New York Issues More Guidance on Marriage Equality

Guest Article

(From the August 8, 2011 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

New York Issues More Guidance on Marriage Equality

The New York State Department of Taxation and Finance issued critical guidance on how the state's recent Marriage Equality Act impacts employee personal income taxes and employer reporting and withholding obligations.

New York enacted the Marriage Equality Act with the intention that, effective July 24, 2011, the marriages of same-sex and opposite sex partners will be treated equally under New York law. There was uncertainty regarding whether the Act would mean that same-sex married couples are to file New York personal income tax returns as a married couple. On July 29, the Department of Taxation and Finance issued a Technical Memorandum clarifying that:

Must file as married—Same-sex married couples must file New York personal income tax returns as married, even though their marital status is not recognized for Federal tax purposes. They must use a married filing status (e.g., married filing jointly, married filing separately) even though they use a filing status of single or head of household on their Federal income tax return.
December 31, 2011 determination date—Couples that are married as of December 31, 2011 are treated as married for the entire year. Couples married in another state before the July 24, 2011 effective date of the Marriage Equality Act are considered married in New York for tax purposes on July 24, 2011 (and, therefore, could not use a married tax filing status before 2011). There would be no basis for such couples to file amended returns, therefore.
Federal return used to calculate—To complete the New York personal income tax return same-sex married couples are instructed to re-compute their Federal income tax return using a married filing status and applying all the Federal rules applicable to married taxpayers.

Separate withholding tax instructions make clear that employer-provided health coverage for a same-sex married spouse would not be included in New York taxable income. It advises:

No withholding on benefits—Employers are advised not to withhold New York tax on benefits that are provided to same-sex married employees (e.g., domestic partner health coverage) even though the benefit is subject to Federal withholding. This applies if the employee's Federal taxable wages include the value of benefits, and the value of benefits would not be included if the spouse were of the opposite sex.
Adjust quarterly reporting—When reporting annual wage totals on Form NYS-45, employers are instructed to report Federal waged minus the benefits identified in the preceding paragraph.

Same-sex married couples are advised by the Department to consider adjusting their withholding for New York income tax purposes to take into account their married filing status for the year