What is retroactivity?
Retroactivity is the ability to go backwards. Whether it applies to your taxes, benefits, or even legal issues, retroactivity can allow you to update past information.
What effect does retroactivity have on the Supreme Court’s DOMA decision?
This matter is still undetermined – it is likely that retroactivity will be allowed for open periods. This would allow same-sex couples to file amended tax returns for the prior two years (based on the three-year statute of limitations). By filing married-filing-joint same-sex couples may be able to receive refunds they could not take previously. It is believed there are over 1,000 federal laws that would be impacted by the DOMA decision. Many of these would significantly impact same-sex couples if retroactivity is allowed. The following are some other areas where retroactivity may provide relief:
- Social security benefits – these benefits are typically retroactive up to six months. Whether you were divorced or your spouse died, you may be entitled to retroactive benefits. Social security benefits can be claimed back to the prior six months. To begin claiming benefits contact your local social security office.
- FICA taxes – if you are a business owner, you may be able to get refunds for FICA taxes for prior open years for the taxes paid on married same-sex couples.
- Estate taxes – Same-sex married couples were currently not allowed the substantial deduction for inherited property. Retroactivity would allow those taxes to be substantially alleviated by filing amended returns.
Unfortunately, the retroactivity issues have not been determined. You will need to pay close attention in the near future to see how the issues are being decided. It is expected that retroactivity will be allowed in many situations with some protection for businesses that would be hurt by a substantial increase in their burden. If you believe you are entitled to refunds or benefits, keep an eye out for the coming decisions. It may help to begin the process early to maximize your potential benefit such as with the social security benefits mentioned above.
While retroactivity may yield substantial benefits for married same-sex couples, there may be a downside when it comes to taxes. Married same-sex couples will now face the marriage penalty.
Coming soon… how the marriage penalty may increase the tax burden for your tax situation.
See also “How does the Supreme Court’s DOMA decision affect my taxes? Part I”: http://dh-cpa.com/396
Davis & Hodgdon Associates has been assisting businesses and individuals in the Burlington Vermont Metro area for more than 20 years. If you have any questions or concerns please feel free to call 802.878.1963 or email [email protected].
Alyssa McBride, Associate Accountant
Davis & Hodgdon Associates CPAs