All Legal Same-Sex Marriages Will Be Recognized For Federal Tax Purposes; FAQs Address Benefits Issues

In Rev. Rul. 2013-17, the U.S. Department of the Treasury and the Internal Revenue Service have ruled that same-sex couples, legally married in jurisdictions that recognize their marriages, will be treated as married for federal tax purposes. The ruling applies regardless of whether the couple lives in a jurisdiction that recognizes same-sex marriage or a jurisdiction that does not recognize same-sex marriage. The IRS also issued frequently-asked-questions in conjunction with this ruling that address some employee benefits issues.

The ruling implements federal tax aspects of the Supreme Court’s decision on June 26. In that decision (Windsor), the Court struck down Section 3 of the Defense of Marriage Act (DOMA), which had provided that the definition of marriage applied only to the legal union of one man and one woman, and that the definition of spouse referred only to a person of the opposite sex who was a husband or wife.

Under the ruling, same-sex couples will be treated as married for all federal tax purposes, including income and gift and estate taxes. The ruling applies to all federal tax provisions where marriage is a factor, including 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 Rev. Rul. 2013-17. However, the ruling does not apply to registered domestic partnerships, civil unions, or similar formal relationships recognized under state law.

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. 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.

Generally, the statute of limitations for filing a refund claim is three years from the date the return was filed or two years from the date the tax was paid, whichever is later. As a result, refund claims can still be filed for tax years 2010, 2011, and 2012. Some taxpayers may have special circumstances, such as signing an agreement with the IRS to keep the statute of limitations open, that permit them to file refund claims for tax years 2009 and earlier.

Additionally, 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 as pre-tax and excludable from income.

Treasury and 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.

FAQs

The FAQs address how Rev. Rul. 2013-17 will apply to health coverage, cafeteria plans, Social Security, Medicare, and qualified retirement plans.

Health coverage. The FAQs explain that if an employer provided health coverage for an employee’s same-sex spouse and included the value of that coverage in the employee’s gross income, the employee can file an amended Form 1040 reflecting the employee’s status as a married individual to recover federal income tax paid on the value of the health coverage of the employee’s spouse. Generally, claims for refunds can be filed for three years from the date the return was filed or two years from the date the tax was paid, whichever is later.

Cafeteria plans. The FAQs also indicate that if an employer sponsored a cafeteria plan under which an employee elected to pay for health coverage for the employee on a pre-tax basis, and if the employee purchased coverage on an after-tax basis for the employee’s same-sex spouse under the employer’s health plan, the employee may claim a refund of income taxes paid on the premiums for the coverage of the employee’s spouse.

Social Security, Medicare. Employers may claim a refund for the Social Security and Medicare taxes paid in the situations described above. The requirements for filing a claim for refund or for making an adjustment for an overpayment of the employer and employee portions of Social Security and Medicare taxes can be found in the Instructions for Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund. A special administrative procedure for employers to file claims for refunds or make adjustments for excess taxes paid on same-sex spouse benefits will be provided in forthcoming guidance to be issued by the IRS in the near future, according to the FAQs.

Note, however, that employers cannot make claims for refunds of overwithheld income tax for prior years. Employers may make adjustments for income tax withholding that was overwithheld from an employee in the current year provided the employer has repaid or reimbursed the employee for the overwithheld income tax before the end of the calendar year.

Qualified retirement plans. The FAQs indicate that qualified retirement plans are required to comply with the following rules pursuant to Rev. Rul. 2013-17:

1. A qualified retirement plan must treat a same-sex spouse as a spouse for purposes of satisfying the federal tax laws relating to qualified retirement plans.

2. For purposes of satisfying the federal tax laws relating to qualified retirement plans, a qualified retirement plan must recognize a same-sex marriage that was validly entered into in a jurisdiction whose laws authorize the marriage, even if the married couple lives in a domestic or foreign jurisdiction that does not recognize the validity of same-sex marriages.

3. A person who is in a registered domestic partnership or civil union is not considered to be a spouse for purposes of applying the federal tax law requirements relating to qualified retirement plans, regardless of whether that person’s partner is of the opposite or same sex.

Qualified retirement plans must comply with these rules as of Sept. 16, 2013. Although Rev. Rul. 2013-17 allows taxpayers to file amended returns that relate to prior periods in reliance on the rules in Rev. Rul. 2013-17 with respect to many matters, this rule does not extend to matters relating to qualified retirement plans. The IRS has not yet provided guidance regarding the application of Windsor and these rules to qualified retirement plans with respect to periods before Sept. 16, 2013.

Future guidance. Treasury and the IRS intend to issue streamlined procedures for employers who wish to file refund claims for payroll taxes paid on previously-taxed health insurance and fringe benefits provided to same-sex spouses. Treasury and IRS also intend to issue further guidance on cafeteria plans and on how qualified retirement plans and other tax-favored arrangements should treat same-sex spouses for periods before the effective date of the Revenue Ruling. It is expected that future guidance will address the following, among other issues: (1) plan amendment requirements (including the timing of any required amendments); and (2) any necessary corrections relating to plan operations for periods before future guidance is issued. In addition, other agencies may provide guidance on other federal programs that they administer that are affected by the Code.

For more information, visit http://www.irs.gov/uac/Answers-to-Frequently-Asked-Questions-for-Same-Sex-Couples.

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