Effective July 24, 2011, New York State enacted the Marriage Equality Act (the “Act”), providing that all marriages, whether of same-sex or different-sex couples, will be treated equally under all New York State laws. On July 29, 2011, the New York State Department of Taxation and Finance issued initial taxpayer guidance to describe the effect of the Act on various tax laws. “The Marriage Equality Act,” TSB-M-11(8)C, 11(8)I, 11(7)M, 11(1) MCTMT, 11(1)R, & 11(12)S (N.Y.S. Dep’t of Taxation & Fin., July 29, 2011). The Department also announced it will be posting on its website additional guidance as it is developed.
For purposes of the New York personal income tax, same-sex married couples must file as married, even though they cannot file as married for federal tax purposes, and they must recompute their federal income tax 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, so for couples married as of December 31, 2011, their married filing status starts in tax year 2011. A same-sex couple legally married in another state prior to July 24, 2011, is not considered married for New York purposes until July 24, 2011, and 2011 is the first year such a couple may use the married filing status.
For purposes of withholding tax, the Department advises same-sex married employees that they may want to file a new Form IT-2104, Employee’s Withholding Allowance Certificate, since they will be filing their New York returns using a married status. This also means that New York employers will be required to stop withholding New York tax on the value of certain benefits, such as domestic partner health care coverage, if the value of those benefits would not be included in taxable wages when provided to a different-sex spouse.
For purposes of the estate tax, the New York taxable estate of a decedent in a same-sex marriage must be computed as if the decedent were married for federal estate tax purposes, and the surviving spouse is entitled to the same deductions and elections available to different-sex spouses. This means that the estate may claim a marital deduction equal to the deduction permitted under I.R.C. § 2056, as in effect on July 22, 1998, and the estate may also make a qualified terminable interest property (“Q-TIP”) election. One half of the value of any qualified joint interest in property is included in the gross estate of a same-sex spouse just as would be done with a differentsex spouse. A federal pro forma return must be filed with the New York estate tax return within nine months of the date of death, and if a federal estate tax return was actually required, both the pro forma return and the actual federal return must be provided.