Post-Windsor Notes x 3: NC Taxes, Retirement Benefits, and Social Security

It is not breaking news that North Carolina seems to be making a point of not recognizing marriages between same-sex partners.  It also is not breaking news that there are other states that are recognizing these marriages, and there are some conflicts between the laws of the states, between Federal law and the laws of the states, and even in the body of the Federal rules themselves.  A few important implications that apply in North Carolina—

Act One:  I earlier told readers that in the wake of the Windsor decision (133 S.Ct. 2675), the Internal Revenue Service has determined that the U.S. tax code will regard as married any same-sex couple whose marriage was validly entered into under the laws of the jurisdiction wherein it was celebrated, regardless of the treatment of the couple’s state of residence.  (Rev. Ruling 2013-17, 2013-18)  This means, among many other things, that a same-sex couple residing in North Carolina that is lawfully married in the eyes of the state where the marriage occurred must file their Federal tax return using either the “married filing jointly” or “married filing separately” status.  This is so even though NC does not recognize the marriage.  (In the new lingo—because we didn’t have enough lingo already— North Carolina is a ‘non-recognition state’ because it does not recognize same-sex marriages validly entered under the laws of another jurisdiction.)

This raises the problem of how to handle the NC tax return, because the NC return begins with numbers from the Federal return.  North Carolina is not only a non-recognition state, but Amendment One would seem to preclude NC DNR from accepting tax returns from same-sex couples that elected the status “married filing jointly” or “married filing separately”.  Something of a conundrum, yes?

Enter Directive DR-13-1.  The Directive advises that North Carolina indeed will not accept the married status on the Federal return as a starting point.  Instead, same-sex couples must prepare “pro forma” Federal returns as if they were not married, and then use this as the basis for the preparation and calculation of the North Carolina income tax return.  (Essentially filing the NC return as if they were not married.)  For those of you counting, this means that same-sex married couples residing in North Carolina must prepare their Federal returns twice, once as married to comply with Federal law and then again as unmarried to comply with North Carolina law in order to figure their NC taxes.  Nothing in that could give rise to a lawsuit…Equal Protection, Due Process, liberty interests, hmm…

Act Two:  The Department of Labor has announced in Technical Release 2013-04 that the definitions of “spouse” and “marriage” under ERISA and its attendant regulations “will be read to refer” to same-sex individuals legally married, even if they live in a non-recognition state.  This means that a lawfully married same-sex couple in North Carolina is to be treated as married for the purposes of Employer ERISA plans in NC even if the plans contain a choice-of-law provision designating North Carolina (or, for that matter, any non-recognition state).  Remember that ERISA rules pre-empt any North Carolina state law to the contrary.  Among other implications, this means that the ERISA requirement that a spouse is entitled to survivorship benefits in the absence of a written waiver includes same-sex spouses in North Carolina.

However, in Facts Sheet 28F the Department of Labor promulgated the rule that qualification for leave under the Family and Medical Leave Act is based upon the laws of the state where the individual resides.  So same-sex couples in North Carolina are not eligible for FMLA treatment as a married couple.

Act Three:  The Social Security Administration treats same-sex married couples residing in recognition states as married for purposes of Social Security benefits.  The SSA is still making up the rules for same-sex married couples living in non-recognition states (such as North Carolina) in the wake of Windsor.  It is our advice that same-sex spouses residing in North Carolina should apply for benefits regardless of the present uncertainty, since benefits are awarded based upon date of application.  Remember that if denied, applicants must file a Request for Reconsideration within 60 days of the denial to preserve the claim.