IRS clears married tax filing by same-sex couples; that creates state tax wrinkle | Arkansas Blog

Thursday, August 29, 2013

IRS clears married tax filing by same-sex couples; that creates state tax wrinkle

Posted By on Thu, Aug 29, 2013 at 2:57 PM

click to enlarge MARRIED IN NEW YORK: But can Arkansas residents Gary and Randy Eddy-McCain file a joint state tax return?
  • MARRIED IN NEW YORK: But can Arkansas residents Gary and Randy Eddy-McCain file a joint state tax return?
I'm thinking this could open up another avenue of challenge to  legal practices in Arkansas that discriminate aganst same-sex couples who were legally married in other states.

The IRS today said all legally married couples may file a federal income tax return as a married couple, even if they reside in a state like Arkansas that prohibits same-sex marriage.

In Arkansas, there can be a  financial benefit — particularly when both spouses work at more or less the same pay — for a married couple to file a state income tax return separately on the same return rather than a joint return. Same-sex couples who were married in other states may now file a federal tax return jointly. May they file an Arkansas tax return jointly?

Arkansas's answer, under the law, must be no. But if that is so, does this create another instance in which a legally married couple has been denied the full faith and credit of another state's legal marriage? As far as the filing separately on the same return goes, maybe not. Filing separately on separate returns is more of a hassle, but the joint filing merely gives the benefit already available to separate filers.

There's a further complication, however. Much of Arkansas's income tax filing mirrors and is linked to federal filings. Many other states are in the same position. Some federal tax forms must be filed with the state return to substantiate numbers reported.

The Tax Foundation has already put out a notice about this dilemma and suggested some options for otherwise married people who live in states like Arkansas that discriminate against them:

Assuming a state does not opt to recognize same-sex marriage by next year, viable options include:

* permitting taxpayers to reference a “dummy” federal return reflecting single filing status for their state return,

*or permitting taxpayers to “split” a joint federal return down the middle, using one-half for each single state return,

* or creating a new filing status permitting any taxpayer that files a joint federal return to file a joint state return, especially if the state presently recognizes civil unions or domestic partnerships.

An option that should not be considered is to “delink,” or “decouple,” the state’s tax code from the federal tax code. Such a step would impose huge compliance costs on nearly all state taxpayers and potentially cause economic damage. Such a response would be disproportionate since other viable options are available.

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