United States

Same-Sex Marriage and State Tax Filing Following Obergefell v. Hodges (GMS video)


The Supreme Court’s recent landmark decision Obergefell v Hodges means that those remaining states that still had a ban on same-sex marriage are now required under the Fourteenth Amendment to issue marriage licenses to same-sex couples.  Marianne Evans and Bob Rothery with KPMG’s Washington National Tax practice discuss the impact of this decision on how same-sex married couples file their state tax returns in 2015 and 2016, as well as amended tax returns for prior years.  From a global mobility perspective, this has implications for international assignees who are in same-sex marriages with state tax filing obligations, as well as their tax service providers. 

Video Transcript

Hi, I'm Marianne Evans, and I'm here with Bob Rothery, and we're going to be talking about the latest on tax return filing for same-sex married couples in light of the June 26th ruling by the U.S. Supreme Court in Obergefell versus Hodges.

Well, you'll remember that several years ago, in the Windsor decision of the Supreme Court, that allowed the federal government to recognize same-sex marriage nationally, and it did so for many regards, including tax and immigration.  But that had no impact on the states, and right up until this recent decision in Obergefell, many states continued not to recognize same-sex marriage.  So now, under the Obergefell decision, all states are required to issue marriages licenses to same-sex couples.

So this will also have an effect on how same-sex married couples will file their tax returns in 2016, as well as amended tax returns.

That's right, and it has implications for international assignees who are in same-sex marriages, as well.  The Windsor decision made it much easier for foreign same-sex married couples to move to the U.S., but they were often surprised that the state that they located in didn't recognize their marriage, and so that caused legal complications, tax complications, of course, and also caused problems for the tax and payroll departments of their employers.

So now, with Obergefell, we have consistent treatment nationally.  But since it's such a recent development, we're still waiting in some cases to see how state tax departments are going to be handling the transition.

Well, Bob, I can report that there are a few changes that we've seen in light of the court's decision.  For example, Ohio previously required same-sex taxpayers to allocate income to returns using a schedule that the state provided for this purpose.

On July 2nd, they issued a news release saying that Ohio now requires all married couples, whether same-sex or opposite-sex, to file either married filing jointly or married filing separately.  Same-sex married couples who filed after October the 11th, 2013, may now file an amended return to reflect the federal status.

If a married couple files an amended federal return on or after June 26th, which was the date of the Obergefell decision, an Ohio amended return must be filed that reflects the same status that's used on that federal return.

There are still some holdouts, of course.  For example, Arkansas has not published any information for same-sex married couples.  However, during a telephone conversation with the Department of Finance and Administration on August 3rd, the DFA representative told us that same-sex married couples may file jointly or they may file as married filing separately even though they don't have any formal information published on their website.

For Oklahoma, where same-sex marriage was previously banned, the tax commission there also doesn't have any guidance.  But following a telephone conversation to that tax commission, we learned that guidance will be published at some point, but they're not entirely sure when, and the tax commission informally told us that same-sex married couples must file married filing jointly or married filing separately for the 2015 year, and they may file that way for the 2014 year.  However, according to this representative, the state will not allow couples to file amended returns for years prior to 2014 to reflect a change in status.

Now the pace of the changes is really amazing.  But of course, there are still some points of confusion.  As you point out, in some states we don't know for how far back same-sex couples will be allowed to reflect their marital status on amended returns.

And Bob, these changes in state tax naturally would have an impact on international assignees and their tax planners.

That's absolutely correct, and sometimes in some surprising and nuanced ways.  For example, I'm often asked about registered domestic partnership and civil union, and there are similar statuses that other countries sometimes employ.  For federal tax purposes, registered domestic partners have never been considered married, and they still are not.  Here in the U.S., many couples with that status are getting married, so we're seeing fewer and fewer registered domestic partner or civil union couples.

But in some countries -- for example, Switzerland -- that's the only alternative available to same-sex couples, and when such a couple is going to be relocating to the U.S., they're sometimes surprised that they're not considered to be married in the U.S.  And of course, that causes complications for them with things like immigration.  And so one solution to that issue is for them on a preliminary trip to the U.S. to get married while they're in the U.S.

Another confusing issue is community property.  Nearly a third of the population of the U.S. lives in one of the nine states that applies this special form of property and income ownership that applies to married couples.  Two of those states, Texas and Louisiana, did not recognize same-sex marriage up until the Obergefell decision.  The reason this is significant is because community property law can have an impact on the calculation of taxes at the federal level.  So because same-sex married couples in those states were not subject to community property, their tax calculation would be different in some cases than the tax calculation of an opposite-sex married couple.

And that has a disproportionate impact on international assignees.  It's more likely to show up in their returns, particularly when one of the spouses is not a U.S. resident.

And I should add that while we're talking here about income taxes, this could also affect other taxes, like inheritance taxes, royalty transfer taxes, gift taxes and the like.

That's absolutely true.  Some long-term same-sex couples may have put into place estate planning and other legal structures that were specifically intended to address the fact that they weren't able to get married.  So now that so many of those couples have gotten married, it's a good idea to go back and look at those plans to see if they're still needed or even still accomplishing the goals that they were intended to do.

Also, although Windsor caused the federal government to recognize same-sex marriage nationally for some purposes, including, as we're talking about, tax and immigration, there were other points of federal law that still refer to state law in determining whether or not a couple was married -- for example, in determining whether a couple was eligible for Social Security benefits or veteran's benefits.  Couples that lived in states that didn't allow same-sex marriage didn't have access to those benefits.  So now, with the Obergefell decision, we do have uniform application of those areas of law, as well.

That's very interesting, Bob.  So for tax return preparers and international assignment planners, I think the biggest news is that virtually all states will allow same-sex married couples to file as married couples for 2014 and 2015.  However, it isn't yet clear how those states or if those states will allow amended returns for years prior to 2014.  And it's also unclear how they're going to apply the rules to other taxes, such as inheritance, gift, royalty transfer and those types of taxes.  For 2015, it's a good idea to consult your tax return advisor if you have any questions.

Bob this has really been a fascinating discussion.  Thanks for joining me.

It's been a pleasure.



The above information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.