North Carolina same-sex couples could end up doing taxes twice

North Carolina law doesn't recognize same sex marriage. So when gay couples file joint federal returns, they must complete a separate "pro forma" federal return in order to pay their North Carolina taxes.

Posted 9:20 p.m. Oct 23, 2013 — Updated 3:40 p.m. Oct 24, 2013

Mark Binker

RALEIGH, N.C. — Some same-sex couples living in North Carolina will have to do their federal taxes twice, creating one return for the U.S. government and another "pro-forma" return for the state.

The double helping of paperwork comes thanks to a conflict between how the IRS and the state Department of Revenue treat same-sex couples.

Following a U.S. Supreme Court ruling this summer, the IRS issued rules saying that same-sex couples married in states that legally recognize such unions should file jointly as most other married couples do.

But North Carolina has a state law on the books and a recently passed state constitutional amendment that forbid the state from recognizing same-sex marriages, regardless of where they were solemnized.

Q&A: North Carolina's marriage amendment

"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," the Department of Revenue said in a directive issued to taxpayers last week.

For some couples, the conflict between federal and North Carolina law will mean filling out their federal returns twice.

"It doesn't affect all same-gender couples," said Justin R. Ervin III, a Greensboro lawyer whose practice focuses on estate and tax planning.

Those who never formally married, or didn't marry in a state that recognized same sex unions, will still file separate federal returns. Those whom it does affect, Ervin said, will file a joint return on the federal level – their "real" federal return. For the state, each will file a "pro forma" individual return.

The situation in North Carolina flips what had been the case for same-sex couples in states that recognized their marriages before the Supreme Court rulings prompted a change in federal policy, Ervin said. In those states, such as Massachusetts, those couples have had to file separate federal returns and then a pro-forma state return to file jointly.

While same-sex couples will almost certainly spend more time filling out paperwork – or paying an accountant to do it for them – it's less clear whether they will pay more or less in taxes as a result of the changes.

"That's a highly individualized inquiry," Ervin said. "Whenever questions start to go into that realm, I send people to their accountants."

In North Carolina, there could be consequences for employers as well.

"The employer of an employee in a same-sex marriage may have questions on how to calculate the proper amount to withhold from the employee's compensation for state income tax purposes and how to treat benefits coverage for the employee's spouse for state tax purposes," lawyer Deborah B. Andrews wrote for WRAL TechWire.

It's unclear how many North Carolina tax filers will be affected by the guidance on same-sex marriage, but the process for filing a pro-forma return is not new.

"The pro-forma return process is an existing methodology that has been used by state income taxpayers in the past," said Department of Revenue spokesman Trevor Johnson.

It was created, he said, to deal with married couples who file joint federal returns but who may not both have income taxable in North Carolina. The state created that option, Johnson said, because "the State has no jurisdiction to require a person who is not a resident and does not have income from North Carolina sources to file a North Carolina return."

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