On August 29, 2013, the IRS issued Revenue Ruling 2013-17 ("Rev. Rul. 2013-17"), which provides that same-sex couples who enter into marriages in jurisdictions that recognize such marriages will be treated as married for federal tax purposes, regardless of whether the couple lives in a jurisdiction that recognizes same-sex marriage.1 Recognizing our increasingly mobile society, the IRS stated that "it was important to have a uniform rule of marriage recognition that could be applied with certainty by the IRS and taxpayers alike for all Federal tax purposes."
As discussed in Client Alert 2013-198, the U.S. Supreme Court issued a landmark decision regarding same-sex marriage June 26, 2013 (U.S. v. Windsor or "Windsor"), striking down section 3 of the Defense of Marriage Act ("DOMA") as unconstitutional because it violates the principles of equal protection. Section 3 of DOMA previously preempted state law and defined "marriage" for purposes of all federal statutes, regulations, rulings, and interpretations as "a legal union between one man and one woman as husband and wife," and "spouse" as "a person of the opposite sex who is a husband or a wife." However, Windsor did not address important practical issues regarding how same-sex marriages would be recognized at the federal level or for employee benefit purposes.
Rev. Rul. 2013-17 clarifies, at least for federal tax purposes, that if individuals enter into a same-sex marriage in a jurisdiction that permits such marriages, then such individuals will be treated as married regardless of where the individuals live. This eliminates numerous administrative headaches for employers who may have employees who live in various jurisdictions or who move.
For employee benefit plan purposes, Rev. Rul. 2013-17 takes effect September 16, 2013, and is generally prospective, but permits the filing of amended or adjusted returns and retroactive claims for refunds or credit of employment tax and income tax in certain circumstances, provided the applicable statute of limitations period has not expired. Further guidance on the retroactive application of same-sex marriage recognition to employee benefits, employee benefit plans, and arrangements is to be provided.
Rev. Rul. 2013-17 answers many of the questions left unanswered in Windsor for purposes of employee benefit plans, including the following:
Federal Taxation of Benefits As a result of Windsor, employers should stop imputing income for same-sex spouses covered under an employer-sponsored health plan.
Tax-Qualified Retirement Plans Same-sex spouses must be treated as lawful spouses for purposes of maximum benefit limitations, spousal consent rules, rollovers, death benefits, minimum required distributions, availability of in-service hardship withdrawals, and assignment of benefits under qualified domestic relations orders.
Elections Under Cafeteria Plans If an employee made a pre-tax salary-reduction election for health coverage under an Internal Revenue Code section 125 cafeteria plan sponsored by an employer, and also elected to provide health coverage for a same-sex spouse on an after-tax basis, the employer may now treat the after-tax election as a pre-tax election and begin taking pre-tax salary reductions.
Domestic Partnerships and Civil Unions For federal tax purposes, the terms "spouse," "husband and wife," "husband," and "wife" do not include individuals (whether of the opposite sex or the same sex) who have entered into a registered domestic partnership, civil union, or other similar formal relationship recognized under state law that is not denominated as a "marriage" under the laws of that state. The term "marriage" also does not include such formal relationships.
What To Do
Employers should review their benefit plans and identify which provisions are affected and need to be updated. Summary plan descriptions and election forms also should be amended, where needed, and plan administration will have to be revised accordingly. Additional communications may need to be sent to employees and former employees (and, depending on guidance on retroactivity, to their same-sex surviving spouses) informing them of the changes to their benefit rights.
1. As of August 1, 2013, only 12 states (California, Connecticut, Delaware, Iowa, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, Vermont and Washington) and the District of Columbia issue marriage licenses to same-sex couples and recognize same-sex marriages entered into in other states. In addition, Minnesota issues marriage licenses to same-sex couples.