In a ruling lauded by tax and estate experts serving same-sex couples in the North Bay and beyond, the Internal Revenue Service said it would treat all same-sex spouses legally married in states like California as "married" for federal tax purposes -- even if they are currently living in states where such marriages remain illegal.
[caption id="attachment_79483" align="alignright" width="421"] Naomi Metz, Francine Vorhees, Jason Glazier[/caption]
It was the most pointed guidance yet following a duo of closely watched U.S. Supreme Court rulings regarding same-sex marriage in June, giving individuals and tax professionals clear direction that same-sex spouses should no longer file as "single" for federal tax purposes in California or elsewhere. Those rulings had found federal restrictions on same-sex marriage to be unconstitutional, and dismissed an appeal that would reinstate California's former ban on same-sex marriage, Proposition 8.
Experts said the recent IRS guidance helped answer some significant questions involving the tax status of same-sex spouses throughout the United States. Yet the announcement stops short of fully resolving what has been a shifting patchwork of tax conditions for same-sex couples, a group that experts said often faces a higher burden of considerations than heterosexual spouses in issues like income taxes and estate planning.
"It's a different conversation than if an opposite-sex couple comes into your office and says, 'We were married on this date.' Those rules are clearer," said Naomi Metz, an adjunct professor at the Empire College School of Law and founder of a boutique law firm in Santa Rosa that specializes in legal issues concerning lesbian, gay, bisexual and transgender individuals.
It wasn't long after the dust settled from the Supreme Court's June 26 rulings that tax and financial professionals began to question what the decision would mean to the IRS.
In the first case, United States v. Windsor, plaintiff Edith Windsor, a resident of New York state, had sued for her right to the federal estate tax exemption as the beneficiary of her deceased wife's estate. The court ruled in Ms. Windsor's favor, deciding in a 5-4 vote that key parts of the 1996 Defense of Marriage Act were unconstitutional and requiring federal recognition of same-sex marriages throughout the United States.
Yet coupled with the Proposition 8 decision, the court declined a broader vote that could have affected the legality of same-sex marriage bans across the country. Individual state bans on same-sex marriage would remain intact, leaving tax planners to wonder if such marriages would only be recognized on a federal tax basis in the states where they are allowed.
The IRS delivered on its promise to issue new guidance on the subject in a joint announcement with the U.S. Department of the Treasury on Aug. 29.
"If a couple from North Carolina comes to California to get married -- even though North Carolina doesn't recognize their marriage for state purposes -- the couple would be subject to obligations on the federal level," she said.
Under the IRS ruling, same-sex spouses will be subject to all federal tax provisions where marriage is a factor. Those provisions include filing status, estate tax exemptions, personal and dependency exemptions, the standard marriage deduction, IRA contributions, earned income tax credits and employee benefits.
Spouses will generally be required to file as "married filing jointly" or "married filing separately" in their 2013 tax return. The ruling does not apply to other formal relationships recognized in individual states, such as registered domestic partnerships and civil unions.