IRS Announces Position on Same-Sex Marriages for Federal Tax Purposes

September 5, 2013, 8:31 PM

The Internal Revenue Service released new guidance regarding the tax status of same-sex marriages after the U.S. Supreme Courts recent decision striking down a portion of the Defense of Marriage Act, or DOMA, that limited spouses and marriages to opposite-sex couples for federal tax purposes.

In June, the Supreme Court struck down that provision of DOMA as unconstitutional when applied to same-sex couples who were married in states recognizing same-sex marriages. But it left unresolved what happened to those married couples if they moved to a state that didnt recognize same-sex marriages. The new IRS guidance answers that questions for federal taxincluding many employee benefitspurposes.

Under the new guidance, the IRS will recognize same-sex marriages for federal tax purposes where a valid marriage was entered into in a state that recognized same-sex marriage, regardless of where the couple now resides. For example, if a same-sex couple was legally married in Maryland, then moved to Virginia, that couple would still be deemed married for all federal tax purposes, even though Virginia does not recognize same-sex marriages. This new rules does not apply to domestic partnerships, civil unions, or any other similar status except legal marriages. It applies only to federal tax provisions, meaning it also will not change state tax rules or any other related issues governed by state law.

Aside from its impact on a massive number of tax code provisionsincluding the ability of same-sex couples to file joint tax returnsthe IRSs position also impacts many employee benefit plan provisions. For example, in states like Virginia that dont recognize same-sex marriage, employers who previously offered health insurance coverage to an employees same-sex spouse had to include the value of that coverage in the employees wages, subjecting it to income, withholding, and payroll taxes. Now, at least for couples validly married in jurisdictions recognizing same-sex marriage, employers will no longer have to add the value of coverage to the employees wages. Employees who paid additional taxes because of this arrangement may file amended returns seeking refunds in light of these changes. Notably, employers may also file amended returns seeking a refund of corresponding employer-paid payroll taxes. Similar rules apply to post-tax health insurance premiums for employees same-sex spouses who previously werent eligible to be covered with pre-tax premiums under the employers cafeteria plan. Individuals and employers have three years from the tax deadline to file amended returns for the relevant reporting forms, making it possible to seek a refund by April 15, 2014 for tax years 2010, 2011, and 2012.

Retirement plans will also need changes. Effective September 16, 2013, qualified retirement plans must treat same-sex spouses the same as opposite-sex spouses under qualified plan provisions, including spousal consent rules for beneficiary designations. The IRS anticipates issuing further guidance for retirement plan compliance with this new position, including plan amendments.

Please check back with us as the IRS continues to release guidance. --Robert Q. Johnson