In the weeks after the U.S. Supreme Court’s rulings on same-sex marriage, celebration has given way to the challenges of carrying them out. The complications begin with the Barack Obama administration’s own long equivocation over who should take the leading role in defining marriage: the states or the federal government.
The administration’s first action in mid-July seemed to say that responsibility fell somewhere between the two. The Office of Personnel Management announced the extension of spousal benefits to all married lesbian and gay federal employees, regardless of whether their home state recognizes same-sex marriage. Yet couples in legally equivalent civil unions and domestic partnerships would continue to be denied spousal benefits.
The rest of the federal government now has to play catch up. The Internal Revenue Service is being urged to apply the same standard, recognizing all same-sex marriages equally at the federal level, to all taxpayers. This seems like a simple and fair solution -- quite an uncommon description for any part of the U.S. tax code.
Unfortunately, the reality is that it won’t be simple or fair in practice.
Recognizing all same-sex marriages would clear up some tax uncertainties for couples who, like my spouse and I, are married but live in a state that doesn’t recognize their relationship. But this certainly wouldn’t resolve all of our tax issues.
Under this approach, all married same-sex couples would file their federal returns as either married filing jointly or married filing separately. Yet, in states that don’t recognize same-sex marriages, these couples would be prohibited from using that same status when filing their state tax returns. They would have to prepare parallel single or head of household returns for their state income taxes. Thus they would still be faced with all of the existing uncertainty surrounding the tax status of same-sex couples.
This fair and simple solution actually increases the complexity of these couples’ taxes -- not to mention their tax preparation costs. It would also increase their risk for state audits because the couples’ federal and state returns would report inconsistent amounts of income, deductions and credits.
More perniciously, this approach may create traps for unwary filers. For example, it may indefinitely force some formerly married same-sex couples into married filing separately status. There are married same-sex couples who separate in states that refuse to let them divorce.
Although the federal government can recognize same-sex marriages even when a state refuses to do so, under current tax law it can’t treat a couple as unmarried without state sanction. For filing purposes, a couple continues to be treated as married until a court issues a divorce or separation decree. Neither living apart nor a separation agreement will sever the marital relationship for tax purposes.
As a practical matter, this means same-sex couples who separate but can’t divorce must either file joint federal tax returns (and be on the hook for each other’s tax bills) or file as married filing separately. Married filing separately is not an attractive option, as evidenced by the very few taxpayers who choose this filing status. The married filing separately tax rates are higher than those for a joint return and, for some taxpayers, higher than those even for a single return. If one spouse filing separately itemizes deductions, then the other is denied the standard deduction. And married filing separately results in the reduction or complete denial of a variety of tax benefits, including the dependent care assistance credit, adoption credit, earned income credit and many of the tax benefits for education.
The only simple and fair solution to these problems is for every state to recognize same-sex marriage. In the meantime, if the IRS adopts the approach of recognizing all same-sex marriages, it should ask Congress to fix the married filing separately problem. A simple amendment to the tax laws could permit same-sex couples who live apart and enter into a separation agreement to be treated as unmarried for federal tax purposes. And the least that states that refuse to recognize same-sex marriage should do is reduce both the burdens on same-sex couples and their risk of a state tax audit by retooling tax forms to address the possibility of inconsistencies between same-sex couples’ state and federal tax returns.
In any event, as the IRS considers its options for implementing the Supreme Court decisions, it shouldn’t be deceived by appearances. It should think through the practical impact of its actions on the same-sex couples who will have to live with whatever approach it ultimately adopts. The IRS has the luxury of some time to wait and see what policies will work; unfortunately for married same-sex couples, their taxes are due every April.
(Anthony Infanti is a professor of law and an associate dean for academic affairs at the University of Pittsburgh School of Law.)
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