Technical Information Release

Technical Information Release TIR 04-17: Massachusetts Tax Issues Associated with Same-Sex Marriages

Date: 07/07/2004
Organization: Massachusetts Department of Revenue
Referenced Sources: Massachusetts General Laws

Personal Income Tax

Beginning May 16, 2004 Massachusetts law permits same-sex couples to be married. Goodridge v. Department of Public Health, 440 Mass. 309 (2003). 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 derive 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. [1]

A. General Issues

1. Differences between Massachusetts and federal law with respect to same-sex marriage.

a. 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 . . . ." See Goodridge v. Department of Public Health, 440 Mass. 309, 343 (2003). 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. Id., at 344. Marital status is usually determined as of the close of the taxable year and applies for the entire taxable year. See G.L. c. 62, § 1(g). Massachusetts will recognize valid same-sex marriages for taxable years that end on or after May 16, 2004, and will not recognize same-sex marriages for taxable years that end before May 16, 2004.

b. 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.

1 USCS § 7 (2004).

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. See 1 USCS § 7, I.R.C. § 6012. See also I.R.S. Pub. 501. For Massachusetts purposes, same-sex spouses have the option of filing either a Massachusetts joint return or a married filing separate return. Cf. G.L. c. 62C, § 6. 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. See G.L. c. 62, § 3(A)(b), I.R.C. § 2(b). Since the spouses are married under state law, applying the federal definition renders them generally ineligible for head of household status. [2]

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." G.L. c. 4, § 6, cl. 4. 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 dependents. See G.L. c. 62, § 3(B)(a)(8). If one spouse does not claim a personal exemption with his or her own employer, the other spouse is permitted to submit Form M-4, "Massachusetts Employee's Withholding Exemption Certificate," claiming a spousal exemption for Massachusetts withholding purposes.

2. Differences between state and federal deductions for same-sex joint filers.

a. 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 I.R.C. § 213, namely medical and dental expenses that exceed 7.5% of federal AGI. G.L. c. 62, § 3(B)(b)(4). See I.R.C. § 213. 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.

b. 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 I.R.C. § 162, namely expenses that exceed 2% of federal AGI. See G.L. c. 62, § 2(d)(1), (2). See also I.R.C. § 62(a). Massachusetts uses this as a starting point for calculating its own deduction. See G.L. c. 62, § 2(d)(1), (2). 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]

c. Student loan interest deduction. Massachusetts allows as an option the federal "interest on education loans" deduction. G.L. c. 62, § 2(d)(1). The federal deduction phases out based on modified AGI. I.R.C. § 62(a)(17), § 221. Same-sex joint filers must use the "Student Loan Interest Deduction" worksheet in the instructions to Federal Form 1040 [6] or 1040A [7] 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.

d. Passive activity losses from rental real estate. Massachusetts taxpayers are allowed to deduct passive activity losses to the extent they are allowed under I.R.C. § 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.

e. Line 12, Dependent care expenses. Massachusetts allows taxpayers a deduction for employment related expenses that exceeds the federal deduction on which it is based. G.L. c. 62, § 3(B)(a)(7). 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. G.L. 64 I, § 7(b). This exemption extends to same-sex spouses.

D. Employer obligations

1. Employee benefits.

a. General rule.

Because federal law does not recognize same-sex marriage, the taxability of employee benefits will differ for federal and state tax purposes in some cases. Certain benefits that are tax-exempt when extended to opposite sex spouses and the children of opposite sex spouses will be taxable federally when they are provided for same-sex spouses and their children, unless the same-sex spouse or the children qualify as dependents under I.R.C. § 152. [9] See, e.g., 1 USCS § 7 (2004), I.R.C. §§ 105, 106, 117, 125, 132. For Massachusetts tax purposes, if an employee benefit is tax-exempt when extended to the opposite sex spouse of an employee, or to the children of the spouse, the benefit is tax-exempt when extended to a same-sex spouse or his or her children.

b. Specific examples of benefits that have different treatment under federal and state law.

(i) Employer provided health insurance and other benefits, under I.R.C. § 106.

Certain employer-provided benefits that extend to spouses, such as health insurance benefits, are excluded from gross income federally. I.R.C. § 106. However, the fair market value of benefits provided to same-sex spouses that do not qualify as dependents under I.R.C. § 152 is included in gross income and is taxable federally to the spouse who receives the benefit from his or her employer. I.R.C. § 61(a)(1), Treas. Reg. § 1.61-21(a)(4), (b)(1). The fair market value of such benefits is excluded from gross income for Massachusetts purposes.

(ii) Cafeteria plans under I.R.C. § 125.

Employees are often allowed a variety of benefits under I.R.C. § 125, known as cafeteria plans. In general, employee contributions to these plans are tax-exempt. I.R.C. § 125(a). A common benefit allows employees to pay a portion of their health insurance coverage on a pre-tax basis. If the benefit extends to same-sex spouses that do not qualify as dependents under I.R.C. § 152, however, the employee contribution attributable to the spouse is taxable for federal purposes. This employee payment is excluded from gross income for Massachusetts purposes.

(iii) Qualified tuition reduction.

Federal gross income does not include the value of qualified tuition reduction offered employees and their spouses by undergraduate educational institutions. I.R.C. § 117(d). The value of this reduction must be added to gross income federally when extended to domestic partners. See I.R.C. §§ 117(d), 132(h). For Massachusetts purposes, the value of the reduction is excluded from gross income when the benefit is extended to same-sex spouses.

2. Employer withholding issues.

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. 830 CMR 62B.2.1(3)(a). The value of spousal benefits that are tax-exempt for opposite-sex spouses under federal law are also tax-exempt for same-sex spouses under Massachusetts law, and are not subject to withholding for state income tax purposes. This rule applies both to employer-provided benefits and to tax-exempt employee contributions attributable to a same-sex spouse or the children of a same-sex spouse. Employers should report the reduced Massachusetts income figure on the wage statement the employer furnishes the employee by January 31. [10] See 830 CMR 62B.2.1(5)(d). This requirement supersedes in part the general rules with respect to withholding on fringe benefits found in 830 CMR 62B.2.1(11).

E. Estate Tax Issues

Massachusetts imposes a tax on the transfer of the estates of individuals who, at the time of death, were residents of the Commonwealth, or were non-residents who owned real property situated in the Commonwealth or tangible personal property having an actual situs in the Commonwealth. The tax is a so-called "sponge tax" and is computed using the amount of the credit for state death taxes allowable to a decedent's estate as computed under I.R.C. § 2011, as in effect on December 31, 2000.

The estate of a single taxpayer may be subject to estate tax in Massachusetts if the value of the decedent's gross estate exceeds $850,000 for a death occurring in 2004. The gross estate includes all property in which the decedent had an interest. For any jointly owned property, the full value of the jointly owned property is included in the estate of the first-to-die joint tenant unless the surviving joint owner can prove monetary contribution to the acquisition of the jointly owned property. Joint property owned by a husband and wife is not subject to this contribution test. Instead, fifty percent of the value of the jointly owned property is included in the estate of the first-to-die spouse.

Since the federal Defense of Marriage Act prevents recognition of same-sex marriages, the contribution test will apply to jointly held property for federal, but not state, purposes. As a result, computation of the proper amount Massachusetts estate tax due will require preparing a pro-forma federal estate return as if the same-sex marriage were federally recognized.

F. Gifts

Section 2513 of the Code allows a gift made by one spouse to be considered as made one-half by the donor and one-half by the spouse for gift tax purposes. Massachusetts does not have a gift tax, but this section can affect certain related estate tax provisions, such as the filing threshold. Spouses in a same-sex marriage who elect to have a gift of one spouse considered as made one-half by each spouse for calculating their Massachusetts estate tax obligation must file a pro forma federal gift tax return (either Form 709 or Form 709-A) in accordance with I.R.C. § 6075(b). Taxpayers should mail the form to the following address:

Massachusetts Department of Revenue
Attn: Estate Tax Unit/Gift Tax Section
200 Arlington Street, Room 4300
Chelsea, MA 02150-2312

/s/Alan LeBovidge

Alan LeBovidge,
Commissioner of Revenue


July 7, 2004
TIR 04-17

Table of Contents

[1] This TIR discusses only federal and Massachusetts differences that affect Massachusetts income tax calculations, or an employer's withholding responsibilities. There may be other benefits of federal law, tax and otherwise, that are granted to spouses but will be denied same-sex spouses. Individual federal agencies are the proper authorities to give guidance on matters that do not affect Massachusetts taxation.

[2] Certain married people who live apart from their spouse may be able to use the head of household status. See I.R.S. Publication 501, "Exemptions, Standard Deduction, and Filing Information." If allowed federally, this status is allowed for Massachusetts purposes. G.L. c. 62, § 3(A)(b).

[3] Currently Form 1040 (2003), Schedule A, Lines 1 - 4.

[4] Currently Form 1040 (2003), Schedule A, Lines 20-22.

[5] Currently Form 1 (2003), Schedule Y, Line 1.

[6] Currently Form 1040 (2003), Line 25.

[7] Currently Form 1040A (2003), Line 18.

[8] For special rules that apply to real estate professionals, see TIR 98-15 IV.H, I.R.C. § 469(c)(7).

[9] Note that the benefits described in this technical information release are generally not taxable under federal law when extended to dependents under I.R.C. § 152. A domestic partner or his or her children may qualify as dependent if he or she: (1) receives more than half of his or her support from the taxpayer, and (2) has the home of the taxpayer as his or her principal place of abode and is a member of the taxpayer's household during the entire taxable year of the taxpayer. I.R.C. § 152(a)(9). The individual is only considered a part of the taxpayer's household if the relationship does not violate local law. I.R.C. § 152(b)(5). The I.R.S. has allowed an employer to rely on an affidavit from an employee stating that a domestic partner qualifies as a dependent under I.R.C. § 152(a)(9) and 152(b)(5). See Priv. Rul. 200339001 (June 13, 2003).

[10] Currently federal Form W-2, box 16, "State wages, tips, etc."

Referenced Sources:

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