Refund Equality Act Would Correct Federal Filing Quirk
July 13, 2017
A new piece of legislation has the potential to bridge a disconnect between social reforms and tax policy. Introduced today by Sen. Elizabeth Warren (D-MA) in the Senate, and by Rep. Richard Neal (D-MA) in the House, the Refund Equality Act would resolve a filing dilemma faced by married same-sex couples. The problem arises from the mismatched timing of IRS regulation changes and state-level same-sex marriage legalization.
In general, all married couples face two time limitations to amending federal income tax returns. The first restricts married filers to filing jointly within three years of filing separate returns. The second imposes a three-year maximum on credit or refund claims for tax overpayment.
Due to the structure of income tax brackets, couples with disparate incomes can often save money by filing jointly. The wider tax brackets available to married couples allow for much of a couple’s income to fall into a lower bracket, which can reduce their overall tax rate, creating a marriage bonus.
Before the 2013 Supreme Court ruling in United States vs. Windsor, same-sex couples were not allowed to file joint federal income taxes. After the ruling, the IRS updated its guidelines to allow same-sex couples to amend old returns to reflect their marital status. This allowed married same-sex couples to claim overpayment credits for the years in which they were married but were unable to file jointly.
The impact of the IRS’s actions is hampered by the restrictions on claims. Since certain jurisdictions adopted marriage equality long before the 2013 ruling, some married same-sex couples were forced to file separate federal income taxes for years. With the limitations in place, these couples cannot amend their returns to claim reimbursement credits for tax years prior to 2010.
The Refund Equality Act would provide an exemption to the time limitations on amending statements so that married same-sex couples can file federal income tax adjustments back to the year of marriage. For some couples, this could make a big difference. Since Massachusetts legalized same-sex marriage in 2004, couples married in the state would be able to claim credits for taxes paid over the course of nine years.
The proposal doesn’t make a major alteration to federal tax policy, since there are already several exemptions to claim limitations. For example, veterans whose retirement funding was reduced due to receiving disability compensation have extra time to file a claim for overpayment. Someone who pays too much in federal individual income taxes due to foreign tax payments can also receive a claim extension.
While the individual impact could be significant, enacting the proposal wouldn’t cost much. The Joint Committee on Taxation estimates that the proposal would cost the federal government $67 million. This is miniscule compared to the $1.4 trillion in net income tax collected in 2016.
The proposal would affect around 48,000 same-sex couples who married prior to 2011. Given the Joint Committee’s estimate, each couple could gain around $1,400 in credits from the proposal.
Extending the time limitation on overpayment claims for married same-sex couples introduces equity into the tax code. It’s a simple fix that could go a long way for the couples who benefit from the legislation.
Was this page helpful to you?
The Tax Foundation works hard to provide insightful tax policy analysis. Our work depends on support from members of the public like you. Would you consider contributing to our work?Contribute to the Tax Foundation
Let us know how we can better serve you!
We work hard to make our analysis as useful as possible. Would you consider telling us more about how we can do better?Give Us Feedback