Treasury and IRS: All Legal Same-sex Marriages Will be Recognized for Federal Tax Purposes
On Aug. 29, 2013, the U.S. Department of the Treasury and the Internal Revenue Service (IRS)—in Revenue Ruling 2013-72, ruled that same-sex couples legally married in jurisdictions that recognizesame-sex marriage will be treated as married for federal tax purposes, regardless of the laws of the jurisdiction in which the couple resides. This much-anticipated ruling comes on the heels of the June 26, 2013, U.S. Supreme Court decision in U.S. v. Windsor, No. 12-307, that struck down section 3 of the Defense of Marriage Act (DOMA)—the section that deἀnes “marriage” as between only a man and a woman.
Under the ruling, any same-sex marriage legally entered into in any state, the District of Columbia (D.C.), a U.S. territory or a foreign country will be considered a marriage for federal tax purposes. This is known as the “state of celebration” rule. The ruling does not apply to registered domestic partners, civil unions or other similar relationships recognized under some states’ laws. Currently, 13 states and D.C. have legalized same-sex marriage, as have 15 other countries.
Importantly, under the ruling, a same-sex marriage will be treated as a marriage for all federal tax purposes where marriage is a factor. This includes employee beneἀts, tax filing status, claiming personal and dependency exemptions, taking the standard deduction, contributing to an IRA and claiming the earned income tax or child tax credit. This means that the tax advantages of coverage for employer-sponsored health insurance and other beneἀts is now available to a same-sex spouse on the same basis as opposite-sex spouses.
As for retroactive application, individuals who were in same-sex marriages may, but are not required to, file original or amended returns choosing to be treated as married for federal tax purposes for one or more prior tax years still open under the statute of limitations (SOL)—which is generally the later of three years from the date the return was filed or two years from the date the tax was paid. For employee beneἀts purposes, employees who purchased same-sex spouse health insurance coverage from their employers on an after-tax basis may treat the amounts paid for that coverage in past years as pre-tax and excludable from income. The ruling describes the procedures for filing an amended individual tax return.
For employers, the ruling announced that the agencies will issue streamlined procedures for employers that wish to ἀle refund claims for employment taxes paid on previously-taxed health insurance and fringe beneἀts provided to same-sex spouses—for prior tax years still open under the SOL. The ruling also clariἀes that further guidance is forthcoming on retroactive application of the ruling for cafeteria and retirement plans. As a result of the ruling, employers may immediately stop imputing federal tax relating to beneἀt coverage of an employee’s same-sex spouse. However, state taxes may still apply.
In connection with the ruling, the IRS also issued two sets of FAQs: One for individuals of the same sex who are married under state law and one for registered domestic partners and individuals in civil unions. The FAQs provide additional insight into the tax consequences associated with the ruling.