benefitsattorney.com

State Taxes and Married Same-Sex Couples

(Posted on September 17, 2013 by )

The Internal Revenue Service has now announced that same-sex couples married in a jurisdiction that permits such marriages will be treated as married for federal tax purposes, even if they live in a jurisdiction that does not recognize such marriages. But what about such couplesf recognition as married for purposes of state income taxes? The question is of concern not only to individuals, but to their employers which must determine proper state income tax withholding. In addition, employers which are in many instances expanding spousal coverage for same-sex partners under employee benefit plans will need to know the characterization of such coverage for purposes of state taxes. Many would no doubt assume that whether a state will treat couples as married for tax purposes depends on whether it would recognize their marriages generally. However, that may not necessarily be the case.

The issue arises because most states use a federal definition of income (either federal adjusted gross income or federal taxable income) for purposes of calculating state income taxes. Before the Supreme Court struck down the Defense of Marriage Act, this raised the issue of whether same-sex spouses would be barred from filing joint state income tax returns, even in states that recognized their marriage, due to the fact that federal law precluded them from filing joint federal income tax returns and state law required conformity between state tax law and federal tax law. The Comptroller of Maryland followed this reasoning in asserting that married same-sex couples in Maryland would need to file state income tax returns as single (before the Defense of Marriage was struck down), even after Maryland recognized their marriages. Similarly, even after New York recognized same-sex marriages, New York married same-sex couples had to file their New York state taxes as if they were single, until the problem was corrected by statute. And even after New Mexico began recognizing same-sex marriages, the instructions for the New Mexico personal income tax return stated, gUse the same filing status on your state return that you used on your federal return,h without providing any exception for same-sex married couples.

Legally married same-sex couples will now file federal returns (and calculate federal adjusted gross income and federal taxable income) using either joint filing status or married filing separately status. Thus, the question arises whether married same-sex couples may use such status at the state level, even in states that do not otherwise recognize their marriages.

The chart below shows the extent of the potential issues. In the following states (Group 1), the issue of treating same-sex couples as married for state income tax purposes does not arise, either because the state has no income tax or because the state does not provide a separate rate structure for single and married taxpayers:

In the following states (Group 2), same-sex married couples will now file state taxes as married, either due to interpretations of specific state statutes or constitutional provisions, or due to conformity with federal filing status:

In the following states (Group 3), same-sex marriage is not recognized and there is no conformity between federal and state taxes, so same-sex married couples will have to file as if they were single:

The following states (Group 4) do not recognize same-sex marriage, civil unions, or domestic partnerships, but conform to federal tax law, and thus will arguably need to allow same-sex married couples to file joint state income tax returns:

Obviously, the situation in this last group of states is the most fluid. In some of them (shown as gfixed dateh in the chart below), only provisions in the Internal Revenue Code as of a specific date are incorporated into state tax law. Frequently, the state legislature in such states annually amends its laws to incorporate a new date. It remains to be seen whether the next such legislation will explicitly carve out an exception under which same-sex married couples will be required to file state tax returns as single. (Of course, such legislation could also be enacted in states that provide for automatic incorporation of Internal Revenue Code provisions, but there is not such an obvious vehicle for it.) It is also possible that in some states, regulatory authorities will take the position that state constitutional or statutory provisions precluding recognition of same-sex marriage will override the normal conformity between federal and state tax laws.

Clearly, it is critical that same-sex married couples and their tax advisers keep abreast of developments in their state tax law. It would be a mistake either to assume that all states will automatically follow federal law in permitting same-sex married couples to file as married, or to assume that such filing status will be available only in those states that recognize same-sex marriage generally.

State Tax Rules for Same-Sex Couples
STATE Conformity With Internal Revenue Code Recognition of Same-Sex Relationships
ALABAMA no conformity none
ALASKA no state income tax none
ARIZONA fixed date none
ARKANSAS no conformity none
CALIFORNIA fixed date same-sex marriage
COLORADO no separate rates for couples civil unions
CONNECTICUT rolling same-sex marriage
DELAWARE rolling same-sex marriage
DISTRICT OF COLUMBIA rolling same-sex marriage
FLORIDA no state income tax none
GEORGIA fixed date none
HAWAII fixed date civil unions
IDAHO fixed date none
ILLINOIS no separate rates for couples civil unions
INDIANA no separate rates for couples none
IOWA fixed date same-sex marriage
KANSAS rolling none
KENTUCKY fixed date none
LOUISIANA rolling none
MAINE fixed date same-sex marriage
MARYLAND rolling same-sex marriage
MASSACHUSETTS no separate rates for couples same-sex marriage
MICHIGAN no separate rates for couples none
MINNESOTA fixed date same-sex marriage
MISSISSIPPI no conformity none
MISSOURI rolling none
MONTANA rolling none
NEBRASKA fixed date none
NEVADA no state income tax domestic partnerships
NEW HAMPSHIRE tax imposed on interest & dividends only; no separate rates for couples same-sex marriage
NEW JERSEY no conformity civil unions
NEW MEXICO rolling unclear whether same-sex marriage can be performed in New Mexico; opinion of Attorney General states that New Mexico will recognize same-sex marriages from other states
NEW YORK rolling same-sex marriage
NORTH CAROLINA fixed date none
NORTH DAKOTA rolling none
OHIO rolling not permitted in Ohio; some court decisions have recognized same-sex marriages from other states
OKLAHOMA rolling none
OREGON rolling domestic partnerships
PENNSYLVANIA no separate rates for couples none
RHODE ISLAND rolling same-sex marriage
SOUTH CAROLINA fixed date none
SOUTH DAKOTA no state income tax none
TENNESSEE tax imposed on interest & dividends only; no separate rates for couples none
TEXAS no state income tax none
UTAH no separate rates for couples none
VERMONT fixed date same-sex marriage
VIRGINIA fixed date none
WASHINGTON no state income tax same-sex marriage
WEST VIRGINIA fixed date none
WISCONSIN fixed date limited domestic partnerships, which do not include right to file taxes as married
WYOMING no state income tax none


Footnotes:
1. New York Department of Taxation and Finance Technical Memorandum TSB-M-11(8)I (July 29, 2011).
2. Although Michigan does not have a separate rate structure for married couples, marital status is nevertheless used in determining the number of exemptions, the taxability of employer-provided health care, and the like. And MCL 206.311 states as follows:
Taxpayers who are husband and wife and who file a joint federal income tax return pursuant to the internal revenue code shall file a joint return.

Since the statute requires that taxpayers be husband and wife under Michigan law, as well as filing a joint federal return, it appears that same-sex married couples will be precluded from filing a joint Michigan state income tax return.

3. gRollingh means the state tax is based on the current version of the Internal Revenue Code. gFixed dateh means the state income tax is based on the Internal Revenue Code as it existed on some historical date chosen by the state legislature.
New York Department of Taxation and Finance Technical Memorandum TSB-M-11(8)I (July 29, 2011).
Although Michigan does not have a separate rate structure for married couples, marital status is nevertheless used in determining the number of exemptions, the taxability of employer-provided health care, and the like. And MCL 206.311 states as follows:
Taxpayers who are husband and wife and who file a joint federal income tax return pursuant to the internal revenue code shall file a joint return.

Since the statute requires that taxpayers be husband and wife under Michigan law, as well as filing a joint federal return, it appears that same-sex married couples will be precluded from filing a joint Michigan state income tax return.

gRollingh means the state tax is based on the current version of the Internal Revenue Code. gFixed dateh means the state income tax is based on the Internal Revenue Code as it existed on some historical date chosen by the state legislature.