On June 26, 2013, in U.S. v. Windsor, the United States Supreme Court ruled that the Defense of Marriage Act, which defined marriage as between one man and one woman, was unconstitutional. This was significant for tax purposes because the subsequent Internal Revenue Service Revenue Bulletin provided that same-sex individuals who are lawfully married under the laws of a particular state carry that same status for federal tax purposes.
But confusion remained as to how these couples would file their state taxes in states that did not recognize same-sex marriage. The problem, as explained by the Tax Foundation, was that when states require taxpayers to reference their federal returns when filling out their state return, this creates a situation where the couples are both single and married filers, depending on the level of government. Action that the United States Supreme Court took on Oct. 6, 2014 is now forcing resolution of the problem.
The Court denied the certiorari petitions in which seven petitioners sought its intervention on lower court rulings that struck down state bans on same-sex marriage. This means that those lower court decisions, which affect tax returns in Utah, Virginia, Indiana, Wisconsin, and Oklahoma, will stand, according to SCOTUSblog.org. In a speech at the University of Minnesota Law School in September, Justice Ginsberg foreshadowed such a result when she indicated that there would be no need for the Supreme Court to rush to address these bans if the lower courts all ruled in the same way.
Here is the status of the tax updates in the affected states:
A recent Tax Foundation article (Article) reported that Utah will have an easy time adapting because its tax scheme already provided for same-sex marriage filers. On Jan. 15, 2013, the state issued a Tax Notice (Notice) providing that couples who are eligible to file a joint federal income tax return and who elect to file jointly, may also file a joint 2013 Utah Individual Income Tax return. This applied to eligible married couples wanting to file a joint return if they were married as of the close of the tax year. Utah limited its Notice to the 2013 tax year, but provided that if any taxpayers are required to file amended 2013 tax returns based on future court rulings, they will not be subject to penalties for any tax deficiencies resulting solely from following this guidance.
Though Utah has not yet updated its scheme for the 2014 tax year, it is likely the same rules that applied in 2013 will carry forward.
On Oct. 7, 2014, the state issued Tax Bulletin 14-7 (Bulletin), which declared that same-sex marriages that are valid under the law of any state will now be recognized for Virginia income tax purposes. Accordingly, same-sex couples who are legally married under any state law may file joint Virginia income tax returns, and compute items on their Virginia income tax returns as married individuals. Alternatively, such couples may file their Virginia income tax returns as married couples filing separately.
In addition, there is a retroactive tax effect. A same-sex married couple who filed a joint federal income tax return and separate Virginia income tax returns in a previous taxable year may, but is not required to, amend their Virginia income tax returns for any corresponding taxable years within the three-year statute of limitations to file joint Virginia income tax returns. Any same-sex married couple electing to do so must compute items on their amended Virginia income tax return as married individuals.
The Bulletin repeals a previous one that required each individual in a same-sex marriage to file separate Virginia income tax returns, and also compelled such individuals to compute certain items on the Virginia income tax return as if they were single individuals.
Though Indiana has not yet issued any guidance, the Article reported that the Indiana Department of Revenue affirmed that its tax scheme would match Virginia’s.
On Oct. 13, 2014, the Wisconsin Department of Revenue updated its website by addressing questions regarding tax filings for same-sex couples. It confirmed that a same-sex couple that is considered lawfully married for federal tax purposes is also considered married for Wisconsin income tax purposes. Accordingly:
- For 2014 individual income tax returns, a lawfully married same-sex couple must file their 2014 Wisconsin individual income tax returns as married filing jointly, married filing separately or, if qualified, as head of household.
- For 2013 and prior returns filed on or after Oct. 16, 2014, a lawfully married same-sex couple must file their Wisconsin individual income tax returns as married filing jointly, married filing separately or, if qualified, as head of household.
- For 2013 and prior returns filed before Oct. 16, 2014, a lawfully married same-sex couple who already filed their tax returns may choose (but are not required) to amend their Wisconsin tax returns using Form 1X, claiming a filing status of married filing jointly, married filing separately or, if qualified, as head of household. Prior returns may be amended as long as the statute of limitations has not expired.
On Sept. 27, 2013, the Oklahoma Tax Commission issued a public notice acknowledging that because the state did not recognize same-sex marriage, same-sex couples could not file a joint state income tax return. This meant that if a taxpayer’s federal filing status of married filing jointly or married filing separately is pursuant to Internal Revenue Service Ruling 2013-17 (which allows same-sex married couples to file a joint federal income tax return), each taxpayer must file a separate Oklahoma return as single or head of household, as applicable.
The Supreme Court denial changes all of this, and married same-sex couples can file jointly now, but the state has not issued any formal guidance as of yet.
Other states affected
The Tax Foundation Article pointed out that in addition to the above mentioned states, the Supreme Court’s inaction will have an impact on the tax lives of same-sex couples in the other states that are part of the circuits for which these decisions are now binding law: North Carolina, South Carolina, West Virginia, Kansas, Wyoming, and Colorado.
North Carolina has not yet issued its directives for same-sex married filers. Even so, on Oct. 15, 2014 a News Herald article reported that same-sex couples who are taxpayers in North Carolina but who were married in another state before the judge’s ruling will be able to file joint returns for 2013, if they haven’t already, and depending on when a couple was married, tax returns can be amended for up to three years. The options for married couples filing tax returns, both heterosexual and homosexual, are “married, filing jointly” or “married, filing separately.”
South Carolina does not recognize same-sex marriage. But one consequence of the Supreme Court decision will be that it, too, will be required to conform with federal rules, though it has not yet issued formal guidance.
West Virginia issued an Oct. 14, 2014 Administrative Notice that beginning with tax year 2014, tax returns will be processed without regard to gender or sexual orientation of the married partners. Individuals filing an amended return showing change in filing status from single to married must have been lawfully married during the relevant tax year for which the change in marital status is being sought. Accordingly, the terms “spouse,” “husband and wife,” and “wife” include an individual married to a person of the same gender. The term “marriage” includes marriage between individuals of the same sex, lawfully married under the law of any domestic or foreign jurisdiction having the legal authority to sanction marriages.
Kansas’ Constitution provides that “[m]arriage shall be constituted by one man and one woman only.” The Supreme Court’s denial will require Kansas to cease enforcement of this and related laws, though the state has not yet issued tax guidance.
Wyoming has no state income tax, so it is unaffected.
Colorado, which already allows same-sex marriage, is already in conformity with the federal tax rules.