On July 29, the New York State Department of Taxation and Finance announced a "website landing page" on the NY Marriage Equality Act, providing initial guidance on personal income tax, estate tax, withholding tax and sales tax information for same-sex couples who are marrying in New York or who have married or are marrying elsewhere but reside in New York. The page will be supplemented and updated as they continue to figure things out. Its initial contents are based on analysis conducted over the past few weeks in the wake of the June 24 enactment of the statute.
The URL for the homepage is: http://www.tax.ny.gov/pit/marriage_equality_act.htm
Here are the high points:
Most importantly, the Tax Department takes the position that because the Marriage Equality Act provides that same-sex married couples should be treated the same as different-sex marriage couples for all purposes of New York law, "The Act applies to all taxes administered by the Tax Department." This means that even though the text of the New York State tax statute mandates that taxpayers file their state taxes using the same filing status as for federal taxes, this provision is effectively amended by the passage of the Marriage Equality Act. Similarly, the provisions by which the state's estate tax relies upon and is intertwined with the federal estate tax is trumped by the Marriage Equality Act.
Personal Income Tax – What this means is that same-sex couples who marry in New York, or who marry elsewhere and reside in New York, must use a married filing status for their New York State personal income tax. People who were married elsewhere prior to July 24, 2011, are only considered married for New York state income tax purposes from July 24, 2011, forward. The status is not retroactive to their date of marriage elsewhere, presumably because prior to July 24, 2011, the text of the state tax law would still govern. Of course, people who married on or after July 24, 2011, will be considered married for purposes of their 2011 state income tax. (A person is deemed to be married for the entire tax year in which they were married, even if they marry right before the end of the year.) There is no retroactivity. That is, same-sex couples who married in other jurisdictions during earlier tax years may not file amended returns and claim refunds based on their earlier marital status. Or, at least, this the position that the state tax department takes, so anybody who tries it will have to be ready to go to court.
This does not mean that married same-sex partners must file jointly. New York provides for two filing categories for married people: married filing jointly, and married filing separately. Because of various characteristics of the tax law, one or the other of these filing statuses may be more beneficial for a particular couple, depending on their economic circumstances. So doing alternative calculations or consulting an accountant are recommended.
Here's the problem for married couples: In order to fill out these state personal income tax forms, one needs figures from the federal personal income tax form. And here's where the New York State Department of Taxation and Finance is going to be lazy and throw extra work on same-sex married couples. They say that after you have done your federal taxes as "single," you then need to put together a dummy federal "married" return in order to generate the figures (and, in some case, forms – recall that NY State requires you to copy and file certain federal forms, for example itemized deducations Schedule A) to file with your state return. They could have alternatively devised a special form for New York same-sex married couples that would obviate the need to do a dummy federal return, but that would take WORK… And perhaps, to give them the benefit of the doubt, they are anticipating that a pending lawsuit will result in the federal Defense of Marriage Act being declared unconstitutional in the context of tax law, which might obviate the need for different filing statuses. But that may not happen for quite a while (the Windsor case is still in the pretrial stage), and in the meantime same-sex married couples are going to have extra work to do in order to file their personal income taxes.
In connection with this, the Tax Department helpfully observes that for same-sex partners who are getting health coverage from one partner's employer under an employee benefit plan, after they get married the value of that coverage will not be considered taxable for purposes of New York State income tax, presumably from July 24, 2011, forward. (It will remain taxable, of course, for purposes of federal income tax.) In light of this, they note that same-sex married couples may want to adjust their state tax withholding form to reflect the fact that they will no longer have this extra income to declare. (This is one of the complications of having the state but not the feds recognize the marriage.) And, of course, since couples will be filing as married, they may want to adjust their withholding in any event to reflect the change in the way their income will be taxed.
Estate Taxes – This is one of the big benefits of the state recognizing same-sex marriages. The marital deduction will be available the same way as it now is for all surviving spouses for purposes of the state estate tax, and because New York State's threshold for estate taxes – $1,000,000 – is much lower than the current federal threshold – $5,000,000 – this could mean a significant tax savings. Once again, however, the intertwining of federal and state is going to make more work for same-sex surviving spouses. "A federal pro forma return must be filed with Form ET-706, New York State Estate Tax Return, within 9 months of the date of death." The advisory spells out which forms to fill out and file.
Finally, a bit of good news that people may not have known about: Under New York tax law, sales of motor vehicles between spouses are exempt from sales and use taxes. Motor vehicles include trailers, all-terrain vehicles, boats, and snowmobiles, as well as cars and trucks.
One hopes (at least I fervently hope) that the tax preparation services are getting geared up to handle this. My husband and I have been using Turbotax for years, and it would be nice if we could just continue using it. Perhaps the fact that several neighboring states have had same-sex marriage for a while – Massachusetts going back more than seven years now – means that those services have figured out how to do this and it will not be too much of a drag to do our taxes this year. Just that we will have to get all our information together to do it at one time instead of individually at our own pace!