On August 29, 2013, the U.S. Department of the Treasury (the "Treasury") and the IRS issued a revenue ruling that states that legally married same-sex couples will be treated as married for federal tax purposes, regardless of whether the state in which the couple resides recognizes same-sex marriages. This ruling goes into effect on September 16, 2013, and clarifies one of the biggest questions that remained after the landmark June 26, 2013, decision in United States v. Windsor, in which the U.S. Supreme Court invalidated Section 3 of the Defense of Marriage Act ("DOMA").
Federal Recognition of Same-Sex Marriages Regardless of State of Domicile
Section 3 of DOMA provided that, for the purpose of any federal law, "marriage" was defined as a legal union between one man and one woman, and "spouse" referred only to a person of the opposite sex who was a husband or wife. Following the Windsor decision, it was clear that same-sex couples married and residing in one of the 13 states (plus the District of Columbia) that recognized same-sex marriage would be treated as married for the purpose of federal laws. However, it remained unanswered whether same-sex couples that were legally married in one of the 13 jurisdictions that recognized same-sex marriage, but were residing in a state that did not recognize same-sex marriage, would receive federal recognition of their marriage. This was due to the then-applicable IRS policy which provided that an individual could file his or her federal income tax return as "married filing jointly" or "married filling separate" only if the individual was considered to be legally married in his or her state of domicile.
After the August 29th ruling, legally married same-sex couples generally will be required to file their 2013 federal income tax return (and all federal income tax returns going forward), using either the married filing jointly or married filing separately status.
The ruling reiterated that, for federal tax purposes, the term "marriage" will not include domestic partnerships, civil unions, or any other similar relationships created under state law that are not treated as a marriage by the state.
The ruling also provided relief to same-sex couples who were legally married but were prohibited by DOMA from taking advantage of federal tax benefits available to spouses, including those available under employee benefit plans. The ruling provides that those couples may, but are not required to, file original, adjusted, or amended tax returns, or claims for credit or refund for any overpayment of tax, choosing to be treated as married for federal tax purposes, for any year that the statute of limitations remains open.
The statute of limitations for requesting a federal tax refund is typically the later of three years from the date the return was filed, or two years from the date the tax was paid. Therefore, same-sex couples may generally file for a refund of overpayments of tax as far back as 2010. The ruling provides that this relief applies to employees who purchased same-sex spouse health insurance coverage from their employers on an after-tax basis, and that such employees may treat the amounts paid for that coverage as pre-tax and excludable from income.
Information about how to file a claim for refund is contained within the ruling which can be found here.
Anticipating that additional guidance will be needed to address cafeteria plans, qualified retirement plans, and other tax-favored arrangements, the ruling states that the IRS and the Treasury will issue further guidance as to the retroactive application of Windsor and this new ruling. This guidance also will address procedures for employers who wish to file refund claims for payroll taxes paid on previously-taxed health insurance and fringe benefits provided to same-sex spouses.
The ruling provides that both the Treasury and the IRS anticipate that such future guidance "will provide sufficient time for plan amendments and any necessary corrections so that the plan and benefits will retain favorable tax treatment for which they otherwise qualify".