You Oughta Know

Eric Taylor: DOMA reversal could mean tax benefits to same-sex couples in Idaho

2014 J.D. candidate at the University of Idaho College of Law and a member of the Low-Income Tax Clinic.January 15, 2014 

With the overturning of the Defense of Marriage Act, or DOMA, in the landmark U.S. v. Windsor case, the Supreme Court ruled the federal ban on same-sex marriage to be unconstitutional but left states to decide if they want to allow same-sex marriage or ban it. While Idaho chose to continue the ban on same-sex marriage, the IRS recently handed down federal guidance that could yield significant federal tax benefits to same-sex couples even if they are domiciled in a state that does not recognize same-sex marriage.

In Revenue Ruling 2013-17, the IRS decided that it will allow same-sex couples to file jointly if the couple were married in a state that recognizes same-sex marriage. This “state of celebration” rule allows same-sex couples in Idaho to file joint returns with the IRS if they were married in another state that recognizes same-sex marriage.

This allowance applies prospectively, but also retroactively to the last three tax years. So if a same-sex couple meet this “state of celebration” requirement, they may amend their last three returns from filing singly to filing jointly.

Note that individuals wishing to amend will need to run the numbers to see if filing jointly yields any benefit before doing so. Usually filing jointly is ideal and puts the two taxpayers in a lower tax bracket and thus at a lower taxable rate. However, that is not always true, so each taxpayer will need to assess his or her individual circumstances first.

Although the IRS allows this potential benefit, the same benefit is not extended from the Idaho Tax Commission, since the ban remains effective in Idaho. This divergence can cause some confusion for same-sex taxpayers who are able to file jointly with the IRS but not with Idaho because the Idaho Tax Commission examines the IRS filing to assess their taxes. Such taxpayers must file a dummy IRS form with Idaho filing singly when filing with the state and then file a separate return with the IRS filing jointly. The form filed with Idaho will recompute your tax liability for state income-tax purposes. The single filing with the state will not reach the IRS and will be irrelevant for federal tax purposes.

While this certainly adds another burden for same-sex taxpayers, it may also create extra expense. Most same-sex taxpayers wishing to file jointly with the IRS and singly with their state will likely buy two separate online services to file the separate returns. However, such an election could provide enough financial advantage to validate the extra effort and money.

Of final note, there are also many other benefits that the overruling of DOMA provided to same-sex couples beyond the tax realm. Among these benefits are hospital visitation rights, estate-planning benefits for gifts and transfers, and certain pension benefits. People seeking to learn all the benefits available to them should seek counsel.

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