Question: Does the enactment of Hawaii’s Marriage Equality Act provide any tax advantages for same-sex couples?

Answer: Effective Dec. 2, the Hawaii Marriage Equality Act recognizes marriages between same-sex couples who marry in Hawaii or in any other jurisdiction recognizing same-sex marriage. The Hawaii act, coupled with the August 2013 ruling by the U.S. Department of the Treasury and the Internal Revenue Service allowing legally married same-sex couples to be treated as married for federal tax purposes, means that married same-sex couples are considered married for all tax purposes, including income tax, estate and gift tax and generation-skipping tax. Same-sex married couples can now benefit from the same tax advantages as opposite-sex married couples, including filing income tax returns with married filing status, utilizing gift-splitting and electing portability of the estate tax exemption, which allows a decedent’s unused exemption to be transferred to his or her surviving spouse.

Q: Are there any other advantages?

A: A significant tax advantage is the ability to transfer assets to a same-sex spouse tax-free. Previously, gifts to a same-sex spouse were subject to the annual gift limits ($14,000 in 2014) with gifts in excess of the annual limit requiring a gift tax return. Same-sex married couples were also not able to use the unlimited marital deduction for assets left to a U.S. citizen spouse. As seen in the recent Supreme Court case United States v. Windsor, when a decedent left her estate to her same-sex spouse in 2009, her spouse was not allowed to claim a marital deduction, which would have reduced the estate tax. These limitations are removed with the enactment of the Hawaii Marriage Equality Act.

Q: How does Hawaii’s Marriage Equality Act affect the way same-sex couples in Hawaii file their federal income tax returns?

A: Before enactment, married same-sex couples could only file separate federal tax returns with single filing status, and any children would be claimed as dependents by one of the spouses. If the couple had tax-filing requirements in a state recognizing same-sex marriage, they would create but not file a joint federal tax return for the purpose of computing joint income, then file the state tax return jointly. Under the Hawaii Marriage Equality Act, same-sex couples married by Dec. 31, 2013, are able to file their 2013 federal income tax returns with married filing jointly or married filing separately filing status. If a couple married prior to 2013 and have not yet filed their prior year tax returns, they generally must file the prior year returns using married filing jointly or married filing separately filing status.

Q: Can same-sex couples in Hawaii amend either their state or federal returns for previous years to reflect their new married status?

A: Married same-sex couples may (but are not required to) amend their tax returns to claim married status for prior years still open under the statute of limitations, which is generally three years after a return is due or filed, whichever is later. Accordingly, if filing with married status would have resulted in reduced income tax in a prior year, couples may amend their 2010, 2011 or 2012 tax returns and file a refund claim. We recommend consulting a CPA or tax professional to determine whether an amendment should be filed. 

Q: How does the recognition of same-sex marriages in Hawaii affect the tax treatment of employer-provided health insurance?

A: If an employer provided health coverage for an employee’s same-sex spouse and reported the value of the coverage as income to the employee, the employee can amend his or her federal return for tax years still open under the statute of limitations to exclude that income. The employer can claim a refund for the Social Security and Medicare taxes paid on the benefits for tax years still open under the statute of limitations.

Q: What if the tax return instructions only refer to terms like "husband and wife" but don’t address same-sex married couples or civil-union couples?

A: Under the Hawaii Marriage Equality Act, gender-specific terms are interpreted to include spouses of both genders and should be construed in a gender-neutral manner. Any provision in Hawaii’s income tax law that applies to "husband and wife" would also apply to same-sex spouses and civil-union partners.