When the U.S. Supreme Court declared the Defense of Marriage Act unconstitutional last month, it opened up a broad set of strategies for advisors to same-sex couples, but also created important questions that have yet to be answered.
This ruling allows same-sex married couples residing in jurisdictions that recognize same-sex marriage the same federal benefits as opposite-sex married couples. What is unclear is how the federal government will treat states that allow civil unions or domestic partnership, but not marriage.
There are numerous areas of uncertainty on how some items will be treated. What happens to couples that have changed jurisdictions from one that recognizes the marriage to a jurisdiction that does not remains to be seen. There are more than 1,000 federal statutes impacted by this decision.
For example, married same-sex couples will now be required to file a married filing joint or married filing separate federal tax return. Depending on an individual’s specific tax situation, this may or may not be a benefit. Amended returns can be filed for any year the couple was married where the statute of limitations has not expired. Generally, the statute of limitations runs for three years from the date of filing. The statute has closed for 2009 tax returns that were filed before April 15, 2010, but if the return was extended until October 15, 2010, the statute may still be open. Individuals should check with their advisors regarding their individual tax situation.
For estate and gift tax purposes, unlimited gifting between same-sex married couples is now available. Same-sex spouses are allowed to transfer an unlimited amount of assets between themselves without gift tax implications if both spouses are U.S. citizens. Couples will also be allowed to gift split for gift tax purposes. This means that a couple is allowed to give a $28,000 (in 2013) present interest gift to one individual and the gift could be treated as coming one-half from each spouse and wouldn’t be subject to gift tax. In addition, the marital deduction and portability of the estate tax are now available for all married couples. What remains unclear is the ability to amend prior gift tax returns that were filed for gifts between same-sex spouses that would no longer be considered gifts. Typically, an amended gift tax return may not be filed to elect gift splitting, but the IRS may issue guidance on this situation since gift splitting was not available at the time the returns were filed.
There are a few other more common federal statutes now available to same-sex married couples :
- Retirement fund contributions may be made pre-tax for non-working spouses.
- Spouses are now entitled to the IRA rollover at death.
- Spouses may qualify for spousal survivor benefits under Social Security.
- Surviving spouses will have access to Medicare, Medicaid and veteran benefits.
- Spouses can transfer property incident to divorce without having to recognize a gain or loss.
With the new tax law changes that have been implemented for 2013 and the change in filing status, advisors for same-sex married couples should work to make sure the correct tax plan is in place for 2013. Couples will want to make sure they are paying enough in estimated tax payments through either withholding or quarterly payments so as not to pay penalties and interest in April 2014.
There are many tax implications that the court ruling does not address, but additional guidance and clarification on the ruling are expected. In light of this decision, now is a good time to revisit both general income tax and estate plans.
Erica L. Nadeau is a principal at DiCicco, Gulman & Company, a CPA and business consulting firm in Woburn, Mass. She can be reached at enadeau@dgccpa.com or 781-937-5300.
