Same sex marriage and tax filing

[SHRED]

Say you get married in a state that allows same sex marriage but live In one that does not. The Feds recognize the tax filing as a married couple but the state doesn't. How does this work out?

[dsc]

1. first we aren't sure that they will accept it

The IRS has historically used the standard of is the marriage legal where you live now, not was the marriage legal where it took place. That said, you have to file two sets of returns, just like those who live in states that recognize marriage did before this decision but in reverse. Before the decision, if you lived in say MA, you filed as a married couple in MA (meaning you had to prepare a fed married return which you didn't file) and then filed as two singles federally.

[Ms. Toad]

6. That is the story being circulated by reputable sources,

but it is actually not correct. Windsor is the exception, rather than the rule - and the Supreme Court did not articulate why it departed.

The standard has always been whether the marriage was valid when and where it was entered into (as long as no divorce has intervened), and no changes in laws could disrupt the marital status.

With mixed gender couples, the two recognition events conflated to a single point in time. You run off to Iowa to elope, your marriage was legal in Iowa and - and the constitution required that your home state instantaneously recognize that marriage (and, by a slightly different constitutional analysis it also applied to Canadian marriages). As long as you didn't divorce - you were good to go anywhere in the US from that day forward

Sticking with that mixed gender couple - just to illustrate why NPR and the New York Times have it wrong. Say that one member of that couple who married in Iowa, and who later moved to Indiana, comes out as trans* and actually transitions to the same gender as her partner without being required to divorce (I don't actually know Indiana law on this - some require it, some don't). That couple is now - at the time they filed last year's tax returns - a same gender couple. Because the marriage was legal at its inception, the IRS takes the position nothing other than death or a judicial divorce which happens after that date is relevant to marital status. So it treats that couple as married (and has for a couple of years - I don't know the timing off hand, and can't put my hands on the ruling at the moment, but I have seen it).

(And, as an enrolled agent for a number of years, the defining moment was always the inception of the marriage, and the laws of the marrying state - not the current law in the residence state. Where it came up most frequently was in common law marriages - and we always had to carefully explore exactly when an alleged common law marriage started, where it started, and what the law was on the date it started in that state.)

The Windsor case is a departure from the norm, and the court did not explain why it departed. It is striking that it did not even note that it was departing. It noted the marriage was legal in Canada - the first step. What it did not note (which is an added step for same gender couples because they like to pretend that constitutionally required instantaneous recognition thing doesn't apply to us) was that New York, on the date of inception, did not recognize the marriage. According to standard IRS analysis nothing else should have mattered. Not only did the Court not mention that, it skipped right to the lower court determination that New York - on the date of death - recognized the marriage - and began its analysis there with no explanation.

Unfortunately since we don't know why it analyzed it that way - how it will play out in different situations is completely unknown, and will be a royal mess.

Taken literally (that the status is evaluated at the time of interaction with the federal law, based on where you are when you might be entitled to that right), you could literally be married for federal purposes one minute - and not the next by - for example - interacting with a federal statute with marriage implications in Iowa, crossing from Iowa into Nebraska, and interacting with the same or another statute in Nebraska. That is nonsensical - even though it is literally how the decision reads - and I would expect marital status to be relatively fixed based on the law of your residence state.

The less far fetched big open question is what happens when one of those New York couples moves to Ohio. Using the Windsor analysis, for the next federal return they file as Ohio residents their status will be based on Ohio law, and they will need to file as single individuals. that is also a silly. And - based on traditional reasoning about intervening events not changing a marital status - once married, always married (except for divorce, etc.). But then there's that pesky question of why the later change in New York law change Edie Windsor's marital status - and if intervening events changed her status, then they can also change the status of our moving couple's - and we're in a catch 22.

[elleng]

2. Might have to file different,

as 'married' for feds, as 'single' for state of domicile. Feds will probably recognize marriage as legal as it was, where it was 'celebrated,' or took place.
I suspect.

[Travis_0004]

3. Some states don't allow this

where I live, if you file married on a federal return, you are required to file married on your state return.

There is often a tax benefit to filing state returns as a single (because there is only one bracket that is used for both single and married). By filing as a single, both couples get to climb the bracket twice, and put more of their money in lower brackets, and maybe avoid the higher brackets.

Although there is an advantage on the state level, they is a penalty on the federal level, so for 99% of people, it makes sense to file as a married couple on both (which I realize may not exist for gay couples).

I think the reason states don't allow different filing status is out of laziness. They can use your MAGI from your federal return as a easy starting point, and since the IRS does a bit of auditing, they can assume that number to be reliable. If they allowed people to file separately, they would have to do more audits themselves to make sure the numbers were legit.

[elleng]

4. Thanks for the info.

Sounds like the DOMA decision will result in LOTS of issues to be resolved!

[Ms. Toad]

8. Yes. That is putting it mildly. n/t

[Ms. Toad]

7. Not likely -

At least that was not the court's intent - since it left Section II standing (recognition of other state's marriages) and the bulk of its analysis was marriage is a creature of state law - specifically the law where Edie Windsor lived - and it had no right to take away what the state chose to grant.

It didn't confer federal rights on Edie Windsor based on the legality of her marriage at creation when - at the time - New York did not recognize the marriage.

Whatever else the decision was, it was not a celebration/creation based decision. Either location (Canada) or time (when New York did not recognize the marriage).

[davidpdx]

5. That maybe one question the IRS has to answer before the end of the year

So people can prepare for their tax returns. I wouldn't try to venture a guess on the answer.