In June 2013, the Supreme Court of the United States took the historic step of striking down the federal Defense of Marriage Act. This means that the federal government will now fully recognize same-sex marriages performed in states where they are allowed by law. Thirteen states, including Washington, currently allow same-sex couples to be legally wed.
The court's decision has come with a number of practical concerns as same-sex couples work to navigate their new rights. Many of these concerns focus on questions about taxation, both with regard to income tax and estate tax considerations. As with all tax-related issues, it is important to tread carefully since mistakes can result in burdensome IRS audits and other negative consequences.
Going forward, all legally married same-sex couples will be treated the same as heterosexual couples in all areas of taxation. This means that couples will be able to file income taxes jointly and to transfer income and assets between themselves without incurring income or gift tax liability.
Married same-sex couples will also no longer be taxed on the value of health insurance benefits they receive though their spouse's employer-sponsored program.
After the Supreme Court's ruling, the IRS released a statement saying that the agency plans on reviewing relevant law and will issue guidance to newly-recognized married couples shortly. Most same-sex couples will have the opportunity to amend their income tax returns for the last three years. However, filing an amended return is not mandatory and may not be financially beneficial for some couples.
Estate tax and estate planning
Under federal law, married couples are exempt from estate taxation. This means that a person can pass an estate of any size to his or her spouse, tax-free. Prior to the Supreme Court's decision, married same-sex couples did not enjoy this protection. Instead, the receiving spouse had to pay taxes on any inheritance that exceeded the estate tax exemption threshold.
Now that same-sex couples have estate tax protection, their estate planning process will likely become much easier. However, this is not the only area in which same-sex couples have gained estate planning benefits. Same-sex couples will also be able to roll a deceased spouse's IRA or 401(k) into their own retirement savings account without incurring tax penalties. They will also have the option to recover Social Security benefits based on their spouse's earnings.
Working with a tax attorney
In states like Washington where same-sex marriage is legal, couples will now enjoy all of the same rights, responsibilities and privileges as heterosexual married couples. In states where same-sex marriage is not recognized, same-sex couples will encounter a patchwork of legal protections.
In either case, it is important to get help from an experienced taxation and estate planning attorney. An experienced attorney can help same-sex couples assert their new rights and can help them protect themselves if they become involved in a dispute with the IRS.