What Same-Sex Couples Need to Know This Filing Season

January 14, 2014

Gay and lesbian couples holding a valid marriage certificate from a state that recognizes same-sex marriage will be able to file a joint federal tax return for tax year 2013. Twenty-two states do not recognize same-sex marriage while requiring taxpayers to reference their federal return when filing state income tax. Revenue officials in these states must therefore provide guidance for taxpayers.

Our new report finds that:

  • 5 states have adopted the “Wisconsin approach,” instructing same-sex taxpayers to allocate income to two single returns using a state-provided schedule (Arizona, Kansas, North Dakota, Ohio, and Wisconsin).
  • 12 states have adopted the “Louisiana approach,” instructing same-sex taxpayers to complete pro forma federal single tax returns and use that information for the state returns (Georgia, Idaho, Indiana, Kentucky, Louisiana, Michigan, Nebraska, North Carolina, Oklahoma, South Carolina, Virginia, and West Virginia). These “dummy” federal tax returns are not filed with federal authorities but used only for calculating state tax liability. (Utah also issued guidance using this approach prior to the December 2013 court decision permitting same-sex marriage in the state.)
  • 1 state (Alabama) instructs same-sex taxpayers to apportion income according to a ratio.
  • 3 states will allow same-sex taxpayers to file jointly (Colorado, Missouri, and Oregon).
  • Montana will advise same-sex taxpayers not to file jointly but concedes that it has no way of verifying that information.

Although all states have issued rulings, there is the possibility of backlash. The report reminds those who might consider “delinking” or “decoupling” a state from the federal tax code that decoupling would impose compliance costs on all taxpayers and that it sends the message that the state is unfriendly to business and investment.

Decoupling is a move away from sound tax policy because it increases tax burdens, reduces stability, and exacerbates an already complex income tax code. Individuals and businesses should be wary of states that have decoupled, since it signals that the state acres more about parochial definitions and rules instead of long-term economic growth.

The other viable, non-damaging options available to states are outlined in the report.

The full report, States Provide Income Tax Filing Guidance to Same-Sex Couples, is available online.

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