A U.S. Supreme Court ruling on Wednesday forcing the federal government to recognize same-sex marriage in states where it is legal will open up new benefits to thousands of gay couples, but confusion may reign in states that do not allow gay marriage.
At issue in the case were the estate taxes a New York lesbian widow owed upon her wife Thea Spyer’s death in 2009. Because they were gay, surviving spouse Edith Windsor missed out on a lucrative tax break – the exemption from the federal estate tax on wealth passed from one spouse to another.
It was denied because of the Defense of Marriage Act (DOMA), a law passed by Congress and signed by President Bill Clinton in 1996 that defined marriage as between a man and a woman.
Wednesday’s ruling clears the way for Windsor to claim a $363,000 tax refund, plus interest, and for gay couples possibly to enjoy more than 1,100 federal benefits, rights and burdens linked to marriage status.
Details must be worked out by regulators, including the timing for benefits to kick in, and how couples fare in the 37 states that do not allow gay marriage. Before Wednesday’s ruling, 12 of the 50 U.S. states permitted gay marriage. California would be the 13th.
Traditionally, marital tax status has been based on where the couple currently resides, but that is not always the case.
“We don’t have any idea of what the rights are of someone who gets married in New York and lives in Florida,” said Todd Solomon, a benefits attorney at McDermott Will & Emery.
An estimated 114,000 same-sex couples are legally married in the United States and as many as one-third of them live in states that do not recognize marriage, according to the Williams Institute, an arm of the University of California at Los Angeles School of Law.
“That will be a topic the Obama administration will have to consider,” said Gary Gates, a demographer with the institute.
Hailing the decision, President Barack Obama directed Attorney General Eric Holder to review all federal laws to carry it out. The tax-collecting Internal Revenue Service may be the agency watched most closely, lawyers said.
Lack of clarity over individual and estate taxation – and also taxation of health and pension benefits – will need to be addressed, said Brian Moulton, an attorney with the Human Rights Campaign gay rights group.
“We certainly think the IRS in particular is an agency where people will be looking for guidance,” Moulton said.
Among other taxes and benefits at issue:
INCOME TAXES – Because of the ruling, married gay couples will likely be able to file their income tax returns jointly in states that allow gay marriage. Like heterosexual couples, gay taxpayers filing as married couples may face higher taxes as their collective income crosses into a higher tax bracket sooner than if they were filing separately, the so-called marriage penalty.
HEALTH INSURANCE – Because of the decision, same-sex married gay couples may now be free of federal taxes they pay on healthcare benefits received through a spouse’s employer. Unmarried domestic partners now owe an extra $1,000 annually in taxes on these benefits, according to the Williams Institute.
SOCIAL SECURITY BENEFITS – Same-sex married couples may be able to claim survivor Social Security benefits previously denied. But Social Security recipients might face steeper taxes on benefits because they will hit the level where the benefits begin to be taxed sooner for married couples.
(Editing by Howard Goller and Will Dunham)
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