This article is updated in 2023, given the significant changes to our tax laws that impact gay and lesbian couples. The U.S. Supreme Court issued several rulings that brought about significant changes to the tax treatment of same-sex marriages.
The primary court case centered around the federal estate tax and the lack of a marital deduction for same-sex married couples. The court’s decision led to the recognition of same-sex marriages for federal tax purposes, allowing legally married same-sex couples to file their federal income tax returns as married filing jointly or separately. The case had far-reaching tax implications, affecting every other tax rule and remedy under federal law, from personal and dependency exemptions to employee benefits and contributions to IRAs.
Windsor v. United States
Whether gay and lesbian couples can file as married filing jointly or have to file as married filing separately changed dramatically in 2013.
In 2013, the U.S. Supreme Court decided the Windsor v. United States, 570 U.S. 744 (2013), case. The case focused on the Defense of Marriage Act (“DOMA”). The couple in the case had been married in Toronto, Canada in 2007, and their marriage was recognized by the state of New York.
The case focused on the Federal estate tax. Same-sex marriages were not recognized for federal purposes under DOMA. As such, there was no estate tax marital deduction and the estate owed $363,000 in estate taxes. The estate would not have owed any estate tax if the marital deduction applied.
The U.S. district court held that DOMA was unconstitutional. The U.S. Court of Appeals for the Second Circuit affirmed the district court’s decision. In 2013, the Supreme Court decided the case and also declared DOMA unconstitutional.
Tax Filing Status & Other Tax Issues
After the ruling in Windsor, the IRS issued guidance allowing same-sex couples who are legally married under state law to file their federal income tax returns as married filing jointly or married filing separately. This guidance is Revenue Ruling 2013-17. So married persons whose marriage is recognized at the federal level are now required to file as married. They cannot file as single.
In addition to filing status, this also impacted every other tax rule and remedy under Federal law. Same-sex couples who are legally married are entitled to the same personal and dependency exemptions, standard deductions, etc. as married couples. The same benefits and burdens under income, estate, and gift taxes also apply. This encompasses everything from employee benefits and contributions to IRAs to claiming earned income tax credits and child tax credits. Those in same-sex marriages can even qualify for innocent spouse relief.
The Exceptions and Nuances
There are some exceptions and nuances to consider when it comes to the tax treatment of same-sex marriages. Only marriages that are legally recognized qualify for federal tax purposes, which means that registered domestic partnerships and civil unions do not qualify.
Additionally, Rev. Rul. 2013-17 clarifies that a same-sex marriage must be validly entered into under the laws of a state, foreign country, or U.S. territory that recognizes same-sex marriage in order to be recognized for federal tax purposes. This means that even if a same-sex couple is married in a state or country that recognizes same-sex marriage, if they reside in a state that does not recognize their marriage, they may have to file their state income tax returns as single, even if they file their federal income tax returns as married filing jointly or separately.
Even this nuance has largely been eliminated. In December 2022, the federal Respect for Marriage Act created statutory protections for same-sex marriages. While the new law does not require all states to issue same-sex marriage licenses, it requires all states to recognize valid same-sex marriages performed in another state. Most states now recognize same-sex marriages.
The 2013 Windsor v. United States case dramatically changed the tax treatment of same-sex marriages for federal tax purposes. The Supreme Court’s decision to strike down the DOMA meant that same-sex couples who are legally married under state law are now required to file their federal income tax returns as married filing jointly or separately. The same benefits and burdens under income, estate, and gift taxes now apply to same-sex married couples, but there are still exceptions and nuances to consider, such as the need for a valid marriage recognized by the state where the couple resides. However, with the recent passing of the Respect for Marriage Act, statutory protections have been created for same-sex marriages, leading to most states recognizing same-sex marriages.