Individual Income Tax Insights: Wedding Bells and Taxes – Same-Sex Marriage Expected to Impact State Tax Revenues

The recent legalization of same-sex marriage on a national scale is projected to result in a significant increase of state and local tax revenue, at least for the next three years, according to The Williams Institute at UCLA School of Law. The estimated increase in revenue could be as high as $184.7 million annually across the states. Such economic growth is likely to occur by an increase in services used by couples and guests for weddings as well as through state taxes. The Williams Institute derives its recent projections by the same methodology used in its study that analyzed states in which same-sex marriage was already legal, showing that the first three years of legal recognition brought an increase in economic activity and thus state tax revenue. 

In New York, for example, same-sex marriage was legalized in 2011, resulting in an increase of $19.4 million in tax revenue and the creation of 1,713 jobs.  The Williams Institute has since examined states that did not allow for same-sex marriage before the historic U.S. Supreme Court ruling in Obergefell v. Hodges.

Based on such calculations, Louisiana is projected to see an increase of $2.5 million annually in tax revenue and 97 new jobs. Similarly, Georgia is expected to see an increase of $5.5 million in tax revenue and the creation of 329 jobs. 

While states may see a short-term positive fiscal impact, individual taxpayers might experience the opposite. Many same-sex couples could see a rise in their tax burdens, according to Stateline. States that tax married couples more who elect to file jointly will see an increase in revenue. This increase, however, is also dependent upon whether each spouse works, as couples with only one income-earning spouse tend to fare better financially by filing jointly and would thus contribute to a dip in state tax revenue. 

Eventually, all married same-sex couples will have state recognition of their marital status for tax purposes, but the Obergefell ruling does not cause an automatic change in tax treatment across the states, cautions Debera Salam and Kristie Lowery, authors of a recent Daily Tax Report article on tax treatment of married same-sex couples. Because the issue of filing is still unsettled in many states, married same-sex taxpayers should look to their state’s published guidance regarding impending tax changes.

Continue the discussion on LinkedIn: Besides the “marriage penalty” some same-sex couples may face by filing jointly, what other tax burdens should newly married same-sex couples look out for?

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