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On August 29, 2013, the Internal Revenue Service issued Revenue Ruling 2013-17, under which same-sex couples will be treated as married for all federal tax purposes, including income and gift and estate taxes, if their marriage was legally entered into, regardless of where they reside, even if they reside in a state that does not recognize same-sex marriage. This was one of the primary issues left unanswered by the U.S. Supreme Court in its decision in United States v. Windsor two months ago. (For a description of the Windsor decision, please see the article linked at http://www.fordharrison.com/9530).
Since virtually all same-sex marriages will have been entered into in jurisdictions that permit such marriages – either in or outside the United States – under the Ruling they should all be recognized for purposes of all federal tax provisions where marriage is a factor, including filing status, dependency exemptions, computing standard deduction, making contributions to an IRA, and claiming the earned income credit or child tax credit. In addition, couples will be treated as married for purposes of fringe benefit and employee benefit plan provisions that are governed by the Internal Revenue Code, e.g., tax-free status of employer-provided health coverage, spousal survivor benefits under retirement plans, etc. The ruling does not apply, however, to domestic partnerships, civil unions, or other relationships that may be recognized under state law, and individuals in those relationships continue to be treated as unmarried.
The IRS will begin applying Revenue Ruling 2013-17 on September 16, 2013, but taxpayers – both employees and employers – may elect to rely on the terms of the Revenue Ruling prior to that date and for earlier periods. Married same-sex couples therefore must file their 2013 federal income tax returns, as well as 2012 returns that are originally filed on or after September 16, 2013, using a "married" filing status, and they may, but are not required to, choose to file original or amended returns as "married" for one or more earlier tax years, provided that those years are still open under the statute of limitations. Income tax refund claims are made by filing Form 1040X, Amended U.S. Individual Income Tax Return. Generally, the statute of limitations for filing a refund claim is three years from the date the return being amended 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. (For some taxpayers, the statute of limitations may still be open for 2009 or even for earlier years.)
In addition to filing amended income tax returns, individuals' ability to rely on the Revenue Ruling retroactively is limited to filing claims for credit or refund of overpayments of income or employment taxes resulting from certain specific employer-provided benefits that are excludable from income when provided to a spouse; i.e., employer-provided health coverage, qualified tuition reductions, employer-provided meals and lodging, dependent care assistance programs, and fringe benefits excludable from income under section 132 of the Internal Revenue Code. The Revenue Ruling specifically provides that the retroactive authority permits individuals who both made pre-tax payments for health coverage under a cafeteria plan and made after-tax payments for coverage of a same-sex spouse under their employer's group health plan to treat the after-tax payments, on an amended return, as having been made on a pre-tax basis. This would result in the exclusion of those payment amounts from the employee's income and, presumably, would generate an income tax refund. This treatment is preferable to merely allowing an itemized deduction for the payment of health insurance premium for the same-sex spouse.
The IRS intends to issue "streamlined" procedures that can be used by employers who wish to file refund claims for payroll taxes paid on previously-taxed health insurance and fringe benefits that they provided to employees' same-sex spouses. Further guidance will also be issued addressing cafeteria plans as well as how qualified retirement plans and other tax-favored arrangements should treat same-sex spouses for periods prior to the effective date of the Revenue Ruling.
DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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