Written by: Michael Riley, CPA

On August 29th, the IRS issued guidance stating that same-sex couples married in jurisdictions that recognize same-sex marriage will be treated as married for federal tax purposes—regardless of where they reside.

The IRS ruling goes a step further than the Supreme Court’s decision in United States v. Windsor, which requires same-sex marriage to be recognized federally only if it’s recognized by the couple’s state of residence.

Essentially, the IRS ruling treats all legally recognized marriages identically for tax purposes. Married same-sex couples will be considered married in all federal tax obligations in which marital status is a factor, including:        

– Filing status,        

– Personal and dependent exemptions,         

– Tax-advantaged treatment of certain employee benefits,         

– IRA contribution limits,         

– Child tax credit claims, and      

– Gift and estate tax provisions (marital deductions and exemption portability).

Many couples will benefit from married filing status with substantial tax advantages, but in some situations couples will be subject to the “marriage penalty.” This term commonly refers to the situation created when both spouses have healthy amounts of taxable income, and they can owe a larger combined federal income tax bill than if the two individuals filed as single taxpayers. 

The IRS ruling requires same-sex spouses whose marriages are recognized at the federal level to change their tax filing status from single to married, generally beginning with the 2013 tax year.

Plan for the Changes

Same-sex married couples should evaluate how changing their filing status to “married” will affect their 2013 tax liability and take steps before year-end to maximize tax-saving opportunities and minimize any negative consequences. Couples should also determine whether they can receive a tax refund if they file amended returns as a married couple for previous years. Additionally, couples need to review their estate plans and determine whether any changes are warranted to take advantage of the federal gift and estate tax benefits available to married couples.