IRS Issues Federal Guidance Regarding Tax Issues for Legal Same-Sex Marriages
By Laura Kerekes, Chief Knowledge Officer for ThinkHR Corporation
Following up with the promise to issue clarifying guidance after the Supreme Court overturned the Defense of Marriage Act on June 26, 2013, the U.S. Department of the Treasury and the Internal Revenue Service announced on August 29th that same-sex couples, legally married in jurisdictions that recognize their marriages, will be treated as married for federal tax purposes. This decision applies regardless of whether the couple lives in a jurisdiction that recognizes same-sex marriage or one that does not.
According to the announcement, same-sex couples will be treated as married for ALL federal tax purposes, including income, gift, and estate taxes. The ruling goes on to state that this applies to all federal tax provisions where marriage is a factor, including filing status, personal/dependent exemptions, and standard deductions, employee benefits, contributing to an IRA and claiming tax credits.
Any same-sex marriage legally entered into in one of the 50 states, Washington D.C., a U.S. territory or a foreign country will be covered by the ruling. Currently, there are 13 states, plus the District of Columbia, that allow legal same-sex marriages: California, Connecticut, Delaware, Iowa, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New York, Rhode Island, Vermont and Washington State.
This ruling does not apply to registered domestic partnerships, civil unions or any other similar formal relationships recognized under state laws.
The Treasury and the IRS will begin applying this ruling on September 16, 2013 but have said that “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)”.
What does this really mean?
Legally-married same-sex couples generally must file their 2013 FEDERAL income tax returns using either the “married filing jointly” or “married filing separately” filing status. State rules will govern state tax filings. Employers offering spousal benefits to legally married same-sex couples may stop calculating the imputed income for federal tax purposes.
The Impact for employers and what you can do:
- Unlike the August 9th Department of Labor ruling that employees in states that recognize same-sex marriage only must be provided FMLA leave to take care of their same-sex spouse with a serious health condition (the law of the state where the employee resides applies, not the law of the state where the employee works), the Treasury Department and the IRS have broadened the federal tax rules to include all states. This means that the address where the couple resides or location of the same-sex couple’s wedding does not matter as long as the marriage is legal. For FMLA purposes, a legally married same-sex couple residing in New Jersey but working in New York would not necessarily be eligible for FMLA but will be eligible for all federal tax benefits that are attributed to married couples, regardless of where they live or work.
- In one of the 37 states that do not recognize same-sex marriage, employees in legal same-sex marriages who previously filed federal and state tax returns as individuals will now have to file their federal returns as other married couples do, but may be required to file their state tax returns as individuals.
- For you as the business owner in one of those 37 states, this may mean that if you offer benefits to same-sex married couples you may still need to calculate the imputed income of those benefits for state tax purposes (but not for federal tax purposes).
- For you as the business owner in one of the 13 states or the District of Columbia that recognizes legal same-sex marriages, you may stop calculating the imputed income.
- Couples in legal same-sex marriages prior to this ruling may file original or amended returns as “married” for federal tax purposes. Generally, the statute of limitations for filing refund claims is three years from the date the return was filed or two years from the state the tax was paid, whichever is later.
- Employees interested in filing amended returns for refunds should consult with their tax advisors and use Form 1040X for income taxes, “Amended U.S. Individual Income Tax Return” (available at http://www.irs.gov/uac/Form-1040X,-Amended-U.S.-Individual-Income-Tax-Return) and Form 843 for refund claims for gift or estate taxes, “Claim for Refund and Request for Abatement” (available at http://www.irs.gov/uac/Form-843,-Claim-for-Refund-and-Request-for-Abatement).
We recommend that you review your benefits and other employment policies, procedures, and forms to ensure compliance with the updated guidance. ThinkHR will continue to monitor and report on developments in this area.
You can review the entire Revenue Ruling 2013-17 at http://www.irs.gov/pub/irs-drop/rr-13-17.pdf and the frequently asked questions at http://www.irs.gov/uac/Answers-to-Frequently-Asked-Questions-for-Same-Sex-Married-Couples for more information.