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February 26, 2014

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Same-sex marriage and tax consequences: IRS gets out front

A federal judge ruled today that Texas’s ban on same-sex marriage violates the U.S. Constitution.

Federal judges in three other states have issued similar rulings in the last three months. In that sense, today’s ruling in Texas could constitute a contribution to a cultural tipping point.

For our purposes of this tax blog, however, the questions naturally turn to the tax implications of rulings like this – and potential tax disputes. In this post, we will discuss the changes in taxation that have already flowed from a U.S. Supreme Court decision last year that struck down key provisions of the federal Defense of Marriage Act.

In the wake of the Supreme Court ruling, the IRS issued rules regarding same-sex marriage. Interestingly, those rules apply to same-sex married couples even if they are living in a state that does not recognize same-sex marriage.

The new rules say that couples who were married in one of the 17 states in which same-sex marriage was legal at the end of 2013 must now make a choice as to their filing status. The same is true of couples who were married in the District of Columbia before that date.

The choice is essentially the same one that heterosexual couples have long faced. One option is married-filing-jointly. The other is married-filing-separately.

In some cases, the so-called “marriage penalty” may be in play. In other words, no matter which choice certain same-sex couples make, their tax bills may add up to a higher amount than if both spouses had filed as singles.

In short, marriage equality has become more than an abstract cause. For an increasing number of couples, it has become today’s reality.

Source: The New York Times, “Victory, and Tax Changes, for Same-Sex Couples,” Charles Delafuente, Feb. 7, 2014

Tax Controversy