On August 29, 2013, the Internal Revenue Service (“IRS”) issued Revenue Ruling 2013-17 (the “Revenue Ruling”) providing guidance on the effect of the United States Supreme Court’s (the “Supreme Court”) decision in United States v. Windsor, 570 U.S. _____, 133 S. Ct. 26754 (2013). In Windsor , the Supreme Court struck down the portion of the Defense of Marriage Act (“DOMA”) defining “marriage” as exclusively the union between a man and a woman and “spouse” as a person who is married to someone of the opposite sex.
Revenue Ruling 2013-17 provides much anticipated answers as to how the Windsor decisions affects tax administration. For Federal tax purposes, the terms “spouse,” “husband and wife,” “husband,” and “wife” now include an individual married to a person of the same-sex and the term “marriage” includes a marriage between individuals of the same-sex, as long as the individuals are lawfully married under any domestic or foreign law which authorizes the marriage of two individuals of the same-sex, even if they are now domiciled in a state that does not recognize the validity of same-sex marriage. For example, a same-sex couple married in New York, but now residing in New Jersey, will be considered married for Federal tax purposes. However, the terms do not include individuals who have entered into a registered domestic partnership, civil union, or other similar form of relationship that is not denominated as a marriage under domestic or foreign law.
The Revenue Ruling has broad implications for individuals and employers. For example, individuals can file amended Forms1040 for years in which the statute of limitations is still open (generally three years from the date the return was filed or two years from the date the tax was paid) and file claims for refunds on the amount of taxes paid that the individual would not have paid had his or her same-sex spouse been legally recognized for Federal tax purposes. In the employment realm, this would include imputed income to an employee for the value of coverage provided to the employee’s same-sex spouse, as well as the amount of health coverage purchased under a cafeteria plan on an after-tax basis (plus the amount of any excess social security taxes and Medicare taxes paid as a result) for a same-sex spouse under an employer’s health plan.
Similarly, for all years in which the statute of limitations is still open, an employer may claim refunds for any excess social security and Medicare taxes paid that the employer would not have paid had same-sex spouses been legally recognized. The IRS plans to issue guidance in the future regarding the special administrative procedure that an employer must follow in order to file claims for refunds.
Furthermore, qualified retirement plans (e.g. §401(k) plans and pension plans) must comply with the Revenue Ruling as of September 16, 2013. This means that a plan must treat a same-sex spouse as a spouse for purposes of satisfying the federal tax laws relating to qualified retirement plans, including the consent requirements for distributions, death benefits, and qualified domestic relations orders. Although no plan amendments are required at this time, employers should review their plan operations and adjust their procedures to comply with the Revenue Ruling. The IRS intends to issue further guidance on the effect of qualified retirement plans, including the timing of any required plan amendments and corrections relating to plan operations prior to the date the guidance is issued. Please check back for any updates.