Gay couples in Indiana could pay more for tax filings

Conflicting state and federal policies will likely cost Indiana same-sex couples more when they file their tax returns this year, experts say.

The Internal Revenue Service decided to recognize gay marriages after the U.S. Supreme Court struck down sections of the Defense of Marriage Act. But about half of the nation's states have not adopted the federal tax policy, and a measure introduced in the General Assembly last week is on track to ensure Indiana does not, either.

Department of Revenue spokesman Bob Dittmer said staff analyses show that keeping the current policy shouldn't cost the state or individuals more on actual taxes, but lawyers and accountants say the price tag for filing likely will be higher.

The split means Indiana same-sex couples who choose to take advantage of the new federal policy will have to prepare five tax returns this year: one jointly for federal taxes, two each to file separately for the state and two mock federal returns with the split assets, said John McGowan, who heads the lesbian, gay, bisexual and transgender practice at Northern Trust. The mock federal returns would be the basis for the separate state returns.

Each one can take time, and money, to prepare.

"That's one of the true burdens that same-sex couples face when they're living in a non-recognition state," McGowan said. "There are tangible costs associated with that."

Gay-marriage legalization advocates say about 11,000 same-sex couples live in Indiana, based on 2010 Census numbers.

Indianapolis resident Tim Orient said he expects to pay nearly twice the previous fees for his tax returns this year now that his marriage to his husband is recognized by the federal government. He said he spent about $400 on tax preparations for himself last year.

"We're very frustrated with all this," Orient said.

Splitting incomes for the state and joining them for the federal filings also could mean same-sex couples in states that don't recognize their marriages will be flagged for audits because each spouse will only report a fraction of their combined income to the state, said Anthony Infanti, a University of Pittsburgh law professor who specializes in tax issues for same-sex couples.

Dittmer said there are no concerns about Indiana same-sex couples being audited because of the new federal policy.

Indiana was on track to match IRS tax policies this year until Sen. Brandt Hershman, R-Buck Creek, made a late-session change that would prevent the state from adopting the same-sex marriage provision. Indiana does not recognize gay marriage.

Legislative negotiations on the bill — which would maintain current policy prohibiting same-sex married couples from filing joint state tax returns — are underway. Final approval from the General Assembly and Gov. Mike Pence is needed before the bill can become law.

Hershman says the changes would prevent conflicts between the state ban and tax code, which have led to lawsuits in other states.

"Frankly, that is a different issue for a different bill," Hershman said. "It would not be appropriate … for us to adopt that change that would be in direct conflict with state law."

Missouri is recognizing same-sex marriages for tax purposes only, even though the state constitution bans the practice. Gov. Jay Nixon's executive order spurred lawsuits both by those hoping to legalize gay marriage in the state and those who say the measure is unconstitutional.

A Missouri House Republican last week filed a resolution to impeach Nixon for the order.

The rapid pace of changes to gay-marriage policies also means software companies have to monitor district courts and legislation closely, and Dittmer said there currently isn't a clear way to track whether same-sex couples are not filing jointly already in Indiana.

"The systems have not been able to keep up with the pace of these changes," McGowan said. "We're going to be operating on the honor system for some period of time before the system is enhanced to help enforce legislation and policies."

States with different same-sex marriage tax laws likely will unearth discrepancies and other complications with federal policy with time, Infanti said.