Same-Sex Marriage Ruling: State Tax Implications

On June 26, the Supreme Court ruled that same-sex couples have a right to marry under the 14th Amendment. While this decision will have impacts on society that are outside the scope of this article, there are several state tax implications.

One of the more confusing and frustrating aspects of the state tax system for practitioners and taxpayers alike is when state tax laws do not conform to federal tax laws. Historically, a taxpayer’s income tax filing status was not one of those areas – typically, your filing status for state income tax purposes followed your federal income tax filing status. On Aug. 29, 2013, the U.S. Department of the Treasury and the IRS ruled that same-sex couples that were legally married in jurisdictions that recognize those marriages would be treated as married for federal income tax purposes, regardless of whether the couples currently live in states that do not recognize same-sex marriage. This ruling created nonconformity between federal income tax laws and state income tax laws, with respect to one’s filing status, in states that did not recognize or specifically banned same-sex marriage, which further impacted the computation of one’s tax liability.

That nonconformity was short-lived, however, due to the U.S. Supreme Court’s decision on June 26, 2015, in Obergefell v. Hodges, in which the Court ruled that same-sex couples have a right to marry under the 14th Amendment, thus prohibiting states from banning or otherwise not recognizing those marriages on the same footing as heterosexual marriages.[1]

Undoubtedly, this decision will have innumerable impacts on society that are way outside the scope of this article. In the area of state taxes, some of the implications of the decision are set forth below.

  • Filing Status – Taxpayers will now generally follow their filing status for federal income tax purposes. Therefore, same-sex married couples that file as “married filing jointly” for federal income tax purposes will use that same status for state income tax purposes. Taxpayers should be mindful of the tax implications as a result of the new filing status with respect to items such as personal exemptions, standard deductions, child tax credits and other tax rules that differ based on filing status.
  • Refunds – For some same-sex married couples, filing jointly may result in a lower total state income tax liability (other may get hit by the “marriage penalty”). Taxpayers should consult with their tax advisors to consider whether it makes sense to file refund claims for tax years that are open under the statute of limitations (in most states that may be three to four years).
  • Withholding – Given that the Court’s ruling occurred mid-year, many taxpayers may have set up their employer state income tax withholding under the assumption that their filing status would be single for this tax year. Taxpayers should consult with their tax advisors to determine what impact filing jointly will have on their 2015 tax liability and whether to adjust state withholding by submitting a new withholding form to their employer.
  • Estate Planning – The Court’s ruling does not only impact state income taxes. State intestacy laws and estate taxes must also now recognize same-sex married couples. For example, marital exemptions under a state’s estate tax for property left to a spouse may not have applied to a same-sex married couple before the Court’s ruling in a state that did not recognize those marriages; now, those transfers will be afforded that marital exemption. Therefore, same-sex married couples should meet with their tax and estate planning advisors to determine the impact of this case on their estate plan.

Contact Jeff Glickman, partner-in-charge of HA&W’s SALT practice, at [email protected] for more information.

[1] 576 U.S. ___ (2015). The opinion can be accessed here. Prior to the decision, 14 states still banned or did not recognize same-sex marriages.

[2] There may be some instances where that would not be the case, for example where the spouses are not residents of the same state.

Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding this matter.