• Valid Same-Sex Marriages Recognized for All Federal Tax Purposes Regardless of Domiciliary State Law
  • August 30, 2013 | Author: Harris T. Booker
  • Law Firm: Barley Snyder - Lancaster Office
  • In Revenue Ruling 2013-17, issued on August 29, 2013, the IRS ruled that same-sex couples who are legally married in a jurisdiction that authorizes such marriages will be treated as married for all federal tax purposes, without regard to the law concerning the legality of same-sex marriage in the couple’s domicile state. As an example, Pennsylvania not only prohibits same-sex marriages but also treats as void a same-sex marriage validly entered into elsewhere. As a consequence of this Revenue Ruling, a same-sex couple residing in Pennsylvania who were validly married elsewhere, whether that occurred in another state or a foreign country, are married for federal tax purposes notwithstanding their marital status under Pennsylvania law.

    The Revenue Ruling applies to all federal income and estate and gift tax provisions where marital status is a factor, including filing status, claiming exemptions, taking the standard deduction, claiming earned income and child tax credits, contributing to IRAs, and the tax treatment of employee benefits. The IRS will begin applying this Revenue Ruling on and after September 16, 2013. However, individuals’ tax liability for a past, but still “open,” tax year may be reduced as a result of now being able to claim married status and filing a refund claim for income, FICA, or estate and gift taxes overpaid in a prior open year. Employers with open tax years may also have an opportunity to recoup employer FICA taxes paid on employee compensation imputed to the employee for same-sex partner benefits, if that imputed compensation is now excludable because of the partner’s spousal status. Generally, a past tax year remains “open” for three years after the return for the year is filed or for two years after the tax for the year is paid, whichever date is later.

    This Revenue Ruling has obvious significance to individuals who are parties to same-sex marriages, but will also have a major and relatively immediate impact on employers and their employee benefit plans. For example, beginning no later than September 16, 2013, an employer’s tax qualified retirement plan must begin to treat an employee’s same-sex spouse as the employee’s “spouse” for spousal joint and survivor annuity purposes if the plan is a pension plan, and as a surviving spouse for death benefit purposes if the plan is a defined contribution plan. Also, any health care benefits provided to an employee’s same-sex spouse are now excludable from the employee’s income, just like opposite-sex spouses. Further, employee contributions toward the cost of benefits for a same-sex spouse will be treated as pre-tax contributions under cafeteria plans, just like opposite-sex spouses.

    These examples are not exhaustive. In the Revenue Ruling and in a series of accompanying Q&As, the IRS recognized this ruling’s significance to tax qualified retirement plans and other tax-favored benefits. The IRS has committed to issuing further guidance specific to benefit plan matters, including the ruling’s retroactive application and plan amendment requirements. The Revenue Ruling will also require employers to adjust their payroll procedures to account for their employees’ marital status under federal tax law, such as spousal health benefits, while treating the same employees as unmarried for state law purposes in jurisdictions like Pennsylvania.