The voices of Tax Policy Center's researchers and staff
It’s been less than two months since the Supreme Court ruled part of the Defense of Marriage Act (DOMA) unconstitutional and the fallout has only begun to settle. Nowhere is there more uncertainty about the effects of the ruling than regarding federal taxes.
The court struck down Section 3 of DOMA, which denied federal recognition of same-sex marriages. It left in place Section 2, which allows states to refuse to recognize same-sex marriages performed in other states. That means that if a same-sex couple legally married in a state that allows gay marriage subsequently moves to a state that doesn’t, their marriage ceases to exist where they reside.
What does that mean for the couple’s federal taxes? While they live in a state allowing same-sex marriage, the couple must file federal tax returns as a married couple. What happens when they move to a state that denies their marriage is not yet clear. That depends on whether the IRS decides to define marriage based on the couple’s residence or their “place of ceremony,” the state where they were married.
Historically, the IRS has followed a residency rule in determining marital status. If the state where you live says you’re married, you must file your federal tax return as married (although that obviously didn’t apply for same-sex couples under DOMA). If your state says you aren’t married, you must file as unmarried.
Under a residency rule, a married same-sex couple living in Maryland--which recognizes their marriage—must file their federal tax returns as married, either jointly or separately. If they move across the Potomac into Virginia—which constitutionally bars recognition of all same-sex marriages—they must switch to filing single or head of household returns. Unless Congress or the courts undo DOMA’s Section 2, that situation will prevail.
If the IRS chooses instead to switch to a place of ceremony approach, same-sex couples who marry in one of the 13 states or the District of Columbia that allow such marriage will have to file their federal tax returns as married, regardless of where they subsequently live. State law will determine their state tax filing status but they would file the same federal returns regardless of where they live.
So far, the IRS has given no indication of which approach it will follow. However, other parts of the federal government have chosen the place-of-ceremony approach. In fact, the Defense Department has gone so far as to grant up to ten days leave for same-sex couples living in states that bar their marriage so they can travel to wed in states that will let them marry.
So where does that leave same-sex couples? It depends (see table).
A married same-sex couple living in a state that recognizes their marriage will no longer have to file tax returns as married with the state and single with the feds. Depending on the couple’s financial circumstances, filing a joint federal return may incur a marriage penalty or reap a marriage bonus, neither of which could occur under DOMA. The couple will also have to decide whether it makes sense to amend their federal tax returns for the past three years to claim any tax savings they might get filing jointly. The IRS has said that couples may—but don’t have to—amend those returns. Presumably those getting marriage bonuses would generally opt to refile, while those incurring penalties would not.
The situation facing a same-sex couple that wed in a state that allows same-sex marriage but now lives in a state that does not depends on how the IRS determines their marital status. If the IRS continues to use a residence approach, they, like all other same-sex couples in states that don’t allow same-sex marriage, will file both state and federal tax returns as individuals.
If the IRS instead moves to a place-of-ceremony approach, the couple will have to file federal tax returns as a married couple and state tax returns as individuals. Since state returns often start with values taken from federal returns, that means they will bear the additional burden of having to prepare individual federal returns and not file them.
It’s not obvious what the IRS should do. Marriage has traditionally fallen in the province of state law, which suggests that a residence rule should apply. But imposing a change in filing status on couples simply because they move across state lines makes little sense from either a tax or social policy perspective.
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