Frequently Asked Questions for Same-Sex Marriage

 

Q1. Can same-sex spouses who are legally married in a state that recognizes same-sex marriages file their North Carolina return as married filing jointly or married filing separately?

A1. No. North Carolina General Statute 51-1.2 provides that “Marriages, whether created by common law, contracted, or performed outside of North Carolina, between individuals of the same gender are not valid in North Carolina.” Although IRS Rev.Rul. 2013-17 allows same-sex spouses to file their federal income tax returns using the filing status of married filing jointly or married filing separately, the Department cannot follow the new definitions in Rev. Rul. 2013-17 because North Carolina does not recognize same-sex marriage as valid. Consequently, individuals who enter into a same-sex marriage in another state cannot file a North Carolina income tax return using the filing status of married filing jointly or married filing separately.

Q2. For North Carolina income tax purposes, can a taxpayer use the head of household filing status if the taxpayer’s only dependent is his or her same-sex spouse for federal purposes?

A2. No. Pursuant to N.C.G.S. 105-134.1(6) head of household is defined in section 2(b) of the Code. When taxpayers are considered unmarried for federal purposes, a taxpayer cannot file as head of household if the taxpayer’s only dependent is his or her same-sex partner for federal purposes. A person who is not related may be a dependent but not for purposes of determining head of household filing status.

Note: Effective for tax years beginning on or after January 1, 2014, a taxpayer may no longer claim a personal exemption for his or her self, spouse, children, or any other qualifying dependents.

Q3. If same-sex spouses have a child and file as married filing jointly for federal purposes, which parent may claim the child as a dependent for North Carolina purposes?

A3. If a child is a qualifying child under Code section 152(c) of both parents, either parent, but not both, may claim a personal exemption allowance for the qualifying child. If both parents claim a personal exemption allowance for the child on their income tax returns, the Department will treat the child as the qualifying child of the parent with whom the child resides for the longer period of time during the taxable year. If the child resides with each parent for the same amount of time during the taxable year, the Department will treat the child as the qualifying child of the parent with the higher adjusted gross income and the personal exemption allowance for the dependent child claimed on the other individual’s North Carolina income tax return will be disallowed.

An individual may be a qualifying child for federal purposes but not for North Carolina purposes. Any individual that meets the qualifying child relationship test for federal purposes as a step child, or descendent of a step child, will not qualify as a qualifying child for North Carolina purposes if the step child relationship is due to a same-sex marriage. The individual may qualify as a qualifying relative if all the tests are met for an individual to be your qualifying relative.

Note: Effective for tax years beginning on or after January 1, 2014, a taxpayer may no longer claim a personal exemption for his or her self, spouse, children, or any other qualifying dependents.

Q4. For federal purposes, same-sex spouses choose to file as married filing jointly and claim federal itemized deductions. For North Carolina, these individuals are not allowed to file as married filing jointly but must file as single or, if qualified, head of household or qualifying widow(er). For North Carolina purposes, can this same-sex partner claim North Carolina itemized deductions if his or her same-sex partner claims the North Carolina standard deduction?

A4. Yes. A same-sex partner may itemize or claim the standard deduction, regardless of whether his or her same-sex partner itemizes or claims the standard deduction. Although N.C.G.S. 105-134.6(a2) prohibits a taxpayer from itemizing deductions if the taxpayer or the taxpayer’s spouse claims the standard deduction, this provision does not apply to taxpayers who are considered unmarried for State purposes.

Note: Effective for tax years beginning on or after January 1, 2014, North Carolina’s itemized deductions are limited to (a) charitable contributions as allowed for federal purposes; (b) mortgage interest paid with respect to any qualified residence; and (c) real estate property taxes. The total amount deducted for mortgage interest and real estate property taxes combined may not exceed $20,000.

Q5. If same-sex spouses adopt a child together, can one or both of the individuals qualify for the North Carolina adoption credit?

A5. Yes. N.C.G.S. 105-151.32 provides that “an individual who is allowed a federal adoption tax credit under section 23 of the Code for the taxable year is allowed a credit against the tax imposed by this Part.” North Carolina continues to allow a percentage of the federal credit. The North Carolina General Assembly reduced the North Carolina credit from 50% to 30% of the federal credit for tax year 2013. Each individual may qualify to claim the adoption credit based on the amount of the qualified adoption expenses paid by that individual for the adoption. Both individuals may not claim a federal credit for the same qualified adoption expenses, and the sum of the federal credit taken by each individual may not exceed the total amount paid. If both partners paid qualified adoption expenses to adopt the same child, the total federal expenses and the maximum federal credit available for the adoption for the tax year 2013 is $12,970. The maximum North Carolina adoption credit available for the same adoption for tax year 2013 is $3,891 ($12,970 x 30%).

Note: This tax credit expires for tax years beginning on or after January 1, 2014.

Q6. If a taxpayer adopts the child of his or her same-sex spouse, may the taxpayer (“adopting parent”) claim the adoption credit for the qualifying adoption expenses he or she pays to adopt the child?

A6. Yes. The adopting parent may be eligible to claim an adoption credit. A taxpayer may not claim an adoption credit for the expenses of adopting the child of the taxpayer’s spouse (Code section 23). However, this limitation does not apply to adoptions by partners not considered spouses. Because North Carolina does not consider the parents as married, this credit is available to the adopting parent on the North Carolina individual income tax return even if the credit wasn’t claimed on the taxpayer’s federal return due to filing jointly.

Note: This tax credit expires for tax years beginning on or after January 1, 2014.

Q7. If an employer provided health coverage for an employee’s same-sex spouse and included the value of that coverage in the employee’s gross income, can the employee file an amended North Carolina income tax return reflecting the employee’s status as a married individual to recover State income taxes paid on the value of the health coverage of the employee’s spouse?

A7. No. Although the IRS provides that this individual may file an amended federal income tax return, this individual is not considered married for North Carolina purposes. Therefore, this individual may not file an amended State income tax return.

Q8. If an employer currently provides health coverage for an employee’s same-sex spouse and the value of that coverage is not included in the employee’s gross income, will there be an addition required to the employee’s federal taxable wages in determining North Carolina taxable wages?

A8. Yes. Because the value of coverage for the same-sex spouse is no longer included in federal taxable wages, an adjustment must be made to the federal taxable wages when preparing the federal pro forma return in determining taxable wages. This adjustment is made to include what would have previously been reported in taxable wages for federal purposes when the employee’s spouse was not recognized as the employee’s legal spouse. This additional amount of taxable wages should be included in the total State taxable wages on the wage and tax statement (W-2) issued by the employer. This addition is required because North Carolina does not recognize same-sex marriage and this addition results in the same taxable wages had the taxpayer not been considered married for federal purposes.

Q9. If an employer sponsored a cafeteria plan that allowed employees to pay premiums for health coverage on a pre-tax basis, can a participating employee file an amended North Carolina income tax return to recover State income taxes paid on premiums that the employee paid on an after-tax basis for the health coverage of the employee’s same-sex spouse?

A9. No. Although the IRS provides that this individual may file an amended federal income tax return, this individual is not considered married for North Carolina purposes. Therefore, this individual may not file an amended State income tax return.

Q10. How is the out of state tax credit determined in the case where same-sex spouses filed a joint return with another state and one or both of the spouses are entitled to a tax credit for taxes paid to another state on their North Carolina return?

A10. N.C.G.S. 105-151 provides relief from double taxation to North Carolina residents when income has also been taxed by another state. The out of state tax credit is the lesser of the computed credit or the net tax paid to the other state. To determine the net tax paid to another state, a pro forma out of state return must be completed using the same filing status as required for North Carolina tax purposes. Net tax paid to the other state cannot exceed the amount of taxes actually paid to the other state by the individual claiming the North Carolina tax credit. If the North Carolina return is filed electronically, a copy of the pro forma out of state return and the return actually filed with the other state, along with proof of payment of any additional tax due on the return filed with the other state, must be made available upon request by the Department. Otherwise, both returns and proof of payment, if applicable, should be attached to the North Carolina income tax return when claiming this tax credit.

Q11. If same-sex spouses have a child and file as married filing jointly for federal purposes, which parent may claim the credit for children for North Carolina purposes?

A11. N.C.G.S. 105-151.24 provides an individual who is allowed a federal child tax credit under section 24 of the Code for the taxable year and whose adjusted gross income (AGI), as calculated under the Code, is less than the threshold set for the taxpayer’s filing status is allowed a credit of $100 for each dependent child for whom the individual is allowed the federal credit. This tax credit was re-codified by the North Carolina General Assembly effective for tax years beginning on or after January 1, 2014 to N.C.G.S. 105-153.10. (HB 998, ss. 1.1.(a), 1.1.(e), S.L. 13-316.) Under the new law, the amount of the credit is $125, $100, or $0 per dependent child, depending on the taxpayer’s AGI and filing status.

The parent who is allowed the personal exemption allowance for the qualifying child is allowed this North Carolina tax credit if that taxpayer’s AGI does not exceed the threshold for that taxpayer’s North Carolina filing status. See A3 for information on which parent may claim the child as a dependent for North Carolina purposes.

Note: Effective for tax years beginning on or after January 1, 2014, a taxpayer may no longer claim a personal exemption for his or her self, spouse, children, or any other qualifying dependents. The credit for children may be claimed by the parent who would have been allowed the personal exemption allowance for the qualifying children under A3.

Q12. If same-sex spouses have a child and file as married filing jointly for federal purposes, which parent may claim the credit for child and dependent care expenses for North Carolina purposes?

A12. N.C.G.S. 105-151.11 provides a tax credit for child and dependent care expenses. The North Carolina tax credit is allowed to an individual who is allowed the federal child and dependent care credit. This federal tax credit is allowed for a portion of qualifying child or dependent care expenses paid for a dependent of the taxpayer who is a qualifying child of the taxpayer and has not attained the age of 13 or a dependent of the taxpayer who is a qualifying child or qualifying relative of the taxpayer and is physically or mentally incapable of caring for himself or herself and who has the same principal place of abode as the taxpayer for more than half of the year. The expenses must be paid for the purpose of allowing the taxpayer to be gainfully employed.

Because North Carolina does not recognize same-sex marriage and the filing status of these individuals is either single or, if qualified, head of household or qualifying widow(er), the individual who is allowed the personal exemption allowance for the dependent on the State return is eligible to claim this tax credit based on the amount of child and dependent care expenses paid by that individual.

Note: This tax credit expires for tax years beginning on or after January 1, 2014. In addition, effective for tax years beginning on or after January 1, 2014, a taxpayer may no longer claim a personal exemption for his or her self, spouse, children, or any other qualifying dependents.

Q13. If same-sex spouses claim the federal earned income tax credit (EITC), how is this credit computed for North Carolina income tax purposes?

A13. N.C.G.S. 105-151.31 provides a North Carolina tax credit to individuals based on a percentage of the earned income tax credit allowed on the federal return pursuant to section 32 of the Code. For tax year 2013, the percentage is reduced from 5% to 4.5% of the federal credit.

Under federal law, to be eligible to claim the credit, a taxpayer must have earned income with an adjusted gross income below a certain threshold, have a valid Social Security number, use a filing status other than married filing separately, be a U.S. citizen or resident alien, have no foreign income, and not have investment income in excess of $3,300 for tax year 2013.

Because North Carolina does not recognize same-sex marriage, each individual must compute this North Carolina credit based on a pro forma federal tax credit that would have been available had the taxpayers not filed their federal return as married filing jointly. The federal tax credit is determined based on the taxpayer’s earned income, adjusted gross income, and the number of qualifying children. Generally, the individual entitled to claim a child as a dependent would treat that dependent as a qualifying child for purposes of computing the EITC. Individuals with no qualifying children may qualify to claim this federal tax credit and therefore may be eligible to claim the North Carolina credit.

There may be cases where taxpayers who are considered married and file as married filing jointly for federal purposes have earned income and adjusted gross income that exceeds the thresholds based on the sum of both spouses’ incomes. In this case, they do not qualify to claim the tax credit for federal purposes. However, if the individual’s earned income and adjusted gross income do not exceed the thresholds when determined separately, the individual may qualify to claim the tax credit for North Carolina purposes.

Note: This tax credit expires for tax years beginning on or after January 1, 2014.

Q14. If same-sex spouses electronically file their 2013 federal income tax return as married filing jointly or married filing separately, do they have to file a paper return with North Carolina to file as single or, if qualified, as head of household or qualifying widow(er)?

A14. No. When these taxpayers file electronically, each individual taxpayer would then select to file the “State only” return for North Carolina purposes. The taxpayer will then be prompted to complete another federal return with the North Carolina filing status of single or, if qualified, head of household or qualifying widow(er) and this pro forma federal return would be transmitted with the State return when the taxpayer files the “State only” return with North Carolina.

Q15. How will this impact my North Carolina tax withheld?

A15. Pursuant to N.C.G.S. 105-163.5, every employee shall furnish his or her employer a signed withholding exemption certificate informing the employer of the exemptions the employee claims. If, on any day during the calendar year, the amount of withholding exemptions to which the employee is entitled is greater than the amount of withholding exemptions claimed, the employee may furnish the employer a new withholding exemption certificate stating the amount of withholding exemptions claimed. The Form NC-4 or Form NC-4EZ must be completed based on the taxpayer’s filing status of either single or, if qualified, head of household or qualifying widow(er).