IRS Issues Same-Sex Marriage Guidance

Providing "certainty, benefits and protections" under federal law for same-sex married couples, the Treasury Department and the IRS announced that couples married in jurisdictions that recognize their unions will be treated as married for all federal tax purposes.

The tax agency added the ruling applies regardless whether or not a couple lives in ajurisdiction that recognizes their marriage. (IRS Revenue Ruling 2013-17)

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 federal tax provisions in which 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.

The ruling "assures legally married same-sex couples that they can move freely throughout the country knowing that their federal filing status will not change," said Treasury Secretary Jacob J. Lew.

The move came after the Social Security Administration (SSA), U.S. Defense and Labor Departments, and other federal agencies had already updated their same-sex marriage policies to reflect that the Supreme Court's overturning part of the Defense of Marriage Act (DOMA) on June 26.

That ruling invalidated DOMA's definition of marriage for federal benefits purposes as only between a man and a woman (United States v. Windsor). As a result, same sex spouses whose marriages are recognized at the federal level must change their tax filing status from unmarried to married. That may affect their marginal tax rates, as well as their eligibility under several tax rules and the treatment of certain forms of employee compensation.

IRS Elaborates on Ruling

In the August 29 ruling, the IRS also stated:

  • 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 ruling. 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.
  • 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.

The IRS said it intends to issue streamlined procedures for employers that wish to file refund claims for payroll taxes paid on previously taxed health insurance and fringe benefits provided to same-sex spouses.

The tax agency also intends 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 ruling.

If you have questions about your situation and the new IRS ruling, consult with your tax adviser.

SSA Update Details

The SSA said that it is now processing some retirement claims for couples in same-sex marriages and paying benefits if they are due. In addition, the SSA has urged individuals who believe they may be eligible for benefits to apply as soon as possible to protect themselves from losing them.

Acting Commissioner of Social Security Carolyn W. Colvin said the agency will put into effect additional policy and processing instructions, noting that it must work through legal issues to ensure that its policies are "legally sound and clear."

Under the SSA's changes, all claims filed on or after the date of this Supreme Court decision, or that were pending final determination at that time, are subject to the so-called "Windsor instructions." Under these instructions, claims can be filed when the holder of a Social Security Number:

  • Was married in a state that permits same-sex marriage, and
  • Resides in a state that recognizes same-sex marriage at the time of application or while the claim is pending a final determination.

Claims have been put on hold in several situations, however. For example, it may happen if a couple initially entered a same-sex civil union and the state subsequently converts same-sex civil unions to marriages. The fate of these claims remains unclear.

Three specific times and places that factor into SSA decisions on benefits claims:

  • Where the couple married;
  • Where they resided when a claim is filed for spousal benefits, and
  • Where they resided while a claim was pending a final determination.

These three factors are possibly the most confusing elements when it comes to updating federal regulations.

Other Agencies Weigh in on Same-Sex Marriages

The SSA move is the latest in a series of federal changes in the wake of the Windsor decision, including changes made by these federal agencies:

1. Department of Labor (DOL): The agency updated the Family and Medical Leave Act (FMLA) to define spouse as "a husband or wife as defined or recognized under state law for purposes of marriage in the state where the employee resides, including 'common law' marriage and same-sex marriage."
As a result, a qualified employee in a same-sex marriage who was married and resides in a state that recognizes same-sex marriages is entitled to as many as 12 weeks of leave in a 12-month period to care for a seriously ill spouse or for activities associated with a military spouse's deployment, and as many as 26 weeks of caregiver leave for a military spouse who is seriously injured or ill.
Covered employers in states that allow same-sex marriage, and the District of Columbia, should revise policies and procedures to conform to the DOL's new guidance.
However, some legal experts believe the department doesn't have to make FMLA spousal leave available to a same-sex spouse who resides in a state that doesn't recognize same-sex marriage. Employers in those states may extend equivalent FMLA spousal leave benefits to same-sex spouses if they wish, however.
2. Department of Defense: Secretary of Defense Chuck Hagel recently stated that the department will make spousal and family benefits available to all spouses, regardless of sexual orientation, no later than September 3. That means healthcare and allowances for housing and family separation will be granted to same-sex married military and civilian couples. Same-sex spouses can claim the benefits retroactively, starting with the date of the Windsor decision.
In addition, service members who are stationed in jurisdictions where same-sex marriage is not legal will be granted leave to travel to a jurisdiction where they can marry.
3. Office of Personnel Management: This agency no longer prohibits federal employees in same-sex marriages from collecting survivor benefits on civil service annuities. Now same-sex couples have two years from the date of theWindsor decision to do so. Newly retiring employees may make those elections through the regular retirement process.
The spouses and children of both active and retired employees in same-sex marriages are now covered under several benefits programs in addition to health insurance. While coverage is automatic, employees and retirees who missed the August deadline to make certain enrollment changes, such as switching from individual to family coverage for health insurance, will have to wait for the annual benefits open season that starts in November.
4. Department of Homeland Security: On its website, the department states that it looks to the law of where the marriage took place in determining whether it is valid for immigration law purposes.
5. Department of State: The Bureau of Consular Affairs states on its website that same-sex spouses may qualify for an immigrant or non-immigrant visa provided their marriage is valid in the jurisdiction (U.S. state or foreign country) where it took place.
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