The IRS issued initial guidance on August 29, 2013, specifying that same-sex married couples will be treated the same as opposite-sex married couples for all federal tax purposes, if they were legally married in states that recognized same-sex marriage. This applies whether or not a same-sex couple currently lives in a state or jurisdiction that recognizes same-sex marriage.
The IRS ruling will be applied prospectively beginning September 16, 2013, but individuals and employers may follow procedures to retroactively change the tax treatment (of benefits provided, tax status, etc.) for prior years. The ruling implements federal tax aspects of the June 26 Supreme Court decision in Windsor v US, which invalidated Section 3 of the 1996 Defense of Marriage Act (DOMA).
The IRS guidance includes Revenue Ruling 2013-17, two FAQs, and an IRS News Release.
- Rev. Rul. 2013-17
- Answers to Frequently Asked Questions for Individuals of the Same Sex Who Are Married Under State Law
- Answers to Frequently Asked Questions for Registered Domestic Partners and Individuals in Civil Unions
- IRS News Release IR-2013-72
What the Guidance Applies to
The IRS guidance applies to income and gift and estate taxes, and it includes tax issues such as filing status, claiming personal and dependency exemptions, taking the standard deduction, employee benefits, contributing to an IRA and claiming the earned income tax credit or child tax credit.
Any same-sex marriage legally entered into in one of the 50 states, the District of Columbia, a U.S. territory or a foreign country will be covered by the Revenue Ruling. However, the Ruling does not apply to registered domestic partnerships, civil unions or similar formal relationships recognized under state law. One of the FAQs does address tax issues for registered domestic partners and individuals in civil unions. It specifies that “these individuals are not considered as married or spouses for federal tax law.”
Ramifications for Individuals
Filing status. Legally-married same-sex couples generally must file their 2013 federal income tax return using either the married filing jointly or married filing separately filing status. Taxpayers who were in valid same-sex marriages prior to 2013 may, but are not required to, file original or amended returns for one or more of those prior years and elect to be treated as married for federal tax purposes for those prior tax years that are still open under the statute of limitations. The IRS guidance says this will usually be tax returns for tax years 2010, 2011 and 2012, although some taxpayers may have special circumstances that allow them to file refund claims for earlier years.
Refund pertaining to employer-provided same-sex spouse health coverage. Employees who covered their same-sex spouses under an employer’s group health plan may claim a refund of taxes they paid for such coverage that would not have been incurred for coverage for an opposite-sex spouse. This applies for those prior tax years that are still open under the statute of limitations. Such employees may have paid additional income taxes for two reasons:
- The value of health insurance coverage the employer paid for the same-sex spouse, and
- Amounts the employee was required to pay on an after-tax basis for same-sex spouse coverage, that could have been paid on a pre-tax basis (through a cafeteria plan) for opposite-sex spouse coverage.
The above information is at Q/As 10 & 11 of the FAQs for Same-Sex Spouses. The IRS guidance includes links to information (on IRS.gov) on filing amended returns, such as Tax Topic 308, Amended Returns; Publication 555, Community Property; Form 1040X for income tax refunds, and Form 843 for gift or estate tax refunds.
Ramifications for Employers
Recognizing same-sex marriages. Employers must recognize same-sex marriages that were valid in the state in which they were performed, whether or not the couple currently lives in a state that recognizes same-sex marriages or whether the employer is located in a state that recognizes same-sex marriages. It appears that employers are not required to recognize same-sex marriages until September 16, 2013, but are certainly allowed to do so before September 16th.
Refunds of income taxes withheld. Employers who already do offer health insurance coverage to same-sex spouses should have been withholding federal income taxes on amounts the employer paid toward such coverage. Additionally, employee contributions for such coverage were made on an after-tax basis. Employers may now make adjustments for overwithheld income tax in the current year if the employer repays or reimburses the employee for the overwithheld tax before the end of the 2013. However, employers may not claim refunds of overwithheld income taxes for prior years; only employees may file for such refunds (as specified above). This is explained in Q/A 13 of the FAQs.
Refunds of social security and Medicare taxes. If the period of limitations for filing a claim for refund is open, the employer also may claim a refund of, or make an adjustment for, any excess social security taxes and Medicare taxes paid in prior years on the taxable health benefits that were provided to same-sex spouses of employees. Q/A 12 directs employers to the Instructions for Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund. Treasury and IRS will issue streamlined administrative procedure for employers who wish to file claims for refunds or make adjustments.
Qualified retirement plans. Treasury and IRS also intend to issue further guidance on how qualified retirement plans and other tax-favored arrangements should treat same-sex spouses for periods before the effective date of this Revenue Ruling.
When the New Guidance Applies
The IRS will begin applying the terms of Revenue Ruling 2013-17 on Sept. 16, 2013, but taxpayers who wish to rely on the terms of the Revenue Ruling for earlier periods may choose to do so, as long as the statute of limitations for the earlier period has not expired.