The Fourteenth Amendment requires a state to license a marriage between two people of the same sex and to recognize a marriage between two people of the same sex when their marriage was lawfully licensed and performed out-of-state, according to the Supreme Court. The Court held that “the right to marry is a fundamental right inherent in the liberty of the person, and under the Due Process and Equal Protection Clauses of the Fourteenth Amendment couples of the same-sex may not be deprived of that right and that liberty.” The decision extends the right to marry to the 14 states that did not allow or recognize same-sex marriages. In addition, the Court found that there was no lawful basis for a state to refuse to recognize a lawful same-sex marriage performed in another state on the ground of its same-sex character. Thus, this ruling effectively nullifies Section 2 of the Defense of Marriage Act (DOMA) (P.L. 104-199), which allowed states not to recognize same-sex marriages legally performed in other states.
In 2013, the Supreme Court struck down as unconstitutional, on equal protection grounds, Section 3 of DOMA, which statutorily defined marriage for purposes of federal law, including tax law, as a legal union between one man and one woman (E. Windsor, SCt, 2013-2 usts ¶50,400). As a result, the federal government had to recognize same-sex marriages performed in jurisdictions that allow them. In response to Windsor, the IRS adopted a general rule recognizing any marriage entered into in a state whose laws permitted same-sex marriages, even if the couple was domiciled in a state that did not recognize them (“state of celebration rule”).
The opinion, written by Justice Anthony Kennedy, and joined by Justices Breyer, Ginsburg, Kagan and Sotomayor, noted that, throughout history, the states have made marriage the basis for an expanding list of governmental rights, benefits and responsibilities, including taxation; inheritance and property rights; rules of intestate succession; spousal privilege in the law of evidence; hospital access; medical decision-making authority; adoption rights; survivors rights and benefits; birth and death certificates; professional ethics rules; campaign finance restrictions; workers’ compensation benefits; health insurance; and child custody, support, and visitation rules. The opinion stated that states contributed to the fundamental character of the marriage right by placing the institution at the center of the legal and social order and that there is no difference between same- and opposite-sex couples with respect to this principle. The Court found that, “by virtue of their exclusion from that institution, same-sex couples are denied the constellation of benefits that the states have linked to marriage.” Although each of the four dissenting justices issued separate opinions, they agreed that the decision on whether to allow same-sex marriage should have been left to voters, rather than the Court.
For federal tax purposes, legally married same-sex couples are recognized as married regardless of their state of residence. Thus, the practical tax effects of this decision are largely state-related. The ruling has the effect of rendering the “state of celebration rule” ineffective; all states must now recognize same-sex marriage regardless of where the couple was married or their state of domicile. The ruling does not affect a couple’s filing status for federal tax purposes, as the people who were married in a state recognizing same-sex marriage have been entitled to the federal tax benefits of marriage since Rev. Rul. 2013-17, IRB 2013-38, 201, which was issued in response to Windsor.
An issue that will arise in the wake of Obergefell is the refund or adjustment of income and Social Security taxes paid with respect to same sex benefits. The guidance provided by the IRS subsequent to Windsor may again prove instructive.
Under DOMA, wages and gross income for federal tax purposes included employment benefits provided to an employee’s same-sex spouse, even if the same benefits were excluded from wages and income when provided to an employee’s opposite sex spouse. Thus, employers withheld and paid employment taxes with respect to same-sex spouse benefits. Employers also may have withheld and paid employment taxes on amounts paid for services performed by a same-sex spouse, without applying the employment tax exceptions for certain remuneration paid to spouses. Following Windsor, the IRS provided special administrative procedures that were designed to enable employers to correct overpayments of employment taxes with respect to same-sex spouse benefits and remuneration paid to same-sex spouses (IRS Notice 2013-61, IRB 2013-42, 10-7-2013; Rev. Rul. 2013-17, IRB 2013-38, 201). The procedures were intended to simplify the normal process, under which employers must file a separate Form 941-X (Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund) for each calendar quarter for which a refund claim or adjustment is made.
Employers may not claim refunds for funds withheld. Claims for refunds of overwithheld income tax for prior years could not may not be made by employers. An employee could file for any refund of income tax due for prior years on Form 1040X. Employers could, however, make adjustments for income tax that was overwithheld from an employee in the current year, provided the employer repaid or reimbursed the employee for the overwithheld income tax before the end of the calendar year (IRS Answers to Frequently Asked Questions for Individuals of the Same Sex Who Are Married Under State Law (IRS FAQ), Q-13).
Employee claim for refund. An employee who was not reimbursed by an employer for Social Security and Medicare tax and did not authorize the employer to file a claim for refund of the tax could claim a refund (IRS FAQ, Q-21). IRS advised, however, that an employee should first seek a refund of the Social Security and Medicare taxes from the employer. However, if the employer indicated an intention not to file a claim or adjust the overpaid taxes, the employee could file a refund claim by submitting Form 843 (Claim for Refund and Request for Abatement).
Note: The IRS, in the wake of Obergefell, will, presumably, provide similar administrative procedures for requesting refunds of taxes paid with respect to same sex benefits. Employers could, alternatively continue to use the generally applicable procedures for correcting employment tax overpayments related to same-sex spouse benefits and remuneration.
The Social Security Administration (SSA) has also issued a release on the case. Since the Supreme Court’s decision in Windsor, the SSA has looked to the laws of the state of the number holder’s (NH’s) domicile to determine whether it can recognize the marriage. If the NH is alive, SSA looks to the NH’s domicile at the time of application or while the claim is pending a final determination. If the NH has died, SSA looks to the NH’s domicile at the time of his or her death.
Now, SSA is expected to change its approach to reflect the Supreme Court’s decision in Obergefell. As a result, more same-sex couples will be recognized as married for purposes of determining entitlement to social security benefits or eligible for supplemental security income (SSI) payments.
SSA reported that it will work closely with the Department of Justice (DOJ) to develop and implement policy and process instructions to implement the decision and will update its website accordingly. SSA also encouraged individuals who are a spouse, divorced spouse or surviving spouse of a same-sex marriage or non-marital, legal, same-sex relationship, to apply for benefits as it will preserve the filing date and will protect against loss of any potential benefits. (J. Obergefell v. R. Hodges, SCt.2015-1 USTC ¶50,357; SSA Press Release: Supreme Court Decision Regarding Same-Sex Marriage, July 9, 2015.)
For more information on this and other topics, consult the Visit our News Library.