Important facts about New York’s Marriage Eguality Law

Bohemia, NY

On July 24, 2011, New York State celebrated one of the largest advancements in civil rights in the last decade. Under the “Marriage Equality Law,” same sex couples have the freedom to marry legally in the state of New York: however, those married should be aware that the ramifications may be more far reaching than one would expect.

Spanning from income to spousal waivers, estate tax, and business structures, there are several major components of the new Law that should be considered. Some major points are discussed below:

Spousal Waivers: If your new spouse is not the beneficiary of your 401k or other retirement plan, they must sign a waiver.

Medical Coverage: Under the new Law for New York State purposes, the new spouse will qualify to be covered under family policies (the federal government which does not recognize the same sex marriage law and will consider coverage of the non-employee spouse to be imputed income to the employee spouse). Both spouses should review their current medical coverage to determine the most cost effective policies to retain. Pre-existing conditions and other limitations should be reviewed prior to making any changes. Employers should review their plans and decide if any changes are warranted.

Per NYS TSB-M-11(8):

Personal income Tax: Same-sex married couples must file their New York income tax returns using a married filing status (e.g., married filing jointly, married filing separately), even though they may have used a filing status of single or head of household on their federal returns. In addition, to compute their New York tax, they must recompute their federal income tax (e.g., their federal income, deductions, and credits) as if they were married for federal purposes.

For personal income tax purposes, the Act is effective for tax years ending on or after July 24, 2011. Same-sex married couples who are married as of December 31, 2011, will be considered married for the entire year. They must file their returns using a married filing status starting in tax year 2011. The Act is not retroactive. Therefore, a same sex married couple who was legally married in another state prior to July 24, 2011, is not married for New York tax purposes until July 24, 2011, and may not use a married filing status prior to tax year 2011.

High Earners: New York State taxes high income taxpayers at almost 9% and disallows many deductions. Care should be taken when deciding to file jointly or separately. Keep in mind, the IRS does not recognize same sex marriage; as such, joint returns or married filing separate returns will still be disallowed for federal tax purposes for same sex couples.

Estate Tax: The New York taxable estate of an individual in a marriage with a same-sex spouse must be computed in the same manner as if the deceased individual were married for federal estate tax purposes. Accordingly, the same deductions and elections allowed for different-sex spouses are allowed for same-sex spouses, whether or not a federal estate tax return is filed. For New York State estate tax purposes, the Act takes effect for the estates of descendents who died on or after July 24, 2011.

Separate Pro-Forma Federal Return Required: 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. If the estate of an individual who died while married to a same-sex spouse is required to file a federal estate tax return, both the pro forma federal return and the actual federal return filed must be attached to Form ET-706. A pro forma federal gift tax return (federal Form 709) must also be attached if same-sex spouses elect to have a gift of one spouse considered as made one-half by each spouse for purposes of calculating the New York State estate tax filing threshold.

Marital Deduction: The estate may claim a marital deduction equal to the deduction permitted for a surviving different-sex spouse under Internal Revenue Code (IRC) section 2056, as in effect on July 22, 1998, for New York State estate tax purposes. The estate may also make a qualified terminable interest property (Q-TIP) election. If the surviving spouse’s estate is subject to the New York estate tax in the future, the value of the Q-TIP property for which the New York election was made must be included in the surviving spouse’s New York gross estate.

Joint Property Values: One-half of the value of any qualified joint interest is includable in the gross estate of a same-sex spouse in the same manner as a different sex-spouse.

Gift Splitting: A gift made on or after July 24, 2011, by one spouse to a third party may be considered as made one-half by the donor and one-half by the donor’s same-sex spouse for New York State purposes, in the same manner as permitted by a different-sex spouse under IRC section 2513, as in effect on July 22, 1998. Although New York State does not currently have a gift tax, gift-splitting may affect whether the estate reaches the filing threshold for New York State estate tax purposes.

Beneficiaries: Under the new law, the same sex spouse will be next in line to inherit property where his or her spouse was the beneficiary. If you make your son or daughter who is in a same sex marriage a beneficiary or even owner of an insurance policy, and then your child dies, the policy or other assets in most cases will transfer to his spouse. This may not be as planned.

Other: Buy/sell agreements, deeds, prenuptial agreements, banking, and credit arrangements, even family gym memberships, are just a few of the additional areas that need to be reviewed to make sure all things are as planned.

Although same sex marriages will enjoy many of the legal and financial benefits of traditional marriages, it is important to understand that under Federal Law, same sex marriages are disregarded. This affects social security, taxes, and other federal programs.

The author is director of taxation, at [email protected].

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