This past Wednesday (June 26, 2013) the US Supreme Court overturned a portion of the Defense of Marriage Act, or DOMA. At the same time the court refused to consider an appeal of California's law on the same topic, resulting in the law aligned with DOMA also being set aside.
Many articles deal with the many things that will be changed as a result of the court's action. Authors report 1,000 to 1,400 changes that will be impacted by the court's action. I've no desire to compete with counting provisions, especially since some of those will not affect many couples. So I will address just tax issues in aggregate.
Without DOMA, federal tax law returns to looking to state law for how to treat couples. Thus if the state where the couple lives considers the couple married, then for federal tax purposes they will also be married. Conversely if a state does not recognize a marriage, then neither will federal tax law.
Some have reasonably asked about a same-sex couple who are married under the law in a state that has redefined marriage, and who then move to a state holding to the traditional and original definition of marriage, given to us thousands of years ago. Will the couple be considered married or not? The answer again lies in state law. Does the state where they now reside recognize any marriage granted by a different state? Some do, and some do not.
Note that this situation is not new to the tax world. For a long time tax preparers have dealt with the same fundamental issue centered on common-law marriages. Some states will consider a couple married who live together and present themselves as married. Other states do not. Thus depending on the state of residence, they may or may not be considered married for federal tax purposes (e.g., allowed to elect to file a joint return).
Similarly, if an unmarried couple lives together then one of the individuals might qualify to be a dependent of the other. But some states have laws prohibiting unmarried adults living together in a marriage-like relationship. Under federal law, tax benefits are not allowed if derived from an activity that violates the law. Thus couples living in those states which have laws against cohabitation may not claim that dependent tax deduction.
It is worth noting that being considered married is not always a benefit even though there are many advantages in the tax law. The Patient Protection and Affordable Healthcare Act (i.e., Obama-care) introduced new taxes that have a strong marriage penalty. (A surtax threshold is $200,000 for a single person but only $250,000 for a married couple.) The "fiscal cliff" bill (American Taxpayer Relief Act of 2012 passed in 2013) also institutes a marriage penalty in the boundary for a new highest tax bracket. There are also situations where being considered married will prevent a taxpayer from taking a tax deduction for contributions to a Traditional IRA or making a contribution to a Roth IRA.
The bottom line is that the rules of our tax system are never static. This court ruling gives us some changes, which likely can be applied retroactively to open years (generally 2010 and later) if an amended tax return will benefit the taxpayer. But there will certainly be many other changes yet to come in the year.
If you think that any of this might affect you, then I encourage you to meet with an Enrolled Agent or other licensed professional specializing in income taxes.
