Earlier this week I read an article titled “Elizabeth Warren wants to give gay couples $57 million in tax refunds.” Now, I know this is gay pride month, but this headline intrigued me. I’ll get to the meat in a second, but let me state that while I don’t see this passing, even under the best of circumstances, it’s an interesting proposition.
In addition to Warren’s proposal, there is a corresponding bill in the House of Representatives. The House Ways and Means committee unanimously approved the bill last week. The House proposal is H.R. 3299, the Promoting Respect for Individuals’ Dignity and Equality (PRIDE) Act of 2019. It was specifically introduced this year on the 50th Anniversary of the Stonewall Riots by California Representative Judy Chu (CA-27).
The heart of the proposal is to refund taxes paid by married same-sex couples over the period of time they were prohibited from filing with the filing status of married filing joint. Same-sex couples who were legally married between 2004 and 2013 were forced to file under the federal filing statute as single because the Defense of Marriage Act (“DOMA”) prevented the federal government from recognizing same-sex relationships.
Currently, federal law only allows you to amend a tax return for three years. The PRIDE Act would allow same-sex couples who were legally married before 2013 to go back and amend their returns to file as married couples to claim tax refunds.
I thought why not use today, June 26, to take a closer look at this proposal and refresh our memories about how married same-sex partners have been treated under US tax laws.
Why June 26th, you ask? June 26th is a special day for married same-sex couples in the United States because it is the anniversary of three United States Supreme Court cases that changed our future and gave us legal equality in terms of marriage.
The cases are:
- United States v. Windsor – June 26, 2013 – this case ruled that Section 3 of the Defense of Marriage Act (“DOMA”) was unconstitutional “as a deprivation of the equal liberty of the person protected by the Fifth Amendment.” After this decision, the federal government had to recognize same sex marriages that were valid under state law.
Let’s take a moment and pause to remember that the Windsor case originated as a tax case that made it’s way to the Supreme Court.
- Hollingsworth v. Perry – June 26, 2013 – this case effectively overturned the California ballot initiative known as Prop 8 and made same-sex marriage legal in California.
The details and background of this case are complicated, but that’s not what this post is about. If you want to refresh your memory, you can start your exploration reading about it here.
As a side note, we went to California in November of 2013 to get married, although it wouldn’t be recognized by my home state of Texas until June 26, 2015.
- Obergefell v. Hodges – June 26, 2015 – in this case, the Supreme Court ruled that because the fundamental right to marry extends to same-sex couples, same-sex marriage bans are unconstitutional under the Fourteenth Amendment. This decision renders same-sex marriage legal throughout the United States.
Now that we’ve reviewed the 3 most important cases, let’s look back in time before 2013 and get an overview of how same-sex couples were taxed.
Before 2004
The history of same-sex marriage is long, complicated and very winding. However, in the modern United States, the first state to officially recognize same-sex marriage as the equivalent of opposite-sex marriage was Massachusetts in 2004. Before this time, same-sex partners were not able to marry and receive federal or state recognition.
Obviously, if you couldn’t marry, you couldn’t file your income taxes as a married couple. Not only that, the entire federal government system was unable to recognize your status as a committed couple in a long-term relationship. This affected your tax filing status, medical benefits, social security benefits, as well as taxes on inheritances and gifts. This is just a short list of the discriminatory impacts from refusing to validate same-sex relationships through marriage.
On November 18, 2003, the Massachusetts Supreme Judicial Court decided the case Goodridge v. Department of Public Health. This case held that the Massachusetts constitution required the legal recognition in the state of Massachusetts. It took a little time to get this ruling into motion, but same-sex marriage licenses started being issued on May 17, 2004. This was the first state-wide recognition of valid same-sex marriages in the United States. It also changed the tax landscape in Massachusetts and the rest of the United States.
2004 through 2013
Once Massachusetts began recognizing same-sex marriage, residents in the state got a lot of state and local benefits. Among these benefits was the ability to file their state income tax returns using the married filing jointly status. However, under DOMA, the federal government continued to force these legally married couples to file as separate individuals. This failure to recognize valid marriages also affected estate and gift taxes because the same-sex married couples were taxed on exchanges of money and property that federally recognized married couples are not taxed on.
2013 through Current
On June 26, 2013 the Supreme Court sided with Edith Windsor in her refund request for estate taxes paid when she received her wife’s entire estate. Edith Windsor and Thea Spyer were a same-sex couple living in New York at the time of Spyer’s death and their marriage was recognized by the state of New York.
Spyer left her entire estate to Windsor. If they were an opposite-sex married couple the federal government would have recognized their marriage and no estate taxes would have been assessed. However, because their marriage was not federally recognized, the inheritance was taxed. The Supreme Court decided this was unconstitutional “as a deprivation of the liberty of the person protected by the Fifth Amendment.”
This decision would overturn the DOMA prohibition that prevented the federal government from recognizing same-sex marriage. Beginning with the 2013 tax year, same-sex couples in a valid marriage that was recognized by a state were entitled to file their federal taxes using the preferential filing status of married filing joint.
The final ruling that’s important to the same-sex marriage movement is the Obergefell v. Hodges case that was decided by the Supreme Court on June 26, 2015. This case decided that marriage is a fundamental right and requires all states to issue marriage licenses to same-sex couples and to recognize same-sex marriages validly performed in other jurisdictions. Prior to Obergefell, same-sex marriage was already established by law, court ruling or voter initiative in thirty-six states.
For those of you interested in how this all came about and an overview of the struggle for marriage equality, here is a timeline highlighting some of the most important events over the last 40 years.
I’ll conclude by saying that I frequently hear and read about the so-called marriage penalty. This penalty is that sometimes a married couple will pay more in federal income taxes than they would if they were single individuals. Yes, this is true and could be addressed by Congress. I’m considering a full blog post on this subject alone; however, let me just state that the additional tax is not nearly as expensive as the loss in all the other benefits that accrue through marriage.