Thursday, June 27, 2013


I was watching Ellen DeGeneres’s talk show while having a late breakfast at the County Café in Beach Lake yesterday morning when the program was interrupted to report on the Supreme Court decision on the Defense of Marriage Act (DOMA).  An odd coincidence, don’t you think?

As fellow tax-blogger Jason Dinesen, EA, who had blogged extensively on same-sex tax issues, reported at DINESEN TAX TIMES – “DOMA Ruled Unconstitutional”.

TAXGIRL Kelly Phillips Erb explains in her announcement of the decision (“Supreme Court Rules DOMA Unconstitutional – And It Was a Tax Case”) –

“. . . it wasn’t so much about the individual rights of folks to marry but the rights of states to write their own laws defining marriage”.

The decision did not say that same-sex marriages should be legal, or that same-sex couples have a legal right to marry.  It says that the federal government has no right to deny benefits to same-sex individuals who have married, and reside, in a state that has legalized same-sex marriage. 

What is unclear is what happens if a couple that was legally married in a state that has legalized same-sex marriage moves to a state that has not.

As with anything else, I first look at the decision from a federal tax point of view.  How will it affect my 1040 clients? 

When it comes to the federal Estate Tax the decision is a true victory that will benefit same-sex couples.  It allows same-sex couples who are legally married and reside in states that permit same-sex marriage to be able to take advantage of the Estate Tax unlimited “marital deduction”.

Kelly’s post refers to an estate tax example that was cited in the decision - 

Edith Windsor, a resident of New York, married Thea Spyer, her partner of 40 years, and that marriage was recognized by the state of New York. However, Spyder’s estate was required to pay more than $363,000 in federal estate taxes at her death because the federal government did not recognize same sex marriages.”

But what about the federal income tax?  As a result of the decision same-sex couples, again who are legally married and reside in states that permit same-sex marriage, will be able to, as Jason points out in his post, “prepare their federal and state tax returns as a married couple, using married person tax law, same as any other married couple”.

This will very likely generate income for the US Treasury.  Jason explains -

Will all same-sex couples pay less in income taxes because of this ruling? NO, not necessarily. In my practice, 2/3 of my clients who are in same-sex marriages will actually PAY MORE in income taxes by filing as a married couple rather than as two single people.”

Why?  Because of the “marriage penalty”.  While there will be some same-sex couples who will now be able to take advantage of the “marriage benefit” on their 1040s, I do believe that more often than not a same-sex couple consists of two working “spouses” – more so than “traditional” married couples – and the couple will now end up paying much more in federal income tax than when they filed as two single individuals.

In my own practice I do not expect this decision to really have any effect.  Most of my clients are from New Jersey.  While NJ has provided for “domestic partnerships” and “civil unions”, it has not gone “all the way” and legalized actual same-sex “marriages” - and I expect the decision applies only to what is identified under state law as “marriage”.  I do have some New York clients, but none are, or will become, same-sex couples married under NY state law – and I do not accept any new 1040 clients.

Russ Fox has some advice for same-sex couples who have extended their 2012 returns and will now be able to file as married at his blog TAXABLE TALK.  He posts “DOMA Done – But Don’t File That Joint Return Just Yet”, explaining -

I suspect it will be two months (maybe more) before the IRS is ready to accept such returns.”

Although, to be honest, I am not sure why – unless the IRS computers can identify the sex of files from the Social Security numbers and will not accept same-sex married returns.

To download the decision click here.

As an aside – I do believe that television shows like WILL AND GRACE and MODERN FAMILY are partially responsible for the widespread acceptance of same-sex marriage and for this decision being possible.  Television can change the world!


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