On June 26, 2015, the U.S. Supreme Court issued a landmark decision in Obergefell v. Hodges that overturned state laws prohibiting same-sex marriage by a vote of 5-4. This means same-sex marriage is legal nationwide – in every state, county, village, and town – and has tax implications.
The Court held that the Fourteenth Amendment – the Equal Protection Clause – of the U.S. Constitution requires all states to license same-sex marriage and to recognize same-sex marriages performed out-of-state.
This overturned a federal appeals court ruling which had upheld a ban on same-sex marriages in four states: Kentucky, Michigan, Ohio, and Tennessee. At the time the decision was announced, there were still 13 states that did not recognize same-sex marriage. Of those 13, there were three that had no state income tax: South Dakota, Tennessee, and Texas.
The federal appeals court ruling had state tax implications regarding health insurance benefits. Employers in 10 of the states not recognizing same-sex marriage with an income tax had to treat benefits provided to same-sex spouses of employees and their dependent children as imputed income for state income tax and withholding purposes.
The U.S. Supreme Court ruling now aligns federal and state tax treatment. There will be no imputed income for federal income tax or state income tax. The American Payroll Association will monitor if any specific tax and withholding guidance will arise from the states now recognizing same-sex marriage.