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Gay Marriage in Massachusetts The Tax Perspective

Under the decision of the Supreme Judicial Court in Goodridge v. Department of Public Health, 440 Mass. 309 (2003), beginning May 16, 2004 Massachusetts recognizes the right of same-sex couples to be married. Same-sex spouses will file as married persons, jointly or separately, for Massachusetts state income tax purposes.

Federal law does not recognize same-sex civil marriage, and same-sex spouses will remain individual filers for federal purposes. Where elements of Massachusetts taxation derives from federal law, such as the definition of gross income, or state deductions that are based on a federal counterpart, same-sex spouses may need to perform special calculations to arrive at the proper Massachusetts tax figure. This technical information release discusses these tax issues.

A. General Issues

1.Differences between Massachusetts and federal law with respect to same-sex marriage.

  1. The definition of marriage and spouse under Massachusetts law.

    Massachusetts construes the term civil marriage "to mean the voluntary union of two persons as spouses." Thus the term "marriage" includes same-sex marriage, and the term "spouse" includes partners in a same-sex marriage. The Supreme Judicial Court stayed the entry of judgment in Goodridge for 180 days; thus same-sex marriage is recognized in Massachusetts on May 16, 2004. Massachusetts will recognize valid same-sex marriages for tax periods that end on or after May 16, 2004, and will not recognize same-sex marriages for tax periods that end before May 16, 2004.
  2. The federal Defense of Marriage Act

    The terms "marriage" and "spouse" differ in meaning between Massachusetts and federal law.  Federal law states that:

    In determining the meaning of any Act of Congress, or of any ruling, regulation, or interpretation of the various administrative bureaus and agencies of the United States, the word "marriage" means only a legal union between one man and one woman as husband and wife, and the word "spouse" refers only to a person of the opposite sex who is a husband or a wife.

2. Return filing requirement of spouses in a civil marriage.

  1. For federal purposes, spouses in a same-sex marriage file either as single filers, or as head of household. For Massachusetts purposes, same-sex spouses have the option of filing either a Massachusetts joint return or a married filing separate return. Note that same-sex spouses who file as head of household federally will generally not be eligible to file as head of household for Massachusetts purposes. The term "head of household" as used in Massachusetts derives from the federal definition, which generally allows the status only for unmarried people. Since the spouses are married under state law, applying the federal definition renders them generally ineligible for head of household status.2

3. A note on statutory construction.

  1. Under the statutory construction provisions of the General Laws, "words of one gender may be construed to include the other gender and the neuter." In interpreting Massachusetts tax laws, the Department will construe all references to "husband" and "wife" as "spouse," and pronouns as representing either gender.

B. Specific income tax issues for taxpayers

General note: same-sex spouses preparing Massachusetts joint returns will be combining figures from their separate federal returns.

1. Number of dependents. Same-sex joint filers will combine the number of dependents from their federal returns to arrive at the number of Massachusetts dependents.

2. Differences between state and federal deductions for same-sex joint filers.

  1. Medical/dental expenses. A taxpayer may deduct from Part B Adjusted Gross Income (AGI) the full amount of the deduction for medical, dental and other expenses allowed under IRC § 213, namely medical and dental expenses that exceed 7.5% of federal AGI. Same-sex joint filers will recalculate their combined allowable expenses as appearing on Federal Form 1040, Schedule A, 3 under the heading "Medical and Dental Expenses," combining their AGIs to use in performing the 7.5% calculation.
  2. Allowable unreimbursed business expenses and certain miscellaneous deductions. A taxpayer may deduct from Part B gross income trade or business and certain other expenses as allowed under IRC § 162, namely expenses that exceed 2% of federal AGI. See also IRC § 62(a). Massachusetts uses this as a starting point for calculating its own deduction. Same-sex joint filers will recalculate their combined allowable expenses as appearing on Federal Form 1040, Schedule A, under the heading "Job Expenses and Most Other Miscellaneous Deductions,4 combining their AGIs to use in performing the 2% calculation, and will complete the worksheet in the Form 1 instructions.5
  3. Student loan interest deduction. Massachusetts allows as an option the federal "interest on education loans" deduction.; The federal deduction phases out based on modified AGI.  Same-sex joint filers must use the "Student Loan Interest Deduction" worksheet in the instructions to Federal Form 10406 or 1040A7 making sure to combine their income figures, and performing the calculation as though they were filing a joint federal return.

    Note: the separate Massachusetts undergraduate student loan interest deduction at G.L. c. 62, § 3(B)(a)(12) is not tied to the federal deduction and calculating it will be the same for same-sex spouses and opposite-sex spouses. It is not phased out based on AGI amount.
  4. Passive activity losses from rental real estate.  Massachusetts taxpayers are allowed to deduct passive activity losses to the extent they are allowed under IRC § 469. See generally G.L. c. 62, § 2, TIR 89-2.8 The federal limitation favors single filers over married filers because federal law provides the same offset limitation and AGI threshold for reducing the offset limitation to married couples that it provides to single filers. Two single filers are eligible for twice the benefit of a married couple. Same-sex joint filers should use Federal Form 8582 to recalculate their loss limitations as though they were filing a joint federal return.
  5. Line 12, Dependent care expenses. Massachusetts allows taxpayers a deduction for employment related expenses that exceeds the federal deduction on which it is based. Same sex joint filers will complete a pro forma U.S. Form 2441 or U.S. Form 1040A, Schedule 2. In addition to changing the maximum amount of the deduction allowed on the federal form (as required by the instructions to the Massachusetts Form 1), same-sex spouses will prepare the pro forma federal forms as though they were filing a joint federal return.

C. A sales and use tax issue

Massachusetts provides a sales and use tax exemption for the purchase of a motor vehicle, trailer, boat, or airplane by the spouse of the seller, with certain restrictions. This exemption extends to same-sex spouses.

D. Employer obligations

1. Taxable health insurance benefits.

  1. Employer-provided benefits that extend to spouses, such as health insurance benefits, are excluded from gross income federally. However, the fair market value of benefits provided to same-sex spouses is included in gross income and is taxable federally to the spouse who receives the benefit from his or her employer.

Generally, income is subject to Massachusetts income tax withholding if it is taxable under Massachusetts personal income tax law and if several other conditions are met. The value of employer-provided benefits that extend to same-sex spouses are not taxable under Massachusetts law, and are not subject to withholding for state income tax purposes. Employers should report the reduced Massachusetts income figure on the wage statement the employer furnishes the employee by January 31.9 This requirement supersedes in part the general rules with respect to withholding on fringe benefits found in 830 CMR 62B.2.1(11).

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