Ted Simons: The U.S. Treasury and the IRS have issued new tax filing rules and guidelines for legally married same-sex couples. This after the U.S. Supreme Court struck down part of the Defense of Marriage Act which defined marriage as between a man and a woman. Joining us now are certified public accountants Jared Van Arsdale and David Walser. Good to have you both here. Thanks for joining us. Let's talk about what has exactly changed for Arizona, same-sex couples. What's different?
Jared Van Arsdale: Well, what's different originally is the recent passing of the IRS guidance that allows current same-sex couples that were legally entered into a marriage in another state, one of the current 13 states that allow same-sex marriage, that currently reside in Arizona, to file a joint return or married filing separate return.
Ted Simons: If you were married in that state legally, you come to Arizona, we don't do that sort of thing here in Arizona, but federally speaking you can file a joint return.
Jared Van Arsdale: For federal purposes, correct.
Ted Simons: OK.
David Walser: For federal purposes they will be going forward, required to file either married filing jointly, or married filing separately. They will not have the option of filing as a single or a head of household. But for Arizona purposes, since Arizona has a Constitutional Amendment that does not allow the state to recognize same-sex marriages, for Arizona purposes, the law is that they will still be treated as single individuals for their income tax returns for Arizona returns. Not for the federal returns.
Ted Simons: You mentioned they can file jointly or filing separately as a married couple. What difference does it make?
Jared Van Arsdale: Well, it makes a pretty significant difference in regards to individuals with different levels of income. Higher incomes might be affected by the so-called marriage penalty, whereas lower income individuals may not necessarily see too much of an individual difference except for the complexities and the filings at different purposes for federal versus state.
Ted Simons: That's I guess on an individual basis. You look at the couple, you look at the situation and you decide which probably works better for them. Correct?
David Walser: Correct. And we've been doing that for years for traditional married couples. We've been looking at whether or not married filing jointly was better than filing separately. Usually married filing jointly is better, but as my colleague said, there is a marriage penalty, particularly for individuals who are both couples -- Both individuals in a couple are employed, they will probably be paying higher federal taxes filing a joint return than they would have filing two single returns.
Ted Simons: We're talking federal taxes, gift taxes included, estate taxes all that sort of thing?
David Walser: Gift and estate taxes, all tax purposes, a couple that is validly married, whether they're same-sex or not, will be treat as married for federal tax purposes.
Ted Simons: What about legally married same-sex couples now filing -- Is this retroactive? What about the past year, the past two years?
Jared Van Arsdale: Well, the current guidance they've provided puts a date in purpose September 15th in regards to any individual who is currently in a same-sex marriage recognized for federal purposes could still file a single individual return prior to September 15th, and after September 16th forward, they are required to file married joint. The question is can they go back and file amendments for previous filed federal tax returns. The answer is they can up to the point in which the statute of limitations is still open for those years, which in this case is 2010 forward.
Ted Simons: Married 2010, no big deal until now, big deal.
David Walser: Big deal. Yeah.
Ted Simons: Changes.
David Walser: It makes a big difference.
Ted Simons: As far as the state is concerned, aren't -- I'm lost sometimes when it comes to this sort of thing. Aren't state returns tied somehow to federal returns, and if so, how does that whole thing change?
David Walser: The Arizona return starts with the gross income from the federal return. But the filing status as a married individual or as a single individual is not tied to the Arizona return. Some states that's not the case. Some states you're required to use the same filing status that you did on the federal return. And I don't know how the states are going to resolve that. In Arizona since we have a constitutional amendment, the legislature and the department of revenue have very limited freedom to address this issue.
Ted Simons: What about income reported differently between state and federal returns? How is that impacted?
Jared Van Arsdale: In regards -- Well, like David said, the Arizona state return starts with federal gross income as your beginning basis. So as -- The Arizona state return does have increases and decreases for certain additions and subtractions that are not allowed or included for state purposes. But the total adjusted gross income will be reported similarly at the federal level, but may have to be separated at the individual state level, which is still to be determined.
Ted Simons: With that in mind, are we talking two versions of the federal return, maybe one is married --
David Walser: The answer is we don't know. Clearly this just came up, the software hasn't been written yet, we don't know how we're going to do that. I imagine because they're going to be treated as single individuals for state purposes, we would end up having to prepare a single return for them on federal purposes, a dummy return that would then be used to populate that state return.
Ted Simons: OK. I love that answer. It seems like this is a very vague kind of new area. With that in mind, this is your livelihood, this is what you do. How many question do you have, what kind of challenge is this for you?
Jared Van Arsdale: My particular concern is the dealing with same-sex couples that might be married for federal purpose, but filing in multiple states. Not only are they dealing with their current residency, but they might have nonresident returns due in other states in which they have to determine whether or not they are B, allowed to file a joint married filing joint or whether they're single filings at the state levels.
Ted Simons: Same challenges for you.
David Walser: Absolutely. We're a national firm, so we have to track this across all of the states. Something that we haven't talked about yet, but might be important to a lot of the employers here in Arizona, one of the changes that is brought about, deals with the way fringe benefits are taxed. A same-sex couple that is validly married, if the employer was picking up a portion of the spouse's health care, for example, that now is going to be treated as tax-exempt income for federal purposes. It wasn't before. So now there's a refund opportunity, those employers should be looking to file for refunds.
Ted Simons: We've got to stop right there. Thank you both for joining us. We appreciate it. That's it for now. Thank you for joining us. You have a great evening.