Tax and Estate Implications of Same-Sex Marriage in Pa.

On May 20, in Whitewood v. Wolf, No. 1:13–cv–1861 (M.D. Pa. May 20, 2014), U.S. District Judge John E. Jones III of the Middle District of Pennsylvania struck down Pennsylvania’s ban on same-sex marriage, ruling that it violates both the due process and equal protection clauses of the U.S. Constitution. The next day, Gov. Tom Corbett announced that he would not appeal the ruling, making Pennsylvania the 19th state to legalize same-sex marriage. This ruling effectively provides same-sex married Pennsylvanians with the same state law marital rights, benefits and obligations as any other married couple in Pennsylvania. In this article, we will summarize some of the rights, benefits and obligations in the income tax and estate planning arena that married same-sex couples who are Pennsylvania residents will now need to mindful of as they arrange their financial affairs.

By way of background, last year, the U.S. Supreme Court, in United States v. Windsor, 133 S. Ct. 2675 (2013), recognized certain federal rights for same-sex married couples by ruling that Section 3 of the Defense of Marriage Act (DOMA), which limited marriage to a union of one man and one woman, was unconstitutional. The Windsor matter specifically involved the availability of the marital deduction from the federal estate tax to the surviving member of a same-sex married couple. In the aftermath of that decision, the Internal Revenue Service issued Revenue Ruling 2013-17, declaring that it would recognize, for federal tax purposes, all same-sex marriages that were considered legal in the state of the marriage, regardless of a couple’s current residence. Consequently, all married same-sex couples are now required to file their federal income tax returns with a married filing status. For many such couples, this reduces the amount of federal income taxes owed, but, for some higher earners, this results in higher federal income taxes due to the “marriage penalty.” For estate tax purposes, however, the ruling has reduced or completely eliminated federal estate taxes owed due to the availability of the marital deduction (and portability of any unused exemption)—a great result for same-sex married couples. However, this was only the case as it related to federal taxes, and, until the Whitewood case, the same result did not apply for Pennsylvania tax purposes.