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The Tax Implications of DOMA


See Federal Tax Return Guidelines for Same-Sex Married Couples for the latest IRS ruling.

A tax issue is at the heart of the United States v. Windsor or the Defense of Marriage Act (DOMA) decision by the Supreme Court of the United States.  It has potentially far-reaching implications that will affect federal, and most likely state, tax policies, including the estate and gift taxes and income tax.

Estate and Gift Taxes

While much of the media attention surrounding the case has focused on DOMA, the case itself was about the plaintiff’s claim for an estate tax refund. Married couples do not pay estate or gift taxes on transfers between spouses. This means there is no estate tax assessed on transfers from the first spouse to die to the surviving spouse.

In Windsor, the plaintiff’s marriage was not recognized under Federal law because of DOMA and the first-spouse-to-die’s estate was assessed $363,000 because the transfer to the surviving spouse was not recognized as a transfer between spouses.

Spousal recognition, as result of the DOMA decision, resolves this issue. Same-sex married couples will not be assessed an estate tax when transferring estates upon one spouses death.

Income Tax

Prior to the DOMA decision, same-sex married couples were only permitted to file federal income tax returns separately as single individuals. Now, same-sex spouses will be allowed to file joint returns.

The federal recognition of same-sex marriages means gay couples could be entitled to tax refunds for filing situations for which married couples receive tax breaks.  In addition to the estate tax situation in the DOMA decision, married couples also receive an income tax break if they file jointly.

See my posting on DOMA and Income Tax Refunds for more information on filing amended federal income tax/refund claims.