DOMA Decision Has Tax & Benefit Implications

Same-sex married couples and their employers are assessing the impact of the U.S. Supreme Court decision holding Section 3 of the Defense of Marriage Act (DOMA) unconstitutional. Now that same-sex marriages are recognized for purposes of federal law, many things change.

Income taxes. Same-sex married couples may file a joint federal income-tax return or file separate returns using the “married filing separately” filing status. A taxpayer’s filing status determines which tax rate schedule is used in the tax calculation and the extent to which various deductions, credits, and exclusions are available.

Federal estate and gift taxes. A married person’s estate generally may claim an unlimited marital deduction for property passing to the person’s surviving spouse. In addition, a married person’s estate may make any unused portion of the decedent’s $5.25 million exemption available to his or her surviving spouse. Use of this “portability” election increases the amount the survivor can pass along to others tax free.

Employee benefits. As a result of the decision, certain provisions that protect a spouse’s rights to benefits from employer-sponsored retirement plans are made applicable to same-sex married couples. Plans may have to be amended accordingly. In addition, the value of health insurance benefits provided to an employee’s same-sex spouse need not be included in the employee’s income.

The IRS and other federal agencies are expected to address various questions regarding implementation and other technicalities. One question that has been raised is whether the federal government will treat same-sex couples as married if they move to a state that doesn’t recognize same-sex marriage.