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High Court's Decision On Federal Marriage Law Has Tax Implications

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High Court's Decision On Federal Marriage Law Has Tax Implications

High Court's Decision On Federal Marriage Law Has Tax Implications

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  • <iframe src="" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
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How much money the government takes in could be influenced by how the Supreme Court rules on the Defense of Marriage Act. That's one of the two gay marriage cases being heard this week.

NPR's Carrie Johnson reports the decision on that federal law could have big implications for how much some same-sex couples owe the IRS.

CARRIE JOHNSON, BYLINE: The case that could throw out a law that defines marriage as between a man and woman started with a tax bill.

EDIE WINDSOR: I'm Edie Windsor and I brought my case against the government because I couldn't believe that our government would charge me $350,000 because I was married to a woman and not to a man.

JOHNSON: Edie Windsor married her partner of more than 40 years in Canada back in 2007. Their relationship was recognized by the state of New York, where they lived together. But when her spouse died two years later, Edie inherited a huge estate tax bill - a bill she would have avoided if her marriage had been recognized under federal law.

Nanette Lee Miller is an accountant who works with gay and lesbian clients.

NANETTE LEE MILLER: I mean, the big thing that people need to be aware of is that you have to actively plan if you're LGBT in your estate or individual taxes, 'cause the law is not set up to protect you.

JOHNSON: Miller says many of those couples are watching the Supreme Court this week for clues about what's in store for their own finances.

They don't get a marital deduction for estate tax purposes, so they usually need access to cash or life insurance to be able to inherit their partner's share of a home or other assets.

That could change, if the high court rules for Edie Windsor and declares the 1996 Defense of Marriage Act - or DOMA - unconstitutional. In that case, same-sex couples would get the same estate tax benefits.

Roberton Williams of the Urban Institute in Washington says those savings would help just a tiny fraction of people.

ROBERTON WILLIAMS: Very, very few people pay estate taxes. We estimate that with today's exemption level of $5 million, less than two-tenths of 1 percent of deaths result in a taxable estate.

JOHNSON: A ruling that the entire DOMA law is unconstitutional would have a much bigger impact on individual tax returns; the ones filed by same-sex married couples or registered domestic partners every year.

Patricia Cain is a law professor at Santa Clara University in California.

PATRICIA CAIN: I think if failure to recognize same-sex couples for tax purposes is unconstitutional, then it would be unconstitutional also to insist that it be a man and a woman, husband and wife, who file a joint return.

JOHNSON: Cain says the ability for same-sex couples to file taxes jointly will be a mixed bag.

CAIN: And that's good for some people and bad for others. In other words, you know, we have a marriage bonus when you have a couple with one high earner and one stay-at-home partner or low income partner. And those people usually experience a tax bonus when they file jointly.

JOHNSON: So, generally, good news for couples whose incomes are wide apart. But bad for some other same-sex couples with roughly similar incomes. The numbers are complicated; so many couples are asking accountants like Nanette Lee Miller for advice. Miller says people who may get some tax benefits if DOMA is overturned are thinking about amending their tax returns for the past three years to try to collect some extra money.

MILLER: For individuals, you can go back to 2009, 2010, 2011 and you can also file an amended return or there's a form to fill out and take advantage of married filing jointly.

JOHNSON: But Miller says some clients have been surprised to find out they could pay the dreaded marriage penalty.

MILLER: Of course, they're not happy. They go what, there's a penalty?

WINDSOR: She tells them that's just a price of equality.

MILLER: So to me it's about everybody having the same amount of pain in taxes.


JOHNSON: Carrie Johnson, NPR News, Washington.


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