March Madness

March Madness is upon us but it’s not basketball that’s drawing our attention at NicholsonPham. Instead, we’re concerned about the craziness of tax season.

With 17 states, and the District of Columbia and Canada allowing marriage equality, an increasing number of gay couples are tying the knot. And now that the United States Supreme Court has ruled unequivocally in the Windsor case that the federal government must recognize all legal marriages, married gays and lesbians are now required to file their federal income taxes as MARRIED.

In North Carolina the situation is complicated by our unfair laws regarding marriage equality and the unfair decision of the North Carolina Department of Revenue to require married gay couples to file as SINGLE.
See http://www.dornc.com/practitioner/individual/directives/pd-13-1.pdf

Make sense? Nope, we didn’t think so.

Here’s a list of Frequently Asked Questions to help sort out the madness. Keep in mind that we are not tax advisors and our best piece of advice is to consult with a tax professional before filing:

1. I legally married my same sex spouse but live in North Carolina. Do I file as MARRIED?
• YES ON YOUR FEDERAL INCOME TAXES. The federal government (i.e. the Internal Revenue Service – IRS) recognizes your marriage. Your marriage is valid and you must both file MARRIED.
  The federal government gives you two options. You can file MARRIED FILING JOINTLY or MARRIED FILING SEPARATELY, but whatever one spouse chooses, the other has to do it the same way.
• NO ON YOUR NORTH CAROLINA INCOME TAXES. In North Carolina, your marriage is not recognized and you’ll have to file SINGLE. This means, that you will file your federal taxes as married (see above) and then create a dummy federal return in which you file as SINGLE. You’ll need that dummy return to know your AGI (adjusted gross income) which goes on the North Carolina state income tax return and you’ll have to send that dummy return to NC Department of Revenue, along with the actual federal return that you sent.

Sound fair? Nope, we didn’t think so.

2. But how can I file as SINGLE if I lawfully married my same sex spouse and the North Carolina return makes me certify that the return is accurate?

   On behalf of married people everywhere, we strongly object to the government requiring people to deny their legal marriages. The NC Department of Revenue has made a clear determination that same sex married people must choose the filing status of SINGLE. If you feel strongly about the issue, and we do, NC residents who are legally married to their same sex spouses in other states may attach an addendum to the North Carolina tax form to explain the SINGLE designation and reiterate that they are legally married.

3. How do I determine WHEN I have to start filing MARRIED on my federal income taxes?

   It depends on when you were married. If you legally married your same sex spouse any time before January 1, 2014, you are required to file MARRIED this April on your federal returns.

4. What if my same sex spouse and I don’t want to be married anymore?

   Unless you and your spouse divorce, you are still married and the federal government will still require that you both file your federal taxes as MARRIED.

5. What if I can’t get divorced from my same sex spouse because I live in North Carolina and the courts here won’t give me a divorce.

   In some situations, the state in which you were married may allow you to waive the jurisdictional requirement to get a divorce (i.e. the state may allow you to file for divorce even if you don’t live there). This is on a state-by-state basis. This dilemma of when same-sex spouses can’t get a divorce has been called “wed-locked” and is a real problem for many same-sex couples. You can also call us at NicholsonPham to explore all your possible options.

6. Do my same sex spouse and I have to file together?

   No. You can each file separately as MARRIED FILING SEPARATELY but you must choose the same deduction option. In other words, if Husband #1 files MARRIED FILING SEPARATELY and takes the standard deduction, then Husband #2 has to do the same. In this scenario, Husband #2 cannot itemize on his federal income taxes.

7. What if we can’t agree on how to file?

   Welcome to married life. NicholsonPham may be able to draft documents that might be helpful to make decisions regarding finances and can help same sex married spouses reach an agreement about the future of their relationship if they break up later. Call us.

8. What if I can’t find my same sex spouse? Or I haven’t seen her in years/months and don’t know where she is?

   The IRS will allow lawfully-married people to file as HEAD OF HOUSEHOLD, under some situations, which may help lessen the tax burden a little. We recommend looking at IRS Publication #501 to determine if you meet the requirements.

Finally, if you’re gay or lesbian and not currently married but are considering leaving North Carolina to get married to your same-sex partner in another state or country, give us a call at NicholsonPham.