In December 2012, the United States Supreme Court agreed to hear Windsor v. United States, a case challenging the constitutionality of the Defense of Marriage Act (DOMA), which was passed in 1996.
Because DOMA defines marriage as being strictly between one man and one woman for the purposes of all things federal, the IRS does not recognize same-sex marriage. Even if a same-sex couple is legally married in a specific state, it doesn’t mean that the filing status is married or legal for federal tax purposes.
The result is that some same-sex couples have been paying taxes as singles, which, in some cases, means a higher tax bill. If DOMA is overturned, it could mean that some same-sex couples could receive substantial refunds.
Overpaying Due to the Defense of Marriage Act
Filing jointly means that some couples can take advantage of certain conditions. The tax brackets for married couples are different from singles. As a result, it’s possible to be in a lower tax bracket when you combine your income. Additionally, you can combine deductions as a couple. In many cases, this means tax savings for married couples vs. two singles. However, this is not always the case as it depends on the tax bracket you are in.
So, even though you might be legally married in your own state and you receive tax benefits on a state level, you don’t receive those same benefits on the federal level. Another downside is that spouses aren’t recognized in terms of federal estate taxes. Normally, if a spouse dies, assets transfer (in most cases) without any trouble. It’s not considered inheritance, and no estate taxes are paid. However, if your same-sex spouse dies, DOMA prevents the marriage from being recognized, so you have to pay estate taxes.
Between these tax disadvantages, many same-sex married couples have paid more in taxes due to DOMA than other married couples.
What Happens if DOMA is Overturned?
Arguments in Windsor v. United States are expected to be heard in March, with a decision expected in June. If DOMA is overturned, the result is likely to be tax refunds for those who have overpaid on their taxes.
However, in order to get that tax refund for overpaying, you need to amend your return. Same-sex couples can only amend their returns going back three years, so the tax refunds can only come from tax years 2009, 2010, and 2011 so far. You can also amend your estate tax return to recover what might have been paid if your spouse died.
The difficulty comes in, though, for those who do want to amend their tax returns for 2009. By the time a decision is reached in Windsor, the April 15th deadline will be passed. If you are interested in making sure that you remain eligible for a refund for 2009 taxes while waiting to see if DOMA is overturned, you will need to file a protective claim. This means that you file an amended tax return for the year in question, changing your filing status to married filing jointly, and re-calculating what you owe. Then, right “protective refund claim” across the top, and attach a note explaining that you are awaiting the outcome of Windsor.
If DOMA is overturned, those same-sex couples that have been legally married, but forced to pay higher federal taxes, have the chance to recover some of their losses.