# U.S. Supreme Court's Same Sex Marriage Decision: Effects on U.S. Taxes



## BBCWatcher (Dec 28, 2012)

The U.S. Supreme Court ruled earlier today that the U.S. federal government must treat legally married same sex couples exactly the same as legally married opposite sex couples. That includes everything the IRS does, and that's great news if you're a U.S. citizen or permanent resident with a same sex spouse. (In fact, United States v. Windsor was a tax-related lawsuit.)

Here's what's likely to happen when the judgment is final in about 25 days (i.e. July, 2013) if you are a U.S. citizen or U.S. permanent resident legally married to a same sex spouse. Note that it appears the U.S. Supreme Court decided that federal recognition of marriages that occur/occurred in U.S. states is required. It's not clear yet (to me anyway) whether the ruling also applies to same sex couples legally married in countries outside the United States. However, since the Supreme Court's ruling was sweeping, my educated guess at this stage is that the federal government must treat same sex couples the same as opposite sex couples, so if the U.S. federal government recognizes marriages conducted abroad (it does), then it won't matter whether it was a same sex or opposite sex marriage. It cannot matter now as a matter of constitutional law.

1. This ruling is most definitely effective with tax year 2013 and future tax years. In addition, you may be able to file amended returns for prior tax years, although the IRS (in consultation with the U.S. Justice Department) will have to resolve that question. Also, if you haven't filed for tax year 2012 yet, I would request an automatic extension to October 15 to see what happens.

2. Your filing status is now married -- MFS or MFJ. If you're legally married to a same sex spouse you can no longer choose Single, Head of Household, etc. There are a wide range of tax benefits potentially available with married filing statuses, particularly MFJ. (Although this might actually be worse if you have to file MFS, but welcome to the married club! )

3. If your spouse is also a U.S. citizen, you have an unlimited marital gift and inheritance exemptions. You can transfer as much wealth as you wish to/from your spouse. (Fabulous!)

4. If your spouse is not a U.S. citizen, the gift limit is $143,000 (2013 limit, indexed to inflation). That's more than 10 times the non-spouse gift limit, so that's really great news, too.

5. You can make an election to treat your nonresident alien spouse as a U.S. resident for purposes of Married Filing Jointly status if you (and your spouse) wish.

6. You can make many types of IRA contributions for a nonworking spouse, even a foreign one, as long as you have enough earned income to qualify. (It must also be income that you did not shield from U.S. tax using the Foreign Earned Income Exclusion.)

7. Your spouse will qualify for U.S. Social Security survivors benefits under the same rules as opposite sex spouses, and with the same tax implications.

8. You're more likely to qualify for certain refundable tax credits.

....And there's much, much more.

This is a very, very big deal. Over the next few weeks and months there's bound to be some confusion, but as long as you keep the basic principle in mind you should be fine. The basic principle is this: legally married same sex spouses must now be treated exactly the same as opposite sex couples, whether in tax matters, Social Security, Medicare, immigration... you name it.

This thread would be a good one to address questions and concerns as/if they come up.


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## BBCWatcher (Dec 28, 2012)

There are circumstances where today's Supreme Court ruling made you worse off financially. Nerdwallet summarizes them along with some other interesting questions. In particular, if you're a legally married same sex couple who both earn moderate or higher income, conversion from two single filers to married filing jointly (best case) is not so good.

I would point out that Nerdwallet's examples are for U.S. resident households. For nonresident households with earned income it's much better thanks to the Foreign Earned Income Exclusion (FEIE). However, if both spouses earn above the FEIE but below the highest tax bracket then conversion from two single filers to married filing jointly would likely result in a higher tax.


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## maz57 (Apr 17, 2012)

Canada has had that for years, plus more. Canadians who cohabit for a length of time (not sure exactly how long-too lazy to look it up) can also treated as married. This is just another case of the US barely crawling out of the stone age while other countries lead the way on civil rights issues. I'm not impressed but then I'm not a gay person living in the US. I'm sure such folks consider this decision a major advance.

I guess this means same sex US couples living in Canada can now do their IRS filings MFJ, if they want to file at all. There have been reports in the local news about same sex US couples moving to Canada to escape the stupid US laws and live their lives freely.


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## BBCWatcher (Dec 28, 2012)

Canada adopted federal same sex marriage 8 years ago. That was 5 years after Vermont granted same sex couples the same rights as marriage (civil unions, now renamed simply marriage), and Vermont was 3 years ahead of the first Canadian province.

Canada is wonderful in many ways, but let's not get too carried away here with the jingoism. Both Canada and the U.S. are among the same sex marriage pioneers globally. For perspective, there are zero countries in Asia that legally recognize same sex couples.


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## Bevdeforges (Nov 16, 2007)

While I would hardly recommend that the US Government break its arm patting itself on the back, I will say that one more immediate impact of this latest ruling by the Supremes will be the opening up of visa possibilities for married couples looking to immigrate to the US - say, when one has a job offer or when a US citizen is married to a same-sex partner. 

'Bout time, I must say.
Cheers,
Bev


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## maz57 (Apr 17, 2012)

Meanwhile back at the ranch (Texas) the state legislature is trying to dismantle Roe vs. Wade on the way back to the stone age. They claim it's because they have respect for all life (except for the 500 they've executed since they brought back the death penalty).


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## BBCWatcher (Dec 28, 2012)

Here are some more effects:

1. Spouses can file jointly for U.S. bankruptcy, retiring debt for both instead of just one.
2. Spouses cannot be forced to testify against each other in U.S. courts. That includes tax-related cases.
3. Divorced spouses can deduct alimony from U.S. federal income tax.
4. Spouses can qualify for Medicare based on the other spouse's contribution history. (This is not too important for non-U.S. resident couples since Medicare coverage does not apply outside the U.S., but it could be helpful to returning couples.)
5. Various U.S. veterans benefits.
6. Spouses can delay enrollment in Medicare (and thus avoid penalties) if one spouse is still working and has medical coverage.
7. Possible additional "Obamacare" benefits.
8. More U.S. employers, particularly the federal government and goverment contractors, that offer "expat packages" (including tax equalization) to employees taking overseas assignments will include same sex spouses, although there will still be immigration-related difficulties in many parts of the world that limit such arrangements.


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## BBCWatcher (Dec 28, 2012)

Another change for same sex spouses: many U.S. tax-advantaged retirement savings accounts (401k, IRA, etc.) will now be automatically awarded to a surviving same sex spouse upon the account holder's death. Same with many company-issued life insurance policies. Moreover, frequently the other spouse must make an explicit declaration if she/he doesn't want to inherit these assets. In other words, marriage itself protects spousal rights to certain financial assets held in the other spouse's name, and it's at least a bit difficult to change that inheritance arrangement without both spouses agreeing and putting that change in writing. These particular rules even trump wills.

Some of this stuff will be messy and confusing for a while.

Another interesting aspect is that for a few back tax years same sex married couples may enjoy a unique tax benefit opposite sex married couples cannot. That is -- and I'm now seeing confirmation -- a same sex married couple/spouse can file amended tax returns for prior years at least up to the IRS's limit (you can go back to tax year 2010) to claim refunds, as long as they were legally married by the last day of that tax year. However, you are not *required* to do that. In other words, for tax years 2010, 2011, and 2012 you can calculate whether you would receive a refund if you were legally married in any/all of those tax years but legally barred from filing MFS or MFJ. If so, great, you can file amended returns and get your refund. (Probably you'd have to amend all returns forward. You couldn't amend only 2010 and 2012, skipping 2011, if you were married in those years.) If not, you can just let your single filing status lie if it was more tax advantageous. What a novel concept, that you can choose single (what you already did) and let it be, or amend to file MFJ or MFS if more advantageous. That's pretty cool, and I'm a bit jealous.  But it's a small tax reward for enduring lots of discrimination, so why not?

So yes, for tax year 2012 if you're a legally married same sex spouse/couple you can file in one of the married categories. (For tax year 2013 and forward you'll definitely have to file MFJ or MFS if you're married.) You can also file single for tax year 2012 since the IRS's form instructions haven't changed yet (until the IRS issues guidance), and certainly if you've already filed for 2012 you can file an amended return.

Refunds for tax year 2009 and prior are now closed, though I expect there will be some tax attorneys trying to claim any such refunds. Massachusetts started marrying same sex couples in 2003, and Vermont's civil unions started in 2000, so conceivably tax issues could stretch back at least that far.

I'd advising holding back a little bit until the IRS issues official guidance, but I think the above is how it'll work.

I would also point out that same sex married couples may want to examine and adjust their tax withholding (W-4), if applicable. Also, such couples should take a fresh look at their estimated tax payment amounts, if any. The change in filing status to MFJ/MFS will affect tax liabilities and thus the amount of withholding/estimated tax payments you should be making.


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## Bevdeforges (Nov 16, 2007)

maz57 said:


> Meanwhile back at the ranch (Texas) the state legislature is trying to dismantle Roe vs. Wade on the way back to the stone age. They claim it's because they have respect for all life (except for the 500 they've executed since they brought back the death penalty).


Fortunately, it appears that the filibuster conducted by one, brave Texas legislator has succeeded. At least for the time being.
Cheers,
Bev


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## Bevdeforges (Nov 16, 2007)

What's sad is that all these "new and wonderful" benefits are simply the standard treatment of married people in the US for ages. The one thing I'd really love to see come of all this (though I know it won't) is giving the option of filing as "single" to married persons, either instead of or as an additional option to the MJ vs. MFS choice. 
Cheers,
Bev


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## BBCWatcher (Dec 28, 2012)

Bevdeforges said:


> The one thing I'd really love to see come of all this (though I know it won't) is giving the option of filing as "single" to married persons, either instead of or as an additional option to the MJ vs. MFS choice.


Better yet, just eliminate filing statuses altogether. Many countries' tax systems have no equivalent to the U.S. filing status. Singapore is an example.


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## BBCWatcher (Dec 28, 2012)

The Ninth Circuit has lifted its stay and same sex marriages immediately resumed in California on June 28, 2013. (State officials were ready.) With respect to taxes, couples can take their time: getting married on or before December 31 is enough to be married for the full tax year.

This IRS guidance will be changing.

One of the slightly open questions is whether the federal government will treat same sex couples legally married anywhere as married, or whether (at least for some federal matters) they'll have to also be resident in a state that recognizes same sex marriage. This is further complicated by the fact that states administer certain federal programs. Initial signs are the federal government will aim for universality, but they'll be thwarted in certain respects. We'll undoubtedly see more court cases once that occurs.

However, the states are already moving. Michigan is not a same sex marriage state. However, a judge there struck down a state DOMA-like law that prohibited local governments from recognizing same sex couples for purposes of public employee benefits, citing equal protection reasons.


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## BBCWatcher (Dec 28, 2012)

This article describes some of the possible complications. To net it out, until the U.S. Supreme Court gets to decide another case, same sex married couples should carefully consider where they live in the U.S.

What's particularly interesting -- what's already happening -- is a sort of "gay drain." Same sex married couples now have many choices where to live with full legal recognition. Understandably couples are going to gravitate to the friendly jurisdictions and avoid the hostile ones. That'll tend to boost the economies of the former and diminish the economies of the latter.


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## BBCWatcher (Dec 28, 2012)

The IRS has clarified the tax rules for same sex married couples. Here are the highlights:

1. Same sex married spouses filing returns for any tax year on or after September 16, 2013, must generally choose one of the married filing statuses (Married Filing Jointly or Married Filing Separately).

2. Same sex married spouses may (but are not required) to file or amend prior tax returns with their new married filing status. Amendments can go back to tax year 2011 if timely filed. (Couples should take a look at whether they can get refunds with amended filings.)

3. As long as the couple is legally married in a U.S. state or foreign country, that's all that matters. Place of current residence does not matter, even if the current place of residence does not yet recognize same sex marriages. Note that it must be a marriage, not another marriage-like arrangement.

At the above link the IRS lists a number of scenarios that involve married couples. They can be summarized by saying that marriage is marriage for all U.S. federal tax purposes.


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