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29, 2013, the IRS issued guidance on the treatment of same-sex spouses for
federal tax and benefits purposes following the Supreme Court's June 26,
2013 holding in U.S. v. Windsor.
The Supreme Court in Windsor invalidated Section 3 of the 1996
Defense of Marriage Act (DOMA). Section 3 of DOMA had provided that
"the word 'marriage' means only a legal union between one man and one
woman as husband and wife, and the word 'spouse' refers only to a person of
the opposite-sex who is a husband or a wife." This provision had
the effect of nullifying a state's legalization of same-sex marriage for
all federal law purposes.
Based on the holding in Windsor, the IRS ruled in Revenue Ruling
2013-17 that same-sex couples who are legally married in any U.S. state,
the District of Columbia, a U.S. territory, or a foreign jurisdiction that
has legalized same-sex marriage will be treated as married for federal tax
law purposes, including the pre-tax treatment of a same-sex spouse's health
insurance coverage. This rule applies regardless of the couple's
current state of residence.
However, this IRS ruling has no direct effect on state income taxes, which
still must be assessed on a state-by-state law basis.
Revenue Ruling 2013-17 applies to all federal tax law provisions in which
marriage is a factor, including employee benefits, income tax filing
status, and claiming personal and dependency exemptions and the earned
income tax credit and child tax credit. However, the ruling does not
apply to registered domestic partnerships, civil unions or similar formal
same-sex relationships recognized under state law that are not marriages
under state law.
Impact on Health Benefits
Those employees who purchase health insurance coverage for their same-sex
spouse through their employer may pay the cost of such coverage on a
pre-tax basis and exclude the amount of the coverage from income for
federal income tax purposes. Similarly, employers may exclude from
income the cost of health insurance coverage for a same-sex spouse that is
paid for by the employer. Same-sex spouses and opposite-sex spouses
are now treated the same under these health insurance tax rules, so the
burden on plan administrators is significantly reduced.
Employers should remember, however, that states can continue to tax health
insurance differently for same-sex versus opposite-sex spouses and that the
laws of the particular state will need to be monitored in this regard.
Impact on Qualified Retirement Plans
In supplemental Q&As also issued on August 29, 2013, the IRS
reiterated its position that qualified retirement plans must treat a
same-sex spouse as a "spouse" under all of the federal tax rules
relating to qualified retirement plans.
In this regard, these Q&As require qualified retirement plans to comply
with this rule operationally as of September 16, 2013 (the date this ruling
will be published in the Federal Register). The IRS has promised
further guidance on when qualified retirement plans will need to be amended
to include this rule and to what extent this rule is to be applied
retroactively. Plan sponsors should be prepared to implement
additional changes once this guidance is published.
Retroactive Application and Refund Claims
Revenue Ruling 2013-17 establishes a general prospective effective date of
September 16, 2013. With respect to prior years, individuals
who were in same-sex marriages at the time may (but are not required) to
file amended returns choosing to be treated as married for all federal tax
law purposes for 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. We
anticipate that employers will receive requests from affected employees for
corrected Form W-2s relating to health benefit contributions for these
prior years so that they may file amended tax returns.
Employers may not file refund claims for overwithheld income tax
paid on same-sex spouse health benefits in prior tax years. Only the
individual employees can make these refund claims. However, employers
may make adjustments for overwithheld income taxes that were withheld from
an employee in the current year, provided the employer repays or
reimburses the employee for the overwithheld income tax before the end of
the current calendar year.
The IRS ruling is intended to bring uniformity to a workforce and treat
legally married same-sex spouses in the same manner as legally married
opposite-sex spouses for tax and benefits purposes. According to
Treasury Secretary Jacob J. Lew, it also "assures legally married
same-sex couples that they can move freely throughout the country knowing
that their federal filing status will not change."
and Benefits Group will continue to monitor regulatory guidance and legislative
developments that affect an employer's tax and benefit obligations to its
employees' same-sex spouses.