Tuesday, August 26, 2014

Hawaiian Civil Unions Will Be Same as Marriage for State Income Taxes

Originally Published on forbes.com on December 7th,2011
The Attorney General of Hawaii has issued an opinion on the income tax filing requirements of civil union partners for years beginning after December 31, 2011.  The AG ruled that civil union partners will be treated as if they were married:
 Benefits, protections, and responsibilities. Partners to a civil union lawfully entered into pursuant to this chapter shall have all the same rights, benefits, protections, and responsibilities under law, whether derived from statutes, administrative rules, court decisions, the common law, or any other source of civil law, as are granted to those who contract, obtain a license, and are solemnized pursuant to chapter 572. 
Effect of civil union. All provisions of the Internal Revenue Code referred to in this chapter that apply to a husband and wife, spouses, or person i in a legal marital relationship shall be deemed to apply in this chapter to partners in a civil union with the same force and effect as if they were “husband and wife”, “spouses”, or other terms that describe persons in a legal marital relationship.
Unlike the situation with New York, this is a good deal for civil union partners if you just consider the rate tables.  Hawaii uses the same rate table for married filing seprately as it does for single and the brackets for married filing jointly are twice as wide.  So a couple with widely separated incomes will come out ahead and it will be a wash for couples with roughly equal incomes.  I can construct scenarios where a couple would come out behind because of this.  A couple who used some of the clever ideas in my post “Just Because They Won’t Let You do it Does Not Make it a Good Idea” might have to adjust their Hawaii income from whatever their federal income was.  An example would be if Robin sold Terry property and recognized a loss.  I doubt that situations like that would be very common though.
The AG noted that DOMA has no relevance to the question.  It is interesting that it was a case in Hawaii (Baehr v. Lewin) that inspired the Defense of Marriage Act, since the concern was that other states would have to recognize Hawaiian same sex marriages under “full faith and credit”.  The Court’s decision was made moot by an amendment to Hawaii’s constitution to define marriage as only between a man and a woman.
Of course DOMA had a second prong, which declared that even marriages that are valid under state law would not be recognized for federal purposes.  That portion of DOMA (Section 3) has been declared unconstitutional in Gill v OPM.  That issue is still being litigated even though the Justice Department has thrown in the towel on it.  Even if DOMA is unconstitutional, I do not think that there would be a strong argument for Hawaii civil union partners to consider themselves married for federal income tax purposes.

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