Today, the Internal Revenue Service issued long-awaited guidance on the treatment of same-sex spouses for Federal tax purposes.  On June 26, 2013, the Supreme Court ruled in U.S. v. Windsor, 133 S.Ct. 2675 (2013), that Section 3 of the Defense of Marriage Act, which prohibited the IRS and other federal agencies from recognizing same-sex marriages, was unconstitutional.  However, questions remained as to which state law would apply to determine whether a same-sex couple was considered “married.”  Was a marriage determined by the state in which the marriage took place or the state in which the couple was domiciled?

In Notice 2013-17, the IRS finally answered this question and held that a couple’s married status is determined by the state in which the marriage took place, rather than the state in which the couple is domiciled.  Accordingly, any same-sex marriage legally entered into in a jurisdiction (whether a U.S. state or territory or a foreign country) will be treated as a valid marriage for Federal tax purposes even if the couple lives in a state in which same-sex marriage is not recognized. 

This ruling affects more than 200 Federal tax provisions and will directly impact employee benefit plan issues.  For example, health plan administrators will need to determine whether same-sex couples have been married in a state or other jurisdiction that recognizes the union in order to process pre-tax cafeteria plan elections for health coverage and to permit changes in elections under cafeteria plans as a result of a change in marital status.  Similarly, retirement plan administrators may need to know a same-sex couple’s marital status to calculate benefits and minimum distributions, determine spousal rights, and administer beneficiary designations.

This ruling is immediately effective, except that qualified retirement plans are not required to comply with the ruling until September 16, 2013.  The IRS is expected to issue additional guidance with respect to the applicability of this ruling on qualified retirement plans.

With open enrollment season around the corner for most employers, this is the time to notify your employees of this important change in the law so that they can be prepared to provide sufficient evidence of their marital status and, if desired, file a claim for refund of taxes for prior years. (Note, generally a taxpayer may file a claim for refund for 3 years from the date the return was file or two years from the date the tax was paid.)