For policy geeks like me, the release of Supreme Court opinions is one of the highlights of summer. It’s incredibly satisfying to watch a case go from beginning to end and then have the opportunity to read the reasoning for the decision. Former Supreme Court Justice Sandra O’Connor explained just how amazing that is earlier this year, saying:
Well, the Supreme Court is the one branch of government that has written explanations for everything it decides and does. That’s pretty impressive. No other branch of government, no member of Congress has to write some written explanation of everything.
Of those three cases, one of them, U.S. v Windsor, was decidedly a tax case. This is something we’re seeing more and more of with this latest court.
As the dust settles from what is a pretty remarkable day, there will most certainly be confusion about what the larger implications of those two cases will mean. And there is a lot to sort out. For now, I want to focus on a few basics:
- The Windsor ruling did not make gay marriage legal for everyone. Or as my friend, Chrissy, said earlier today on Facebook, “Don’t break out the rainbow rice already, kids.”
- What the Supreme Court did in Windsor was strike down the federal law which purported to tell the states what constituted marriage, instead saying that it was up to the states to make those laws. States that do not recognize same-sex marriages for their residents will not be forced to do so (unless they change those laws).
- The Supreme Court did not rule in Perry that Proposition 8 was unconstitutional.
- The Supreme Court didn’t actually comment much on the merits of Proposition 8 at all. The case was decided on a procedural issue involving whether the parties had standing. Standing is the legal term for the right to sue. The practical consequence is that the lower court’s verdict stands and thus, the legal challenge to Proposition 8 was upheld.
With all of that in mind, what’s next? From a tax perspective, this changes, well, everything, IF you live in one of the states where same-sex marriage is legal (or will be as of the end of 2013). Those include California (post-Perry), Connecticut, District of Columbia, Delaware, Iowa, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New York, Rhode Island, Vermont, and Washington.
That’s because, even in a post-No-DOMA world, filing status for federal purposes will continue to be tied to your filing status for state purposes:
- If you live in a state where same-sex marriage is legal, then your filing status for federal purposes is now married. You can file as Married Filing Jointly or Married Filing Separately if you’re so inclined.
- If you live in a state that recognizes civil unions or domestic partnerships, you’re considered unmarried. Or, put another way: if you live in a state that doesn’t recognize same-sex marriage, your filing status for federal tax purposes does not change.
And yes, the same logic should apply to other federal taxes such as federal estate taxes and federal gift taxes. In fact, if you’ve read the commentary on Windsor, you’ll note that it was initiated because of a federal estate tax bill.
All of this should make for an interesting filing season for the tax year 2013 as the rules get sorted out. The IRS has quite a bit of work to do. The instructions, for example, on the 1040 will have to be revamped.
And while that will change eventually (the IRS has a few other things on its mind just now), I don’t think there’s any benefit to taxpayers in rushing just yet. I respectfully disagree with those of my colleagues advising folks to immediately amend federal income tax returns. While I suspect that the “normal” rules for amending tax returns will apply, there’s no indication that filing status will absolutely be applied retroactively. Until that’s settled, I don’t know that there’s any advantage to filing early. I think patience and thoughtfulness are key as the IRS and other federal agencies sort out the consequences of the ruling.
The White House acknowledges that there will be challenges ahead as a result of the Windsor decision. Today, President Obama issued a statement about the ruling, saying, in part:
So we welcome today’s decision, and I’ve directed the Attorney General to work with other members of my Cabinet to review all relevant federal statutes to ensure this decision, including its implications for Federal benefits and obligations, is implemented swiftly and smoothly.
Of course, as I say that, there is one taxpayer who will be taking advantage of the ruling fairly immediately: Edie Windsor, the plaintiff in the now landmark case. She will get the $363,053 she paid in federal estate tax refunded, according to her attorney, Roberta Kaplan: “Every penny… Plus interest!”