Now that Prop 8 has (essentially) been shot down, and DOMA found unconstitutional, all is right in the world for gay couples, right?

Eh…not so fast.

You see, there are 31 or so states out there who have what are known as ‘mini-DOMA’ acts on their books. About a dozen states recognize gay marriage, and a handful (such as Illinois) recognize civil unions, but not gay marriage.

So, you ask?

Well, that’s a great question..

So….if you happen to live, and earn all of your income in one state, it’s pretty straightforward. Here is a little chart that explains the various scenarios:

But….what about those couples who earn income in more than one state? Well….that’s where things get complicated.

For example, let’s take Adam and Steve (I thought of using other names, but I’d rather be provocative. Makes tax law much more interesting). Adam is from Boston, a state which recognizes gay marriage, but now lives in California with his spouse, Steve. Steve is originally from Arizona. Both have family back in their respective home states. Adam & Steve are consultants, and travel extensively in Arizona, Massachusetts, Illinois and California, earning W-2 income (to make it a bit simpler) in all states.

So far, so good? Great. Let’s talk about their return.

As the chart above shows, if all of their income were in California, this would be straightforward – they’d file Married Filing Jointly and be done.

But Illinois doesn’t recognize gay marriage; it recognizes civil unions only (as of now). Arizona doesn’t recognize gay marriage (it’s a mini-DOMA state, and it’s a community property state, like California. And Massachusetts recognizes gay marriage.

For FEDERAL purposes, Adam & Steve file Married Filing Jointly (MFJ). They also file MFJ for California, and Massachusetts. But for Illinois and Arizona, Adam & Steve would have to file as single – each reporting his own income and being taxed accordingly. For joint income, the two would have to split the income equally. This only gets more complex if the community property state has rules (similar to the old federal rule) that require each partner to pick up half of community income. Thus, Adam & Steve wind up being treated differently by different states.

This, of course, makes withholding a pain in the you-know-what for employers, as they will definitely have to track two different methods of withholding for gay couples. And gay couples will still have a difficult time planning (what do you do about community property rules in a state that doesn’t recognize gay marriage?) if their financial interests cross borders.

So while the LGBT community can celebrate a victory today, there are still a lot of hurdles to go.

(1) This assumes that you were not married in a state that recognizes gay marriage, then moved to one that doesn”t. For people who DO marry in a state that recognizes and then move to one that doesn’t, the issue is much more clouded, with some practitioners pointing to Article 2 of DOMA, and saying you’ll have to file as Single, while others say that you should still be able to file jointly. Stay tuned.