Tax outcomes are dependent on underlying legal definitions, documentation, and administrative systems that continue to evolve at the state level. Although these developments do not change federal tax law, they can affect how CPAs determine filing approaches, document claims, and support clients.
Over the past decade, federal court decisions and legislation have clarified the tax treatment of same-sex couples. Rulings such as United States v. Windsor¹ and Obergefell v. Hodges,² along with the Respect for Marriage Act³, established a consistent federal framework for recognizing marriages.
Changes outside the Internal Revenue Code have practical implications for tax compliance.
Legislative changes, particularly at the state level, can influence how client information is recorded and verified, creating additional considerations in day-to-day tax compliance. Some examples are outlined below.
Gender identification on documents
Several states have introduced laws or policies that affect how gender markers, labels used on official records or forms to indicate a person’s gender identity, are recorded on identification documents for transgender individuals.
For example, some states have implemented laws requiring state-issued identification to reflect sex assigned at birth. This can result in previously issued driver’s licenses and/or birth certificates being invalidated.
Although gender is not a data element reported on an income tax return, differences across identification records can create inconsistences that affect identity verification during tax preparation. Some tax software platforms may request driver’s license information or other identify-verification inputs as part of fraud prevention processes; however, IRS e-filing validation primarily relies on matching taxpayer identifying information (e.g., name and Social Security number (SSN)) with Social Security Administration (SSA) records.Legal name changes
Gender marker changes are frequently linked to legal name changes. IRS e-file systems require an exact match of the taxpayer’s name and SSN against SSA records; discrepancies may result in reject codes, requiring correction before filing can be accepted. In these cases, the issue is not the person’s identity, but rather the integrity of the taxpayer’s identifying information.
CPAs can play an advisory role by helping confirm that any legal name changes have been processed through the SSA and reflected across payroll records, financial accounts, and tax filings.Health benefits and expense deductions
Legislative activity in several states has placed restrictions on certain gender-affirming medical treatments. These laws primarily regulate healthcare providers but may also influence access to care and how employer-sponsored health plans define coverage and eligible dependents.
From a tax standpoint, the treatment of employer-provided health benefits (e.g., IRC Secs.105 and 106) and medical expense deductions (IRC Sec. 213) remains governed by federal law. However, changes in benefit eligibility or plan design may affect how expenses are incurred, reimbursed, and substantiated, and these are areas where CPAs can provide helpful guidance.
Developments in state laws around family relationships, documentation, and dependency considerations
Beyond identity documentation, changes in state family law can also influence how relationships are recognized for tax purposes, particularly when it comes to claiming dependents.
Evolving definitions of family and parentage
Several states have updated statutes related to parentage, particularly in cases involving assisted reproduction, surrogacy, and LGBTQ+ adoptions. These updates shape how legal parent-child relationships are established and recognized.Implications for claiming dependents
While federal tax rules for claiming dependents are governed by IRC criteria (e.g., qualifying child or qualifying relative tests), eligibility for certain tax benefits (such as the Child Tax Credit or Dependent Care Credit) depends on both federal requirements and the existence of a legally recognized relationship, which may be established under applicable state laws (e.g., birth certificates, court adoption decrees).Ongoing considerations in marriage recognition
In addition to state-level developments, legal activity related to marriage recognition continues to evolve.
A recent petition in Davis v. Ermold sought to revisit same-sex marriage recognition; however, the Court declined to hear the case, leaving existing precedent unchanged. Although this outcome does not affect current protections for same-sex spouses, it underscores the importance of monitoring legal developments that may affect the broader legal framework surrounding marriage recognition, even though current federal tax treatment of same-sex spouses remains unchanged.Filing status considerations
Federal tax law recognizes same-sex marriages for filing status purposes (married filing jointly or separately), regardless of state of residence. However, CPAs should remain aware of how state-level differences may affect state income tax filings or administrative processes.Taking a holistic approach to compliance
Maintaining compliance requires a broader view of considerations, such as the alignment of clients’ legal documentation, identity records, benefit elections, and family structure with the positions reflected in the returns. Although federal tax law in this area remains stable, the broader legal and administrative landscape continues to evolve.
CPAs who remain attentive to these developments are better positioned to identify risks, ensure proper documentation, and provide comprehensive, forward-looking advice to their clients.
About the expert
Crystal Allen, MSA, CPA, CDFM is managing member of A Total Solution CPA & Consulting Services, an Indianapolis-based firm that supports individuals, governments, not-for-profits, and for-profit businesses through its accounting and tax advisory services. With more than 20 years of experience in assurance, tax, accounting, and business advisory services, Crystal provides strategic guidance that helps clients strengthen financial operations, maintain compliance, and achieve their organizational goals. In addition, Crystal regularly contributes to the advancement of federal and state/local government accounting policy and procedures through her work on the Financial Management Standards Board for the Association of Government Accountants. Crystal’s expertise and passion extend to community advocacy; she has served on the Audit Committee for the City of Indianapolis and has supported several not-for-profit organizations in Central Indiana through board membership and volunteerism. She also serves on the AICPA LGBTQ+ Initiatives Volunteer Committee. She is a proud mother of two with her wife, Judge Noell Allen.
About the LGBTQ+ Initiatives Committee
AICPA Diversity & Inclusion resources are designed to support or develop a work environment that is inclusive of people with different experiences and perspectives, fostering an accounting and finance profession that is reflective of communities in which they operate and is positioned to innovate to meet the demands of an evolving global economy.
The LGBTQ+ Initiatives Committee facilitates an environment for discussions and actions that encourage inclusive workplaces and representation of LGBTQ+ community members in the accounting profession. Visit the LGBTQ+ Initiatives Committee web page for more information.
Disclaimer
This article is for informational purposes only and does not constitute legal or tax advice. Laws, regulations, and guidance related to LGBTQ+ matters vary by jurisdiction and are subject to change. CPAs and advisors should consult with qualified legal counsel and consider applicable federal, state, and local requirements before providing advice to clients.
¹United States v. Windsor, 570 U.S. 744 (2013)² Obergefell v. Hodges, 576 U.S. 644 (2015)³ Pub. L. No. 117-228, 136 Stat 2305 (2022)