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
- 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.
- 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.
- 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
3. A note on statutory construction.
- 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
2. Differences between state and federal deductions for same-sex joint
- 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.
- 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
- 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.
- 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.
- 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.
- 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).