In Internal Revenue Service (IRS) Revenue Ruling 2013-17, the U.S. Department of the Treasury and the IRS today ruled that legally married same-sex couples will be treated as married for federal tax purposes. Importantly, the ruling applies regardless of whether the couple lives in a jurisdiction that does not recognize same-sex marriage. In other words, the Treasury Department and IRS have adopted a “state of celebration” rule rather than a “state of residence” rule. Click here for IRS answers to some frequently asked questions.
As a result, it will be possible for same-sex couples to be what we call “federally-recognized same-sex spouses” even if they are not treated as married in the state in which they currently reside. That situation in fact, could become extremely common if same-sex couples travel to a jurisdiction solely to get married and obtain federal tax recognition of their marriage. (See the Obergefell case, discussed in “Two Federal Courts Recognize Same-Sex Spousal Rights for Residents of States Not Permitting Same-Sex Marriage” as one recent example.)
This situation will require employers in all states – not just the 13 states (and the District of Columbia) that currently permit same-sex marriage – to prepare for same-sex couples to request spousal benefits under the employer’s various benefit programs, particularly those programs where preferential spousal treatment is required by federal law (e.g., spousal protection under qualified retirement plans, special enrollment and COBRA rights under health and welfare plans, etc.) The IRS intends to issue further guidance on the retroactive implications of this position.
Additionally, this new guidance will allow same-sex spouses to claim refunds for open tax years for income and employment taxes they paid on imputed income on the value of health coverage. Similarly, there is a procedure for employers to obtain employment tax refunds based on coverage provided to employees’ same-sex spouses.
Finally, note that the IRS guidance does not apply to registered domestic partners, civil unions or other similar relationships recognized under state law but that are not denominated as marriage under that state’s law.