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The Relocation Tax Implications of Same-Sex Marriage

imagesWith the recent legalization of same-sex marriage in some states, the tax implications created for those partners moving as part of a relocation continues to be a complicated issue.

With so many tax benefits tied to marital status, the issues arising for same-sex couples, especially those relocating to a new state for employment, leave many questions to be addressed.

As of December 31, 2003, the U.S. Government Accountability Office has identified 1,138 statutory provisions of U.S. federal law in which rights, benefits, or privileges are contingent upon or expressly determined by marital status. These taxes include benefits associated with employability, social security, veteran, immigration, adoption, inheritance and medical decision-making.

In order to provide a compromise, some states have created “civil union” or “Registered Domestic Partner” status to allow certain marital rights/responsibilities to unmarried and same-sex partnerships. These statuses vary state to state and can (and have) changed as a result of more states making same-sex unions legal. Over 30 states have currently legalized same-sex marriage. U.S. federal law will also recognize an international same-sex union from a foreign country that permits marriage.

U.S. vs. Windsor, a landmark case in the determination of marital status as it relates to ift/estate taxes, deemed that Section 3 of the Defense of Marriage Act (DOMA), which states:….the word ‘marriage’ means only a legal union between one man and one woman as husband and wife, and the word ‘spouse’ refers only to a person of the opposite sex who is a husband or a wife… was unconstitutional, thereby affording same-sex couples the same type of tax benefit on gift/estate taxes that heterosexual married couples receive.

When the Supreme Court announced its decision in June of 2013, that Section 3 of DOMA was unconstitutional, it left federal agencies the task of interpreting the unconstitutionality themselves (i.e. was this ruling retroactive? Was recognition of marriage immediate/mandatory?).

In August of that year, the IRS announced clarification in Revenue Ruling 2013-17 (2013-13 I.R.B. 201) on how it would implement the U.S. vs. Windsor decision in regard to annual tax filings:

  • As of September 16, 2013, a couple that legally married in a jurisdiction that recognizes the marriage is considered married for all purposes of the U.S. federal tax
  • Couples can amend prior year tax returns to reflect their marital status in that year
  • Subsequent rulings interpret payroll tax and employee benefit plan issues

Even with some governmental clarification, complexity still exists from state to state and can vary from year to year. The importance of enlisting a CPA, certified financial planner, and/or an attorney is always recommended for employees and employers alike, especially if a relocation is on the horizon.

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