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Wolters Kluwer, CCH can assist you with stories, including interviews with subject experts.
Also, the 2014 Whole Ball of Tax is available in print. Please contact:
 
Eric Scott
(847) 267-2179
eric.scott@wolterskluwer.com
 
Brenda Au
(847) 267-2046
brenda.au@wolterskluwer.com

Visit the Whole Ball of Tax site often as new releases and other updates will be posted
throughout the tax season.

Wolters Kluwer, CCH provides special CCH Tax Briefings on key topics at: CCHGroup.com/Legislation.

 
2014 CCH Whole Ball of Tax
Release (07) | Back to WBOT

2014 Wolters Kluwer, CCH Whole Ball of Tax

Contact:
Eric Scott , 847-267-2179, eric.scott@wolterskluwer.com
Brenda Au , 847-267-2046, brenda.au@wolterskluwer.com

New, Significant Changes for Taxpayers Who Can Now File as Married: Wolters Kluwer, CCH Examines Updated Federal, State Guidelines

(RIVERWOODS, ILL., January 2014 *Updated, Nov 7, 2014*) – Legally, it’s known as the Windsor decision, but the Supreme Court’s 5 – 4 ruling back in June of 2013 is better known for clearing the way for recognition of same-sex marriages on the federal level. CCH, a part of Wolters Kluwer is a leading global provider of tax, accounting and audit information, software and services (CCHGroup.com), examines newly issued IRS tax rules regarding same-sex married couples as well as other filing status updates taxpayers should know.

DOMA Ruling Background, IRS Impact

The Court’s historic decision struck down Section 3 of the Defense of Marriage Act (DOMA) saying it was unconstitutional in denying benefits and equal protection under the law to same-sex married couples. That set in motion a wave of new guidance from the IRS and other federal agencies – enabling married, same-sex couples to enjoy many federal tax-related benefits previously available only to married couples of the opposite sex.

The IRS then announced last August that it will now accept a married tax filing status for federal returns filed by legally married, same-sex couples, whether an affected couple lives in a jurisdiction that recognizes same-sex marriage or not. In addition to income taxes, the IRS also said estate and gift taxes and payroll taxes associated with many employee spousal benefits are also affected by the DOMA decision and new IRS guidelines. Full details are available in the CCH Tax Briefing: IRS Guidance on Same-Sex Marriage.

“The IRS said it followed other federal agencies by taking a ‘place of celebration’ approach rather than using a couple’s ‘place of domicile’ to determine tax status. However, some federal agencies, such as Social Security and Veteran’s Administration, have been forced by their enabling statutes to take a ‘place of domicile’ approach,” said Wolters Kluwer, CCH Principal Federal Tax Analyst, Mark Luscombe, JD, LLM, CPA. “Now same-sex married couples generally must file as married filing jointly or married filing separately for the 2013, and later tax years, and couples may look at amending federal returns from open prior years to see if they may benefit from their new tax filing status.”

Furthermore, as long as a couple is married in a jurisdiction that recognizes same-sex marriage, the IRS will recognize their marriage, even if the couple later relocates to a jurisdiction that does not recognize same-sex marriage.

Some confusion still remains though for same-sex couples who are not married. The IRS’ actions did not apply to registered domestic partnerships, civil unions, or similar formal relationships recognized under state laws.

Calculating Taxes Twice for Federal, State Returns

Prior to the Court’s decision, many same-sex couples in states that recognized same-sex marriages had to calculate their taxes twice, using different sets of rules for federal taxes and for their state returns. Following the Court’s decision, many same-sex couples in states that do not recognize same-sex marriages will have to calculate their taxes twice – now that the federal tax recognition rules have changed.

Previously on federal returns, each individual had to use the “single” or possibly “head of household” status. On their state returns, same-sex couples had to file as single or as married, depending on the constitution and laws of each state. Now, legally married same-sex couples must file federal returns as “joint” filers or “married filing separately,” but in states that do not recognize the marriage, they may still be required to file as “single” or possibly “head of household.”

State Tax Considerations for Same-sex Marriages

Prior to the U.S. Supreme Court’s October 6, 2014, orders declining to review relevant appeals, 18 states and the District of Columbia allowed same-sex marriages and all of these states allow same-sex couples to file joint state income tax returns. New Hampshire has no broad-based income tax, but does allow joint filing for taxes levied on interest and dividends.

As a result of the Supreme Court’s orders, additional states (including Indiana, Oklahoma, Utah, Virginia, and Wisconsin) will allow same-sex marriages. Information on specific filing requirements for these states will be reflected when it becomes available.

Several additional states in regions of the 4th, 9th and 10th Circuit Courts of Appeals also now recognize same-sex marriage. The 6th Circuit Court has upheld bans on same-sex marriage in Kentucky, Michigan, Ohio and Tennessee. Furthermore, seven states and the District of Columbia have income taxes that also recognize either registered domestic partnerships (RDP) and/or civil unions (CU):  California, Colorado, District of Columbia, Hawaii, Illinois, New Jersey, Oregon and Vermont.  Civil union spouses and registered domestic partners in these states must file joint state returns, (or RDP/CU filing separately) but are required to file single or head of household federal returns. The only exception is New Jersey where RDPs must file “single” or “head of household” returns for both state and federal purposes.

Status of Same-sex Marriages or Partnerships in the States

(As of November 7, 2014)

State
Recognition
Requires Joint State Tax Return
Judicial Status
Alabama Marriages not recognized No Ban under challenge
Alaska Marriages recognized No income tax Ban overturned
Arizona Marriages recognized Pending Ban overturned
Arkansas Marriages not recognized No Ban overturned but stayed pending appeal
California

Marriages recognized

Registered domestic partnerships recognized

Yes

Yes

No ban
Colorado

Marriages recognized

Civil unions recognized

Yes

Yes

State court decision

 

Connecticut Marriages recognized Yes No ban
Delaware Marriages recognized Yes No ban
District of Columbia

Marriages recognized

Registered domestic partnerships recognized

Yes

Yes

No ban
Florida Marriages not recognized No income tax Ban overturned but stayed pending appeal
Georgia Marriages not recognized No Ban under challenge
Hawaii

Marriages recognized

Civil unions recognized

Yes

Yes

No ban
Idaho Marriages recognized Pending Ban overturned by 9th Circuit Court
Illinois

Marriages recognized

Civil unions recognized

Yes

Yes

No ban
Indiana Marriages recognized Pending Ban overturned by 7th Circuit Court
Iowa Marriages recognized Yes State court decision
Kansas* Marriages not recognized No Ban under challenge, stay expires 11/11/14
Kentucky Marriages not recognized No Ban upheld by 6th Circuit Court
Louisiana Marriages not recognized No Ban upheld - on appeal
Maine Marriages recognized Yes No ban
Maryland Marriages recognized Yes No ban
Massachusetts Marriages recognized Yes State court decision
Michigan Marriages not recognized No Ban upheld by 6th Circuit Court
Minnesota Marriages recognized Yes No ban
Mississippi Marriages not recognized No Ban under challenge
Missouri Marriages recognized Yes State appealing - no stay
Montana* Marriages not recognized No Ban under challenge
Nebraska Marriages not recognized No Ban under challenge
Nevada Marriages recognized No income tax Ban overturned by 9th Circuit Court
New Hampshire Marriages recognized Yes No ban
New Jersey

Marriages recognized

Civil unions recognized

Registered domestic partnerships recognized

Yes

Yes

Cannot file jointly

State court decision

 

 

New Mexico Marriages recognized Yes State court decision
New York Marriages recognized Yes No ban
North Carolina Marriages recognized Pending Ban overturned
North Dakota Marriages not recognized No Ban under challenge
Ohio Marriages not recognized No Ban upheld by 6th Circuit Court
Oklahoma Marriages recognized Pending Ban overturned by 10th Circuit Court
Oregon

Marriages recognized

Registered domestic partnerships recognized

Yes

Yes

District court overturned ban and no stay issued
Pennsylvania Marriages recognized Yes District court overturned ban and state did not appeal
Rhode Island Marriages recognized Yes No ban
South Carolina* Marriages not recognized No Ban under challenge
South Dakota Marriages not recognized No income tax Ban under challenge
Tennessee Marriages not recognized No Ban upheld by 6th Circuit Court
Texas Marriages not recognized No income tax Ban overturned but stayed pending appeal
Utah Marriages recognized Pending Ban overturned by 10th Circuit Court
Vermont

Marriages recognized

Civil unions recognized

Yes

Yes

No ban
Virginia Marriages recognized Pending Ban overturned by 4th Circuit Court
Washington Marriages recognized No income tax No ban
West Virginia Marriages recognized Pending Following 4th Circuit Court decision
Wisconsin Marriages recognized Pending Ban overturned by 7th Circuit Court
Wyoming Marriages recognized No income tax Ban overturned
       

*Note: The following states have same-sex marriage bans under challenge that are located in circuits where the court of appeals has already ruled against same-sex marriage bans in other states:

  • 4th Circuit: South Carolina
  • 9th Circuit: Montana
  • 10th Circuit: Kansas (until 11/11/2014)

“Generally, only in states where same-sex partnerships are recognized for income, inheritance, and gift tax purposes and allowed to file income tax returns jointly, do partners realize some of the tax advantages of being a couple,” said Luscombe. “Although filing income tax returns jointly may also come with some tax disadvantages due to marriage penalty provisions.”

Marriage Penalty Relief

The American Taxpayer Relief Act of 2012 extended all existing tax breaks for what’s known as the “marriage penalty.”

At one time, there were two obvious contributing sources to the marriage penalty. First, the standard deduction allowed on a joint return was less than twice the amount of the standard deduction for single filers. Second, a couple could move into a higher tax bracket when their incomes were combined on their joint return. Add together two incomes that each might be taxed at 15 percent and you could get a joint income taxed at 28 percent.

Now, the standard deduction for joint filers is twice that of singles, and the 10- and 15-percent tax brackets are twice as high for joint filers, as well. But beyond the 15-percent bracket, the classic “marriage penalty” lingers on. It also lingers on in many other tax breaks where the phase-out for joint filers is less than twice the phase-out for single filers.

“When the income tax was first established, the typical family included only one wage-earner,” Luscombe said. “As a result, some people, especially those in ‘traditional’ families with a principal wage-earner, benefit from the same structures in the tax code that penalize others, such as those in dual-income situations.”

About CCH, a part of Wolters Kluwer

CCH, a part of Wolters Kluwer (CCHGroup.com) is a leading global provider of tax, accounting and audit information, software and services. It has served tax, accounting and business professionals since 1913. Among its market-leading solutions are The ProSystem fx® Suite, CCH Axcess™, CCH® IntelliConnect®, Accounting Research Manager® and the U.S. Master Tax Guide®. CCH is based in Riverwoods, Ill. Follow us on Twitter @CCHMediaHelp. Wolters Kluwer (www.wolterskluwer.com) is a market-leading global information services company. Wolters Kluwer is headquartered in Alphen aan den Rijn, the Netherlands. Its shares are quoted on Euronext Amsterdam (WKL) and are included in the AEX and Euronext 100 indices.

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