The Treasury Department, following up on the Supreme Court’s ruling in June striking down a key section of the 1996 Defense of Marriage Act, announced that gay and lesbian couples possessing a marriage license from any U.S. state that allows same-sex marriage can file joint federal tax returns.
Beginning with the 2014 tax filing season, the IRS will use a “state of celebration” standard for recognizing same-sex marriages. Couples can file joint federal tax returns even if they move to states that do not permit same-sex marriages — although they may have to file their state tax returns as if they were not married, depending on state laws. Same-sex couples may also file amended tax returns for 2010, 2011 and 2012.
Under the new rules, same gender loving couples will be treated as married for all federal tax purposes including income, gift, and estate taxes, according to the Treasury Department. This also covers all federal tax provisions such as personal and dependent exemptions and standard deductions.
Thirteen states and the District of Columbia permit same-sex couples to marry. These states are California, Connecticut, Delaware, Iowa, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New York, Rhode Island, Vermont and Washington.
The new IRS ruling creates some complications for the 24 states that do not recognize same-sex marriage but require taxpayers to reference the federal tax return when filling out their state tax forms, reports the Tax Foundation, a nonpartisan research organization that has monitored fiscal policy at the federal, state, and local levels since 1937.
“States should not consider the option of ‘delinking,’ or ‘decoupling,’ the state’s tax code from the federal tax code,” warns Joseph Henchman, Vice President of State and Legal Projects at the Tax Foundation.
“At first glance, this may seem a viable solution, since deleting all state references to the federal tax code eliminates all need to refer to the federal tax return. However, decoupling is a move away from sound tax policy, because it increases tax burdens, reduces stability, and exacerbates an already complex income tax code,” Henchman explains.
Henchman acknowledges that using a “state of celebration” standard will present challenges in compliance and enforcement that would not occur under a “state of residence” standard. But, “states have viable options for accommodating the federal change with minimal effort that would affect only a few taxpayers,” he adds.