The IRS’s Big Gay Tax Problem

6a00d8341c730253ef014e86440e22970d-800wiFollowing the Supreme Court's decision to overturn the majority of the federal Defense of Marriage Act (DOMA), many questions have lingered over the thousand or so benefits that married gay couples are now eligible to receive. However, the IRS, in an attempt to comply with the court's ruling, has found itself in something of a quandry. One key problem in making equality a reality is geography, as Businessweek reports:

"Those living in Washington, D.C., or the 13 states that allow same-sex
marriages can file a federal tax return next April just like other
married couples. Not so for the thousands of gay couples who took their
vows in one of those states but who live in one of the 37 others where
same-sex marriage isn’t recognized. It’s not yet clear whose definition
of marriage the IRS is supposed to follow in evaluating their taxes—the
state where the couple got married, or the one in which they reside. And
will the federal government recognize gay couples in civil unions who
file a joint return?

To avoid confusion, a single nationwide rule makes the most sense, says
Patricia Cain, a tax law professor at Santa Clara University in
California. "The IRS has the power to construe the Internal Revenue
Code,” she says. “So for them it’s, ‘What does the word spouse mean?’ ”
President Obama has weighed in, saying it’s his “personal belief” that
same-sex couples should get the same federal benefits as married couples
regardless of where they live. He’s asked federal agencies to research
legal issues that might stand in the way. Such a ruling, though, could
cause headaches for the IRS, which until now has typically followed
states’ definitions of marriage, says David Herzig, a tax law professor
at Valparaiso University. “You may solve this problem,” he says, “but
you may open up another.”

Businessweek also suggests that it's unclear whether gay couples will benefit financially in a broad way if they can file joint tax returns. While filing separately will maximize tax savings for some, filing jointly will be more beneficial for others. And there's also the question of refunds. As the IRS normally allows taxpayers three years to re-do their tax returns, some couples may be eligible for increased refunds. But should a couple end up owing the federal government more after filing together, will the IRS require couples to pay the additional tax?

Pay-roll taxes on employer-provided health insurance, incurred only by same-sex spouses, present another headache:

"The IRS could allow refunds, and then
businesses would have to figure out how to distribute them to employees
and ex-employees. Some companies pay married gay employees extra to
cover their health-care tax burdens; they would have to decide whether
to seek reimbursements from workers who get income tax refunds."

However, with a congress hostile not only to the Obama administration but also to the IRS in particular, it's almost certain that any attempt to formally codify gay marriage into the tax code will draw the ire of the right: “No matter what [the IRS does],” says Herzig, “it’s such a volatile issue they’ll end up getting a challenge.”


  1. Steve says

    How can a country be so fundamentally messed up? People are first and foremost citizens of the country, not some specific state they just happen to live in at the moment.

    And the IRS can easily defer to the state: the state where people got married.

  2. Geoff says

    And the churches who most HATE homosexuals get away with being tax-exempt! This has to be fixed.

  3. Randy says

    The IRS should not concern itself with political issues. AS they say, someone will challenge whatever they do, so they might as well do what they believe is in the best interested of taxpayers.

    I don’t really see why it would be so difficult to merely allow gay couples to file according to the state in which they reside. In this way, their state and federal taxes will be in the same status, which is less confusing to the taxpayers. The state in which you reside is the state you file taxes in, so it should be easy to determine.

    I realize that will harm those who got married in NY, but now reside in Ohio. But it has the value of simplicity, which apparently is the IRS’s main goal here.

  4. says

    Ah yes, back to the old problem I’ve been writing about for years; the Recognition of Foreign Marriages.
    And it does not only apply between states, it also applies where a US citizen marries in a foreign country and expects the USA, not just the States, to recognize that validly performed marriage.

    It’s time for the USA to live up to its obligations under International Law and to stop looking down its nose on us “foreigners”.

  5. says

    Randy, I think your solution sucks, frankly! I was married in California, but reside in Nevada (which was one of the early states to ban same-sex marriage). Nevada has no income tax. But we pay taxes on my health benefits as income, though straight spouses do not. Why should my federal taxes be affected by Nevada’s ridiculous laws when I am legally married in 13 states plus DC?

  6. BZ says

    They may have no choice but to defer to the state of residence for both married and CP/DP couples. In a 2011 memo to a straight couple in Illinois, the IRS stated that heterosexuals in CUs were required to file as married if the state also required them to file as married.

    I think they will either have to recognize the state of celebration (in which case no more CU/DPs for either straights or gays, and impose a huge headache on gay couples in nonequality states who will now need to draw up two federal returns) or else they will recognize the state of residence (in which case CUs/DPs are recognized but marriages aren’t.)

    SCOTUS needs to resolve this soon. This is intolerable.

  7. Robert Martin says

    Randy I can see what you are saying concerning simplicity BUT there is another side to that coin. Namely you are allowing the state in which a same sex couple resides to dictate to the federal government whether they are married or not. While it may not violate the Supremacy clause due to the fact that DOMA Section 2 is still in effect it treats those of us in non-marriage equality states as second-class citizens. That, imho, is unacceptable. There are many of us who have gotten marriages in equality states and may have had to move to non-marriage equality states through no fault of our own. You are saying that because of life circumstance and to make it easy for the IRS that the IRS, as a federal agency, to disregard the Windsor decision and go about business as usual.

  8. says

    Simplicity would be ending the ridiculous patchwork and having marriage equality across the U.S. Until then, all solutions are unnecessarily complicated and unfair to those who live in or move to non-equality states.

  9. THurts says

    The IRS should follow the rule of the law. They should allow couples who are married to file federally regardless of what state they now live in. The couple would have to file their state taxes in accordance with the laws of that state. For example, if I am married in California, but live in Georgia. My partner and I will file jointly as spouses for the federal government and single for our state taxes. This may be confusing, but it is the law as it stands for now. Maybe the confusion is necessary to show how stupid this is to allow states to determine my right to marry.

  10. johnny says

    If there was a federally mandated recognition of marriage equality across the board for all U.S. citizens and the Fed would simply tell the non-marriage equality states to simply go f*ck themselves?

    This would not be a problem ever again.

    Hey, I can dream can’t I?

  11. Lymis says

    Having a different state and federal tax status hasn’t been an issue before this – we were married in California and it is recognized as a civil union in Illinois – so we file as married in Illinois (including a “fake” federal joint return that we must include with our state taxes) and so far, as single with the Feds. Somehow, the earth still turns on it’s axis.

    The federal government can deal with having people be federally married but single in their state just as easily as they were able to deal with people being federally single but married in their state. Any claim otherwise is pure BS.

  12. BZ says

    @Lymis: it’s not quite that simple. There are many complex issues that would be raised if the Feds recognize us as married but the States don’t (ERISA and insurance; tax withholding; investment rules; etc etc) that the other way around. The Federal recognition of marital status drives a LOT oflaws that the state recognition doesn’t. There’s more to it than taxes.

  13. AGREE says

    Agreeing with LYMIS. There are two separate filing forms, state and federal. Fairly easy to define one status as married on one and not the other. Simple question, are you legally married in any state? If yes, then you can file ‘married’ on your Federal return.

  14. simple question says

    To: AGREE

    Well, I just don’t know if I’m legally married under common law. We *seemed* to have met the criteria for a common law marriage before our state outlawed same-sex marriage and we absolutely were not ever given due process for any of our marriage rights and privileges to be revoked.

    My question was whether or not the act of jointly signing a tax form can bring about a common law marriage (for a cohabiting couple who publicly represent themselves as husband-and-husband or wife-and-wife).

  15. Anthony says

    Like I’ve said before, this is where the lawsuits to overturn the state bans will begin. DOMA Section 3 was the shield that helped to protect marriage equality bans and it’s gone now.

  16. Homo Genius says

    well, I for one am joyous at this impasse! Why? Because it has the makings for the perfect court case that could lead to national equality.

    One of the MSNBC anchors did a good piece on this a few weeks back. What happens to US service people? They are married on base but not when they leave?

    This doesn’t even just affect the IRS. There are scores of programs marriage recognition matters. Welfare programs sure but what about kids needing financial aid for college. I had to use my “stepfather” on all my forms because even though I didn’t get a dime of support from the man, I was claimed as a dependent on their tax returns.

    There is much more too it than simply getting deductions. It can affect entire families on a number of important issues.

  17. says

    To Simple Question: the status you use on a federal tax return has nothing to do with establishing a legal status. It is the other way around, if you file a married tax return, the IRS may ask you to support why you filed that way.

  18. DavidR says

    Up until this tax year, we’ve had to lie on our returns since our Canadian marriage. It’s simply wrong to ask married people to lie and say they’re single.

  19. says

    I think if you were married in a state that allows it, DOMA’s defeat should allow you to file as a married couple federally no matter where you live. But being able to file state taxes as a couple should depend on the laws of the state.