The Internal Revenue Service has issued a ruling [Revenue Ruling 2013-72, August 29, 2013] announcing that same-sex couples legally married in a state that recognized the marriage will be treated as married for all federal income, gift and estate tax purposes.
The IRS ruling implements federal tax aspects of the recent U.S. Supreme Court decision in the case of Windsor v. United States. The Court’s majority opinion declared a key provision of the 1996 Defense of Marriage Act (“DOMA”) which defined “marriage” as “only a legal union between one man and one woman as husband and wife” to be unconstitutional.
Under the ruling, same-sex couples will be recognized as lawfully married for all federal tax purposes if the marriage was valid where it was celebrated (any state, the District of Columbia, a U.S. Territory or foreign country), regardless of where the married couple lives for tax filing purposes. The ruling applies to filing status, personal and dependency exemptions, the standard deduction, employee benefits, IRA contributions, the earned income tax credit and the child tax credit. The ruling applies only to marriage; it does not extend the same tax treatment to domestic partnerships, civil unions, or other similar legal relationships valid under state law.
For the 2013 tax year and thereafter, legally married same-sex couples generally must elect “married filing jointly” or “married filing separately” as their filing status for federal income tax purposes. The news may not be all good: in some cases married couples may find that their combined income taxes will be greater than when they were single taxpayers.
The ruling was made effective September 16, 2013; however, individuals in same-sex marriages before the effective date may, but are not required to, file original or amended tax returns to change their filing status for prior tax years still open under the statute of limitations. Generally, the applicable period for filing a claim for refund is the later of three years from the date the return was filed, or two years from the date the tax was paid. Thus, refund claims can still be filed for tax years 2010, 2011 and 2012. A Form 1040X, Amended U.S. Individual Income Tax Return must be filed to claim a refund of income tax. A Form 843, Claim for Refund and Request for Abatement, must be filed to make a claim for a refund of estate or gift tax.
Employers may amend previously filed employment tax and income tax returns to obtain refunds of taxes paid on health insurance and other fringe benefits provided to an employee’s same-sex spouse. The IRS is expected to provide streamlined procedures for filing refund claims for payroll taxes paid on previously taxed benefits provided to same-sex couples.
Employers and employees should also be aware that the Supreme Court’s decision in Windsor significantly impacts rights of same-sex spouses under employee benefit and employee retirement plans. The IRS will issue further guidance about how qualified retirement plans and other tax-favored retirement arrangements must comply with the new IRS ruling.