Same-Sex Marriages and Federal Tax Impact
Same sex marriage has only been recognized as legal at a Federal level since 2013. This change was driven by a US Supreme Court ruling on June 26th, 2013 in the estate tax case of US vs. Windsor. This case had a wide ranging effect on the tax treatment of same-sex couples. The ruling invalidated Section 3 of the 1996 Defense of Marriage Act (DOMA) when it ruled that defining marriage as being possible only between one man and one woman was in violation of the Fifth Amendment Due Process Clause.
The Supreme Court’s ruling extends the treatment to legally married same-sex couples that legally married opposite-sex couples have under Federal law (for both income and estate tax purposes). This means that from tax year 2013 onwards, legally married same-sex couples are required to file their U.S federal tax return using the married filing joint (MFJ) or married filing separately (MFS) status.
It is important to note that the ruling does not change the fact that civil partnerships and other such arrangements not recognized as legal marriages by the jurisdiction in which they were undertaken will not qualify a person (whether by a same or opposite sex couple) to file using the MFJ or MFS status. A list of countries where same-sex marriages are recognized as legal at the time or writing is included at the end of this post for reference.
From an income tax perspective, the ruling means that legally married same-sex couples (regardless if they are living in the US or overseas) must generally file their 2013 tax return using the MFJ or MFS status if they were married as of December 31st 2013 (Head of Household status may be applicable and beneficial in certain circumstances). For tax year 2012 and all prior years, same-sex spouses who file an original tax return on or after Sept. 16, 2013 generally must file using the MFJ or MFS status. This is important to note for those taxpayers currently trying to get back into US compliance for whatever reason.
Due to the fact that the MFJ status generally produces a lower tax than the single status, there may be an advantage for taxpayers who were participants in a same-sex marriage prior to the 2013 tax year to consider filing amended returns. This will depend on various individual factors and circumstances. Amended returns claiming refunds can generally be filed up to three years from the time the return was filed or two years from the time the tax was paid.
If you wish to know whether you are entitled to amend previously filed tax returns to claim a refund, or whether you want to consider the benefits of electing to treat a non US spouse as a US person for tax purposes please contact an advisor at US Tax & Financial Services to discuss your situation.