Colorado to Issue Emergency Guidance on State Income Tax Filing Status for Same-Sex Couples

On August 29, 2013, the Internal Revenue Service (IRS) issued guidance about tax filing status for same-sex couples, who are legally married in a state or jurisdiction recognizing same-sex marriage, in spite of where the couple may live or work. The IRS rule requires same-sex married couples to file as “married” for federal tax purposes. However, Colorado has a constitutional amendment prohibiting same-sex marriage and a Civil Unions Act clearly distinguishing civil unions from marriage. This creates a conflict for federal and state benefits and tax reporting.

Colorado’s Department of Revenue (DOR) systems are tied to the federal system, and the DOR has found no reasonable or practical way to manage a Colorado state filing status that differs from the federal status. Recognizing this, the DOR and other state agencies are working on an emergency rule to reconcile this conflict for the 2013 tax-reporting year.

On November 29, 2013, DOR published a draft version of emergency regulations to clarify how same-sex couples are to file state income taxes. The draft says that same-sex couples must use the same filing status on their Colorado state income tax returns that they used on their federal income tax returns. Because Colorado uses federal taxable income as the starting point of its state income tax return, not using the same filing status would require the recalculation of taxable income and would impose significant difficulties in administering Colorado personal income tax.

MSEC will provide you with the rule when it is published. We recommend consulting with your tax advisor about tax filing questions related to your employees.