On August 29, the Treasury Department announced that it would recognize all same-sex marriages that were legally recognized by the jurisdiction in which the ceremony was performed, even if the couple now resides in a state in which their marriage is not recognized. The announcement answered lingering questions for tax lawyers and couples alike in the wake of the Supreme Court ruling United States v. Windsor about how the IRS would treat same-sex couples who were legally married in one state but reside in a state that does not recognize the marriage. The ruling will establish equal treatment with respect to federal taxation for all married couples, regardless of whether they are gay or straight and regardless of the state in which they reside.
The announcement explained that “the ruling applies to all federal tax provisions where marriage is a factor, including filing status, claiming personal and dependency exemptions, taking the standard deduction, employee benefits, contributing to an IRA, and claiming the earned income tax credit or child tax credit.” Same-sex married couples will be required to file their 2013 income tax returns as “married filing jointly” or “married filing single.” This change may increase the couple’s income tax bill, as a result of the marriage penalty. On the other hand, the ruling will make estate planning easier for those who may be affected by the federal estate tax, as same-sex spouses will now be entitled to the marital deduction. State income taxes will continue to depend on whether the state in which the couple resides recognizes the marriage.
Unfortunately, not all federal agencies are applying the same rules. The Social Security Administration currently applies a “place of residence” test, providing spousal benefits only if the couple’s marriage is recognized in the state in which they reside.