SCOTUS gay marriage decision has myriad tax implications

The recent Supreme Court decision legalizing gay marriage could have tax implications for thousands or millions of same-sex couples across the country

The recent decision by the United States Supreme Court to legalize same-sex marriage across America has been hailed as a huge victory for marriage equality advocates. This means that, in states where gay marriage wasn’t allowed before, same-sex couples will now be allowed to marry. It also means that, in addition to the limited protections and benefits that became available with the striking down of portions of the federal Defense of Marriage Act (DOMA) in 2013, there will be additional tax and financial savings opportunities for same-sex couples that weren’t an option before.

Financial ramifications

One of the original same-sex marriage cases before the Supreme Court on this issue actually dealt with one spouse of a married lesbian couple attempting to collect Social Security survivor benefits after her wife passed away. Though their marriage was legal in their home state, federal law isn’t uniform on the issue. Even though many important parts of DOMA have been stricken, at the federal government level, marriages were recognized on an agency-by-agency basis, with each setting their own rules. For example, the Internal Revenue Service offered limited recognition for gay marriage for people living in states where such marriages are legal, and allowed those couples to file “married” tax returns (this had no impact on their state-level returns, and could result in a couple being able to file as married federally but individually for state purposes). That doesn’t mean that same-sex couples got all the same federal tax benefits as heterosexual couples, though, and most weren’t allowed to take advantage of federal estate and gift tax exemptions or to qualify for tax breaks related to spousal health and life insurance coverage.

Survivor Benefits for Same-Sex Couples

The Social Security Administration, however, didn’t take the same view of same-sex marriages, and didn’t treat them the same. After the verdict, however, it will be possible for same-sex couples to claim survivor benefits (something that can make a huge financial difference, particularly if the spouse who passed away had a much higher social security benefit than the surviving spouse) and take advantage of other social security and government benefits that were once closed off from them.

Updating Laws to Reflect Changes

While it may be necessary to significantly update federal and state tax codes (particularly in jurisdictions that never previously allowed same-sex marriage in the past), in the future, same-sex couples will have the same federal financial benefits as heterosexual couples, including those involving joint tax returns, estate taxes, gift taxes, portability, tax-free roll-over IRAs and more. One such proposal has already been touted by Senator Ron Wyden (D-Oregon). The bill, to be titled “The Marriage Equality for All Taxpayers Act,” would provide the sweeping changes to tax laws necessary to make them reflect same-sex marriage, including removing such references as “husband and wife” and instead replacing them with “the married couple” or “spouse” instead of “husband” or “wife” individually.

Some benefits of the SCOTUS rulings will be seen immediately, such as the right for a couple to seek a marriage license in a state where it wouldn’t have been allowed before. Others, including tax issues, might take time. Regardless, though, there will be huge tax changes on the horizon following the nationwide legalization of same-sex marriage. For more information about how this ruling could impact you and your tax planning/payment strategy, see an experienced tax lawyer like those at the San Diego law office of Allen Barron, Inc. Call the firm toll-free at 866-631-3470 or send them an email.