By now, most of our readers are familiar with the Supreme Court’s decision eliminating the Federal government’s ability to define marriage as that between “one man and one woman” from the Defense of Marriage Act or “DOMA”. However, the Supreme Court did not change the ability of each state to decide what constituted “marriage” under state law. And there “lies the rub”, as they say, because federal agencies in the “pre-DOMA” era looked to state law to define marriage. Now, while a number of states do recognize same-sex marriages (13 and the District of Columbia), a large number do not. And until there is some clarification on the point of “place of ceremony” or “residency” on a number of issues, hopefully in the month of August, no one truly knows the answer to some of the “thornier” ones in the areas of taxation and benefits. Of late there has been some indication of how the Social Security Administration may handle the issue of state definitions of marriage with regard to same-sex spouses. The purpose of this article is to point out some of the issues which federal authorities may have to confront.
The federal government has used a “residency” test in the past to define marriage. In particular, the IRS takes the position that if the state in which the taxpayers reside recognizes them as being married, then they can avail themselves of filing a joint income tax return. Since all states recognize “traditional” marriages, few, if any, issues arose in that regard. However, consider the example of couple A and B who were married in a same-sex marriage state but spouse B has income from a state that does not recognize such marriages. At this point, no one knows how B’s income from that state is to be reported – married or single.
Consider the same couple with B employed across a state line that does not recognize same-sex marriage. Will health care expenses paid for by B’s employer for B’s spouse be deductible by the couple? May they file amended returns to claim heath expense deductions on previously filed returns which were not available to them before? Or in a worst case scenario, could those benefits come back to B as taxable income for the state return in the state that does not recognize A and B’s union.
Although one Pennsylvania federal court has held that a same-sex spouse is entitled to receive a pension distribution of a deceased plan participant as a surviving spouse and take advantage of the rules pertaining to spousal options on distribution, there is no guidance, as yet, from the Department of Labor or the IRS on the issue.
And what of the three year statute of limitations on filing amended returns? Will same-sex spouses be able to amend returns to reflect their newly won status as married persons under their state law? There are many areas of the tax law in which married filers are treated differently from single filers and all of them will have to be addressed in some fashion.
The solution to the conundrum would in all likelihood be a simple one but one which would overturn years of administrative tax law – simply treat the state in which the marriage was performed, not the one of the couple’s residency, as the defining “agency” for purposes of federal tax law. There is some authority for that position in the “common law marriage” area in IRS rulings.
The “site of the ceremony” rule has been applied by the U.S. Citizenship and Immigration Services (“USCIS”) which announced at the beginning of August that it would treat same-sex marriages the same as heterosexual marriages for its purposes and look to the state where the ceremony was performed to apply its rules to spouses. However, as its website points out, and unlike the IRS, the USCIS looks to the state where a ceremony was performed for its purposes, “as a general rule”.
The Social Security Administration recently announced it would begin accepting claims for benefits by same-sex spouses. However, it also announced that it would apply the “residency test” for the application of its rules rather than the “place of the ceremony test”. At the same time, SSA announced that it was working with the IRS to formulate further guidance on the matter of Social Security benefit awards. In any event, those believing they may be entitled to benefits should not delay filing for the same.