On June 26, 2013, the Supreme Court ruled that the Defense of Marriage Act (DOMA) was unconstitutional. The ruling opens the door for same-sex couples who are married under state law to enjoy the same tax benefits that opposite-sex married couples have.
Under DOMA, only opposite-sex couples were considered married under federal law; however its legality was challenged by Edie Windsor. Ms. Windsor and her partner, Thea Spyer, were considered married in New York. Spyer left her entire estate to Windsor, but because of DOMA, the estate did not qualify for estate tax breaks for married couples, resulting in the payment of federal estate taxes of over $363,000. Windsor sued for a refund of those taxes claiming DOMA violated the equal protection clause of the Fifth Amendment of the Constitution.
The Federal District Court and an Appeals Court agreed with her and ruled she was entitled to a refund of the estate taxes, plus interest. The US Supreme court agreed to hear the case.
The Supreme Court ruled that DOMA is unconstitutional by treating legally married same-sex couples differently from married opposite-sex couples. This ruling has an impact on how same-sex couples will be taxed. It also affects IRAs.
The same federal tax benefits that have been available to opposite-sex couples will now be available to same sex couples. These benefits include, among other things, the ability to file a joint federal income tax return, and the ability to claim each other’s tax deductions, for example medical expenses.
With respect to IRAs, many spousal benefits will now also be available. For example, when an IRA owner dies, a spouse beneficiary can do a spousal rollover (or transfer) of the deceased spouse’s IRA to his or her own IRA, and not have to take death distributions until they reach age 70 ½. Now, that option will be available to same-sex married couples. As long as the couple is considered married under state law, the spousal IRA benefits are available.
Other spousal IRA benefits include the ability to make spousal IRA contributions for the nonworking spouse and the ability to split retirement plan assets tax free in a divorce.
The states that currently recognize same-sex marriage are: Connecticut, Delaware, Iowa, Maine, Maryland, Massachusetts, Minnesota (effective 8/1/13), New Hampshire, New York, Rhode Island (effective 8/1/13), Vermont, Washington, and the District of Columbia.
-By Joe Cicchinelli and Jared Trexler
Smart money/Coming Soon
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Q:
You recently said that a 401(k) distribution would add to your MAGI (modified adjusted gross income) for the purpose of determining if you are subject to the 3.8% healthcare surtax. What about Roth IRA distributions? Would they also count towards your total MAGI income for surtax purposes?
Thanks
A:
IRA distributions are exempt from the 3.8% surtax, but taxable distributions from IRAs can push income over the threshold amount, causing other investment income to be subject to the surtax. Because Roth IRA distributions are generally tax-free, they don’t count towards your total MAGI.
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3 comments:
What if a gay couple gets married in a state that recognizes gay marriage, but actually reside in a state that does not?
That is a good question and if I'm not mistaken, won't be answered until some the IRS published regs/guidance on the topic. Others agree this is a pending question?
I know this may sound like splitting hairs, but words mean something so we should be careful when speaking on this topic to not refer to same-sex couples as "gay" in relation to state's marriage laws and this ruling. It would be unconstitutional for "gay marriage" to be allowed otherwise it would require couples to somehow prove or certify that they are in fact homosexual. The court and the lawsuit were very careful and specific in terms of referring to this as "same-sex", as to not subject any individual to have to prove their sexual orientation (which SCOTUS would have obviously rejected as being unconstitutional) in order to be legally married.
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