore, results in higher taxes.

If you got married in 2013 and live in a non-marriage state, you’ll file Married on your federal return and probably file two Single state income tax returns.

Will the IRS decision put pressure on state governments in non-marriage states to recognize same-sex marriages performed in other states for tax purposes?

I suspect so, but we’ll have to wait and see.

Back to the future

If you got married before 2013, well, you’re in for a lot of fun next spring.

And by “a lot of fun,” I mean “not a lot of fun, but you might get a nice tax refund for your trouble.”

Here’s why: the IRS lets you go back and revisit tax returns for up to three years—back to your 2010 return.

If you were legally married but DOMA barred you from filing a joint federal return, you get a do-over. You’ll file form 1040X for each year. If you overpaid estate tax, you’ll use form 843.

Another consequence of the IRS decision is that it reduces the tax you may have paid on spousal benefits for certain types of health insurance.

If you paid for your same-sex spouse’s health insurance through your employer, and those premiums were paid from after-tax money, you may be eligible for a refund.

You’re not required to amend your previous returns; you should only do it if it will result in a refund.

To get a rough idea of whether amending your returns will put money in your pocket, use Intuit’s Taxcaster. It’s free, easy to use, and doesn’t require any personal information.

Pull out your 2012 tax returns, which were filed as Single, and enter the information as Married Filing Jointly.

If you end up with a lower estimated tax bill than what you paid, it’s probably going to make sense to revisit all three years of previous returns.

In any case, same-sex couples who got married before 2013 should plan to sit down with an accountant or other trained tax preparer this year.

Filing several years of amended returns is serious business, the IRS is not known for being magnanimous about errors on tax returns.

Don’t wait until tax season, when everyone else will be scrambling to find a CPA.

Oh, and if you haven’t filled out a W-4 recently, it’s time to revisit it. Since the IRS now recognizes your marriage, you’ll probably be over- or under-withheld if you don’t fill out a new form.

In a cosmic sense

The DOMA decision has a major effect on the personal finances of same-sex married couples—and this being a personal finance column, that’s what I’m focusing on.

But look at the full roster of federal benefits becoming available to same-sex couples in areas like immigration, estate planning, Social Security, Medicare, and military and veteran’s benefits.

The federal government seems to be applying the same standard everywhere: if a marriage was legal in the state where it was performed, it’s legal, period.

Non-marriage states that deny state benefits to married couples are now radically out of line with national policy.

Even if you look at it purely as a matter of administrative efficiency rather than basic fairness, that seem like an unsustainable situation.

Questions about same-sex marriage and taxes, insurance, or benefits?

Leave them in the comments below and I’ll try to answer them in future columns.

Matthew Amster-Burton is a personal finance columnist at Mint.com. Find him on Twitter @Mint_Mamster.