A person’s Filing Status determines how they can, or must file their Federal and State Income Tax Returns. Briefly, there are 5 Filing Status’ under Federal and Illinois Income Tax laws. They are:
- Head of Household,
- Qualifying Widow(er) With Dependent Child
- Married Filing Jointly, and
- Married Filing Separately.
Here is a brief history of recent Federal and Illinois laws and rulings that had a significant resulting affect on Filing Status.
Until 1996, the United States Federal government left the definition of “Marriage” to the states. The Federal “Defense of Marriage Act” (DOMA) was enacted in 1996 and was the first substantive Federal law defining marriage. Among other things, Section 3 of DOMA only recognized marriages between one man and one woman as being “married” under Federal law. This meant that marriages between people of the same sex, albeit recognized under a state’s laws, were not recognized under Federal law.
On January 31, 2011, Illinois Governor Pat Quinn signed the Illinois “Religious Freedom Protection and Civil Union Act” (Civil Union Act). Effective on June 1, 2011 the Illinois Civil Union Act grants same sex couples the full rights and benefits as couples of the opposite sex.
On June 26, 2013 the United States Supreme Court ruled in Windsor v. United States that Section 3 of DOMA was unconstitutional. Since it was ruled unconstitutional at inception, the effect of this ruling is retroactive to the enactment of the law in 1996. This ruling does not mean that the Federal Government has defined marriage to include couples of the same sex. Rather, it means that the Federal Government must respect the definitions of the states. A couple that is determined to be married or not married under state law, will be treated as such for Federal purposes.
This is a wide variety of significant implications from these laws and rulings. In this article, we will explore this from the point of view of a Federal and Illinois Income Tax Filing Status.
Filing Status Under The “Pre-Windsor” DOMA Rules:
Here are the Filing Status’ rules for same sex couples prior to Windsor:
- Same sex couples had 2 possible Filing Statuses available to them. They would file their Federal Income Tax Returns as either “Single” or “Head of Household”, depending upon their facts. They were not allowed to file as “Married Filing Jointly” or “Married Filing Separately” regardless of their legal status under state law.
- No Civil Union or Marriage: Same sex couples that were not in a recognized Civil Union or married must file their Illinois Income Tax Returns as they would their Federal Returns. That is, they would file as either “Single” or “Head of Household”, depending upon their facts.
- Civil Union or Marriage Exists:
- Prior to 2011: Prior to 2011, there was no Illinois recognition of Civil Unions or marriages. Same sex couples were required to file their Illinois Returns as they would their Federal Returns.
- 2011 and Forward: Soon after the enactment of the Illinois Civil Union Act, there was some confusion as to whether the Illinois Department of Revenue (IDOR) would give same sex couples an option as to Filing Status or mandate their Filing Status. Ultimately, the IDOR mandated that effective for 2011Income Tax Returns, same sex couples that were in a recognized Civil Union or marriage were required to file their Illinois Income Tax Returns as either “Married Filing Jointly” or “Married Filing Separately”.
Since Illinois same sex couples in a recognized Civil Union or marriage were not allowed to file their Federal Returns as either “Married Filing Jointly” or “Married Filing Separately” they had to prepare a “mock” Federal Return (Illinois Schedule CU) reflecting what their Federal Return would have looked like had their Federal Filing Status been either “Married Filing Jointly” or “Married Filing Separately”.
Filing Status Based Upon Windsor:
Due to the Windsor ruling, the Federal and Illinois Income Tax Filing Status rules should once again be synchronized.
Federal and Illinois:
- No Civil Union or Marriage: Same sex couples that are not in a recognized Civil Union or marriage must file their Federal and Illinois Income Tax Returns as either “Single” or “Head of Household”, depending upon their facts.
- Civil Union or Marriage Exists: Same sex couples that are in a recognized Civil Union or marriage are required to file their Federal and Illinois Income Tax Returns as either “Married Filing Jointly” or “Married Filing Separately”.
It should be noted that a taxpayer who was in a recognized Civil Union or marriage, and their spouse died leaving the surviving spouse with a qualifying dependent child, the surviving spouse may qualify under the Filing Status of “Qualifying Widow(er) With Dependent Child”.
Unclear Transition Period:
The application of Windsor on Filing Status results in a messy transition period where there is no clear direction from the IRS on certain important issues. For example:
- If a same sex couple in a recognized Civil Union or marriage had not filed their 2012 Returns prior to June 26, 2013, what Filing Status should be used? (It would appear that the answer should be as either “Married Filing Jointly” or “Married Filing Separately”.)
- Since Windsor is retroactive to 1996 may same sex couples who are in a recognized Civil Union or marriage prepare and file Amended Federal Returns? If so:
- How many years back may they amend their Returns?
- Should they be limited to 3 year Statute of Limitations or should they be able to go back as many years as their Filing Status is “Married Filing Jointly” or “Married Filing Separately”?
- Could they pick and choose which years to Amend based upon the Income Tax result?
- Since Windsor is retroactive to 1996 and Filing Status requirements mandate one’s options, must same sex couples who are in a recognized Civil Union or marriage prepare and file Amended Returns? If so:
- How many years back must they amend their Returns?
- Should they be required to go back as many years as their Filing Status is “Married Filing Jointly” or “Married Filing Separately”?
The IRS is working on procedures, instructions and forms to accommodate the Windsor ruling. However, the IRS interprets and carries out the laws passed by the Federal Government; the IRS does not make the laws. Accordingly, it is possible that Federal legislation will be required to determine some of these issues. If so, there may be no clear direction for many years to come. On its face, any legislation should be perfunctory and not controversial. However, in the past 5 years, Congress has refused to pass many bills for which there is agreement between the parties, let alone disagreement. Conservative legislators may well show their displeasure with the Windsor ruling by stonewalling legislation needed to implement the resulting Income Tax laws.
The Windsor ruling by the U.S. Supreme Court results in massive changes in a variety of areas, including but not limited to Income Taxes. The IRS, and perhaps the Federal Government, must quickly clarify certain matters affecting Income Tax filings so that taxpayers have clear direction as to their rights and obligations.
Some taxpayers will end up paying more Federal Income Tax as a result of Windsor and some will pay less. That depends upon the facts and circumstances of each situation, each year. To the extent that taxpayers have an option (rather than a mandate) to file Amended Federal Returns, there could be opportunities for analyzing whether the taxpayers are better or worse off by doing so.
Copyright ©, Keith B. Baker – 2013
This article is designed to be a public resource of general information. It does not constitute “legal advice” nor does it create a “client-attorney” relationship. While the information is intended to be accurate, this cannot be guaranteed. Tax laws are complex and constantly changing as a result of new laws, regulations, court interpretations and IRS pronouncements. Often, there are also various possible interpretations. Further, the applicable rules can be affected by the facts and circumstances of a particular situation. Because of this, some of the information may no longer be correct or may not apply to all situations. We are not responsible for any consequences or losses resulting from your reliance on such information. You are urged to consult an experienced lawyer concerning your particular factual situation and any specific legal questions you may have.
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