UPDATE: The Supreme Court Strikes Down DOMA – The Tax Effects

(Last Updated On: January 24, 2017)

A recent article on this website reflected on the uncertainty arising from the Supreme Court’s landmark decision invalidating the Defense of Marriage Act.

The article noted the uncertainty about the tax status of gay married couples in the dozens of states that have laws against same-sex marriage. Existing IRS practice suggested that the law of the state where the couple is domiciled would control, and not the law of the state in which the marriage took place.

However, reversing this practice, the IRS announced on August 29 that all legally wed couples, no matter which state they live in, are entitled to the same U.S. federal tax benefits.

Under the ruling, couples may file amended tax returns to change their filing status going back to tax years 2010, 2011 and 2012 to seek possible tax refunds.

The ruling means that legally married same-sex couples may choose to file their federal taxes as married filing jointly or married filing separately.

Of course, marriage status under federal law brings both benefits and penalties. On the plus side, for example, legally married spouses are exempted from the estate tax. On the other hand, some gay couples above a certain income threshold may face the “marriage penalty” that confronts some heterosexual couples.

Note: While the ruling brings clarity to federal returns, it could cause confusion for state returns filed by couples in states that do not recognize same-sex marriages. The ruling will likely create administrative headaches for state taxing authorities in states that do not recognize same-sex marriages, because most state income tax regimes, as Virginia’s, begin with federal taxable income as the starting point. States will have to issue guidance and it is practically certain that political opposition will arise to state recognition of the marriages, if only for tax purposes.

Stay tuned.

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