Same-Sex Marriage and Tax Implications

Posted by BAS - 04 September, 2013

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Last week, the U.S. Department of Treasury and the Internal Revenue Service issued a ruling widening the recognition of same-sex marriage for tax purposes. This ruling has implications for employers who may have to change payroll systems, notice processes, and benefit offerings to comply with the new rule.

Revenue Ruling 2013-17 provides that same-sex couples who are legally married in a jurisdiction that recognizes their marriage will be considered married for federal tax purposes. This is true even if the same-sex couple is residing in a jurisdiction that does not recognize same-sex marriage. The ruling follows the United States v. Windsor decision, which invalidated the federal Defense of Marriage Act requiring marriage to be between a man and a woman. The ruling does not expand marriage rights to other forms of same-sex unions such as civil unions or domestic partnerships, it only applies to couples who are legally married under state law.

The new ruling means that a same-sex married couple will be considered married for all federal tax purposes requiring marriage, such as tax-return filing status, dependency and deduction availability, and employee benefits. If an employer offers benefits to same-sex spouses but requires payment for that coverage on an after tax basis, this practice must cease (although it remains the practice for other non-marriage unions, such as domestic partnerships and civil union partners). Coverage for the same-sex spouse may be paid with pre-tax dollars. In addition, for tax year (2013 and going forward), same-sex spouses generally must file using a married filing separately or joint filing status.

The ruling is effective September 16, 2013. Employers who offered benefits to spouses of same-sex married couples, but required payment on an after-tax basis, may be able to file refund claims for Social Security and Medicare taxes paid on those benefits. The employee may be able to file a refund tax amounts paid on the benefits for the three years from the date the return was filed or two years from the date the tax was paid, whichever is later. The IRS says it will issue future guidance on reimbursements and how same-sex marriages should be treated for periods before September 16, 2013. Employers may wish to review their processes for offering benefits to same sex spouses, and look at domestic partner registration forms to see if any same-sex couples are married under a state’s laws. Payroll processes may have to be updated for employers who offer coverage to married employees with same-sex spouses.

Topics: HR & Benefits Compliance


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