Tahlequah Daily Press

September 10, 2013

Tax guidance for same-sex couples


TAHLEQUAH — The following tax information is crucial to same sex couples who have been legally married in states which permit such unions, but who reside in Oklahoma.

The information was compiled by taxfoundation.org.

24 States Should Provide Further Guidance to Taxpayers

There are 24 states that do not recognize same-sex marriage but do require state taxpayers to reference their federal tax return when preparing their state tax return. These 24 states—Arizona, Colorado, Georgia, Hawaii, Idaho, Illinois, Indiana, Kansas, Kentucky, Louisiana, Michigan, Missouri, Montana, Nebraska, North Dakota, Ohio, Oklahoma, Oregon, South Carolina, Utah, Virginia, West Virginia, and Wisconsin—must provide guidance to taxpayers on how to proceed before the 2014 tax season.

In these states, same-sex couples will file single returns at the state level but joint returns at the federal level. State law generally requires references to the federal return and filing status to match the federal return, which will be impossible. Assuming a state does not opt to recognize same-sex marriage by next year, states have several options for providing guidance to resolve this conflict:

• Permit taxpayers facing a federal-state filing status conflict to reference a “dummy” federal return. To resolve this with minimal impact to the state, taxpayers in this situation would be instructed to prepare a “dummy” federal return reflecting single filing and reference that when preparing the state return. Taxpayers who file married filing separately at the federal level would be permitted to file as single at the state level. Most taxpayers will be unaffected by this change, and while some same-sex taxpayers may face additional compliance costs, they will get the benefits of joint federal filing.

• Permit taxpayers facing a federal-state filing status conflict to “split” their joint federal return. Alternatively, this option also leaves most taxpayers unaffected while reducing the compliance costs for same-sex taxpayers. Under this option, taxpayers in this situation will be instructed that any reference to the federal tax return will be interpreted to mean half the amount on the filed joint federal return. For example, if the couple reports $50,000 in income on their joint federal return, each individual will report $25,000 in income on each state return. Depending on income disparity, this may have uneven effects on certain same-sex taxpayers, but would reduce compliance costs.

• Create a new “federal joint return” filing status when a taxpayer files a federal joint return but cannot do so at the state level under state law. Presently, taxpayers may file as single, as married filing jointly, as married filing separately, or as head of household. This option would create a new “federal joint return” status for couples who file married filing jointly or married filing separately at the federal level but are not permitted to do so at the state level under state law. Taxpayers would reference their federal return when preparing their state return, but the state would not recognize same-sex marriage. This option may be most ideal for states such as Colorado, Hawaii, and Illinois, which recognize civil unions but not same-sex marriage.

Depending on state law, this guidance may require only an administrative ruling by revenue officials. Alternatively, governors and legislators can enact changes legislatively.