On January 1, 2013, the definition of marriage in Maryland will be expanded to include same-sex couples. The Comptroller of Maryland’s office has confirmed that all surviving spouses will be exempt from inheritance tax, regardless of the spouses’ respective genders. However, the change in the definition of marriage in Maryland will not affect the state income or estate tax rules, which define marriage according to the federal Defense of Marriage Act (“DOMA”). As a result, Maryland estate tax will apply to a bequest to a same-sex spouse, even though inheritance tax will not.
Tax changes to the Maryland Code will only happen if the Maryland legislature chooses to act. As the law now reads, same-sex married couples will be taxed on their income as if they are unmarried individuals. They cannot file a joint tax return, health care premiums paid by one spouse are considered income to the other spouse, and any unequal payment of living expenses might even be considered a gift to the spouse who contributes less money. However, the ability to file as individuals means that the spouses do not have to worry about the “Marriage Penalty” where more tax is due as a married couple than as individual filers.
This year, Supreme Court granted certiorari in Windsor v. United States, a case regarding the constitutionality of DOMA. If the Court agrees with the Second Circuit in Windsor that DOMA is unconstitutional, all married couples in Maryland would be subject to the same income, gift and estate tax rules.
If it is decided that DOMA is constitutional, the Maryland legislature would have to act to correct the inequality in the state law regarding married couples. Any changes at the state level would not affect Federal tax returns, and same-sex married spouses cold potentially have to fill out a mock joint Federal return to determine their income tax responsibilities under a Maryland system that treats all marriages the same. The couple would have to file separate Federal income tax returns.
With regard to income, estate and gift taxes, Maryland law does not treat all married couples equally. The Law Office of Jane Frankel Sims will continue to monitor developments in this area at the state and federal level.