Jéanne Rauch-Zender and Jessica Lechuga are state tax law editors with Bloomberg BNA.
“The pain of discrimination is still felt in America . . . (b)y our gay brothers and sisters . . . still denied their rights . . . (D)iscrimination cannot stand -- not on account of color or gender; how you worship or who you love. Prejudice has no place in the United States of America.” President Obama, July 17, 2009.
Will the year 2013 hold the freedom and equality so many people have fought for? The Supreme Court of the United States will hear two cases challenging the constitutionality of restricting marriage to opposite sex couples. Oral arguments in Hollingsworth v. Perry,1 expected to begin March 26, will address the constitutionality of California's Proposition 8, a ballot initiative that amended the state's constitution to limit marriage within California to a man and a woman. The following day, on March 27, oral arguments will begin in United States v. Windsor,2 questioning whether the definition of marriage as a legal union between one man and one woman, as set forth in the Defense of Marriage Act (DOMA), is constitutional. These battleground cases may decide an equality issue that affects many aspects of life, including tax.
This article provides a breakdown of the states' current approaches to same sex marriages for tax filing purposes, presenting the possible ramifications awaiting married same-sex couples when the U.S. Supreme Court decides the aforementioned cases.
A brief history of same-sex tax filing shows that the Supreme Court of Hawaii caused significant distress among opponents to same-sex marriage when, in 1993, it required the State show a compelling interest in prohibiting same-sex marriage.3 In response to the prospect that same-sex marriage might become legal in Hawaii, and that the Full Faith and Credit Clause of the United States Constitution might compel other states to recognize those marriages,4 the U.S. Congress enacted DOMA. Numerous state statutes and constitutional amendments followed, banning same-sex unions.
DOMA was signed into law by President Clinton on Sept. 21, 1996, and defines marriage as the legal union of one man and one woman for federal and inter-state recognition purposes in the United States. DOMA summarizes the non-recognition of same-sex marriages for all federal purposes, including the filing of tax returns. From its inception, congressional sponsors declared that the bill amends the United States Code by making “explicit what has been understood under federal law for over 200 years; that a marriage is the legal union of a man and a woman as husband and wife, and a spouse is a husband or wife of the opposite sex.”5 During sponsorship, Sen. Don Nickles of Oklahoma added, “if some state wishes to recognize same-sex marriage, they can do so (but) the bill would ensure that the 49 other states don't have to and the Federal Government does not have to.”
In 1997, the U.S. General Accounting Office report, subsequently updated in 2004, “identif(ied) federal statutory provisions classified to the United States Code in which benefits, rights, and privileges are contingent on marital status or in which marital status is a factor.”6 The office divided the laws into 13 categories:
• social security and related programs housing, and food stamps;
• veterans' benefits;
• taxation;
• federal civilian and military service benefits;
• employment benefits and related laws;
• immigration, naturalization, and aliens;
• Indians;
• trade, commerce, and intellectual property;
• financial disclosure and conflict of interest;
• crimes and family violence;
• loans, guarantees, and payments in agriculture;
• federal natural resources and related laws; and
• miscellaneous laws.
The martial relationship has the most pervasive impact on Social Security, housing, food stamps, veteran's benefits, pensions and survivor benefits; taxes on income, estates, gifts, and property sales; and benefits due federal employees, both civilian and military.
With respect to federal taxation, there are five possible choices of tax filing status a taxpayer may claim: Single individual, married person filing jointly or surviving spouse, married person filing separately, head of household, and a qualifying widower with dependent children. However, because the federal government does not recognize same-sex marriage, the married filing jointly and married filing separately tax categories are not options for same-sex married couples filing their federal return. Consequently, these same-sex couples are not able to combine their incomes and deductions in an effort to take advantage of some credits and lower tax rates.
Today we are at a critical crossroad. Were the United States Supreme Court to strike down DOMA and martial limitations, there could be quite an uprising of same-sex married couples, previously forced to file in the above limited categories, who would be entitled to a windfall in refunds. However, while the United States Supreme Court will begin to hear arguments in the cases in March, the date on which the Court will render its final decision is unknown. In light of this uncertainty, same-sex married couples may wish to preserve and maximize their refund options by filing a “protective claim” with the Internal Revenue Service.7
Under a “protective claim,” taxpayers may file a claim for credit or refund of an overpayment of any tax within three years from the time the return was filed or two years from the time the tax was paid, whichever of such periods expires later, or if no return was filed by the taxpayer, within 2 years of the last payment. To protect against the running of the statute of limitations, same-sex married couples should consider amending their last three returns (i.e., dating back to 2009 taxes filed April 15, 2010) by changing their filing status to “married filing jointly,” and marking each return with “protective refund claim” in clear visible writing on the top of each return.
Andrew Jackson, the seventh President of the United States, once said “the wisdom of man never yet contrived a system of taxation that would operate with perfect equality.” Dawn carries the prospect of a new day, new means, new methods, and perhaps the warrant of new rights.
Breakdown of Federal Tax Benefits
Breakdown of Federal Employment Benefits
State Tax Filing Options for Same-Sex Couples
1 184 L. Ed. 2d 526 ( 2012).
2 184 L. Ed. 2d 526 ( 2012).
3Baehr v. Mike, 852 P.2d 44 ( 1993), reconsidered and clarified, 852 P.2d 74 ( 1993) (three same-sex couples argued Hawaii's prohibition of same-sex marriage violated the State constitution).
4 Article. IV, Section. 1, “Full Faith and Credit shall be given in each State to the public Acts, Records, and judicial Proceedings of every other State. And the Congress may by general Laws prescribe the Manner in which such Acts, Records and Proceedings shall be proved, and the Effect thereof.”
5 Defense of Marriage Act 5/96 H.R. 3396 Summary/Analysis.
6 The U.S. General Accounting Office, Defense of Marriage Act, GAO/OGC- 97-16 (Washington, D.C.; Jan. 31, 1997).
7 Examples of same-sex couples who could benefit from filing a protective claim include surviving same-sex spouses, who had to pay federal estate taxes on inherited sums from deceased partners because federal law did not recognize them as surviving spouses. These surviving spouses may be entitled to the unlimited marital deduction with no federal estate tax owed, resulting in a refund. In addition, same-sex couples, if recognized as married, would be entitled to file joint federal tax returns combining their incomes and deductions, and taking advantage of lower tax rates and certain credits, which also may result in substantially lower taxes.
8 A qualifying relative is not a qualifying child; his gross income must be less than $3,900 for 2013 year ($3,800 for 2012); he must meet a certain relationship test, and must have greater than one half of his total support for the year supplied by the taxpayer.
9 183 P.3d 384 (Cal. 2008).
10 207 P.3d 48 (Cal. 2009).
11 704 F.Supp.2d 921 (N.D. Cal. 2010), aff'd sub nom.Perry v. Brown, 671 F.3d 1052 (9th Cir. 2012), cert. granted sub nom.Hollingsworth v. Perry, no. 12-144 (2012).
12 Does not expressly prohibit, but treated as invalid because a marriage is a personal relation arising out of a civil contract between a man and a woman. (Cal. Fam. Code §300) See alsoStrauss v. Horton, 207 P.3d 48 (Cal. 2009).
13 People who entered into same-sex marriages in other jurisdictions on or after Nov. 5, 2008, are entitled to receive same benefits as spouses with the sole exception of the designation of “marriage.”
14 Does not expressly prohibit, but treated as invalid because a valid marriage is only between one man and one woman.
15 Marriage is defined as the legal union of two persons. As of Oct. 1, 2010, all civil unions converted to marriages by operation of law.
16 The legislature shall have the power to reserve marriage to opposite-sex couples.
17 Does not expressly prohibit, but treated as invalid because a marriage contract shall be only between a man and a woman.
18 Does not expressly prohibit, but treated as invalid because a marriage is a personal relation arising out of a civil contract between a man and a woman.
19 Treats as civil unions same-sex unions from other jurisdictions.
20 Although the statute treats same-sex marriage as invalid, the Supreme Court of Iowa in Varnum v. Brien,763 N.W.2d 862 (Iowa 2009) ruled the statutory ban violated the equal protection of Iowa's constitution.
21Id.
22 Does not expressly prohibit, but treats as invalid because a marriage is a civil contract between two parties of the opposite sex.
23 An Act to End Discrimination in Civil Marriage and Affirm Religious Freedom, providing that marriage is a legally recognized union between two people, was signed by the governor on May 6, 2009. By referendum, 51.5 percent of Maine voters voted in favor of the law, effective Dec. 29, 2012.
24Id.
25 The Civil Marriage Protection Act, providing that a marriage is between two individuals, was signed by the governor on March 1, 2012. By referendum, 52.4 percent of Maryland voters voted in favor of the law, effective Jan. 1, 2013.
26 In May, 2012, the Court of Appeals of Maryland ruled same-sex marriages from other states must be recognized as valid in Port v. Cowan, 44 A.3d 970 (Md. 2012).
27 Maryland has not changed its tax laws to correspond to the recently enacted law.
28 In the 2003, Goodridge v. Massachusetts Dept. of Public Health, 798 N.E.2d 941 (Mass. 2003) held it was unconstitutional to allow only opposite-sex couples to marry.
29Hunter v. Rose, 463 Mass. 488 (Mass. 2012); Elia-Warnken v. Elia, 463 Mass. 29 (Mass. 2012).
30 Although the statute states that marriage is a contract between consenting parties, the constitutional ban invalidates same-sex marriage.
31 Although the state recognizes valid marriages from other jurisdictions, the constitutional ban invalidates same-sex marriage.
32 Recognizes as a domestic partnership any legal union between persons from other jurisdictions.
33 Allows same-sex marriage, statutes relating to domestic unions were repealed.
34 Civil unions were legalized in December 2006, effective Feb. 19, 2007.
35 Marriage is defined as a valid contract for consenting parties. However, in 2004, 66 marriage licenses issued to same-sex couples were later invalidated that same day by the New Mexico Atty. Gen. Patricia Madrid.
36 New Mexico's statute recognizes valid marriages from other jurisdictions. In 2011, Atty. Gen. Gary King stated, “While we cannot predict how a New Mexico court would rule on this issue, after review of the law in this area, it is our opinion that a same-sex marriage that is valid under the law of the country or state where it was consummated would likewise be found valid in New Mexico.” http://www.scribd.com/doc/46294643/4-Jan-11-Rep-Al-Park-Opinion-11-01-1.
37 Prohibited, however, a number of cities and counties allow domestic partnerships.
38 Prohibited, however, some cities allow domestic partnerships.
39 Does not expressly prohibit, but treated as invalid because an unmarried person is capable of contracting and consenting to marriage with a person of the opposite sex.
40 Does not expressly prohibit, but treated as invalid because a marriage is a civil contract between a male and a female.
41 Executive Order 12-02 stated Rhode Island would recognize same-sex marriages, civil unions, or registered domestic partnerships valid in other jurisdictions.
42 Tax Administrator ruled the Rhode Island marital deduction is allowable for property passing from decedent to his/her in state civil union partner or out of state same-sex surviving spouse. (Declaratory Ruling 2012-02)
43 Although the state recognizes valid marriages from other jurisdictions, the constitutional ban invalidates same-sex marriage.
44 Does not expressly prohibit, but treated as invalid because a marriage is a personal relationship between a man and a woman arising out of a civil contract.
45 Treats valid same-sex legal unions from other jurisdictions as domestic partnerships.
46 Does not expressly prohibit, but treated as invalid because solemnization is a formal act by which a man and a woman contract to marriage and assume the status of husband and wife.
47 Does not expressly prohibit, but treated as invalid because marriage is a legal relationship between two equal persons, a husband and wife.
48 Unclear because recognizes valid marriages from other jurisdictions.