United States: IRS Announces All Same-Sex Marriages Recognized for Federal Tax Purposes

Last Updated: September 6 2013
Article by Michael A. Kadlec, Andrew J. Rudolph and Jonathan A. Clark

Yesterday the U.S. Department of Treasury and the Internal Revenue Service (IRS) announced that, as a result of the holding in U.S. v. Windsor that Section 3 of the Defense of Marriage Act (DOMA) is unconstitutional, the determination of whether a same-sex couple is legally married for federal tax purposes will be based on the "place of celebration" and not the couple's place of residence.

Thus, for purposes of federal tax laws, it will not matter if a married same-sex couple resides in a state where same-sex marriages are not recognized, as long as the couple was legally married in a jurisdiction where such marriages are permitted. For example, if a couple who resides in Pennsylvania travels to and gets married in New York, that couple is legally married for federal tax purposes despite the fact that Pennsylvania (their place of residence) does not recognize same-sex marriages. The new rules are set forth in Revenue Ruling 2013-17.1 Links to the ruling and to two FAQs on the subject issued by the IRS are below.

This ruling will affect most employee benefit plans. With respect to welfare benefit plans:

  • employers will no longer need to impute income to an employee if the employee's same-sex spouse is covered under the employer's group health plan and may treat any after-tax salary deduction election made by a participant to pay for the same-sex spouse's coverage under the employer group health plan as a pre-tax salary reduction election
  • qualifying medical expenses incurred by the non-employee same-sex spouse may be eligible for tax-free reimbursement under flexible spending arrangements, health reimbursement arrangements and health savings accounts
  • a non-employee same-sex spouse covered under an employee spouse's group health plan is a "qualified beneficiary" and may elect COBRA continuation coverage upon a "qualifying event," and
  • an employee may make a mid-year election to add a his or her legally married same-sex spouse to the employee's health plan coverage if the spouse loses coverage under another plan, to the same extent as applies to opposite-sex spouses.

With respect to qualified retirement plans:

  • a same-sex spouse of an employee covered by an employer's plan will have the rights of a surviving spouse (e.g., the right to receive a survivor annuity and the right to consent to forms of payment and beneficiary designations under a pension plan)
  • in the event of divorce, a same-sex spouse can be assigned a portion of the participant-spouse's benefit through a qualified domestic relations order (QDRO)
  • a same-sex spouse can roll over a deceased participant's plan benefit to his or her own IRA or employer plan account
  • a same-sex spouse will be permitted to delay receipt of a deceased participant's benefit under the minimum required distribution rules, and
  • a participant will be permitted to receive a hardship withdrawal from a defined contribution plan (to the extent the plan generally permits hardship withdrawals) as a result of a same-sex spouse's medical expenses, tuition costs and funeral expenses.

The IRS also announced that it intends to issue additional guidance setting forth streamlined 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 IRS also intends to issue further guidance on cafeteria plans and on how qualified retirement plans and other tax-favored arrangements should treat same-sex spouses for periods before the effective date of the ruling. This additional guidance may also cover the question of whether a health insurance plan linked to a cafeteria plan can permit a non-employee same-sex spouse to enter the plan in 2013 as a "change in status."

It is important to note that this ruling does not affect the status of same-sex couples who have entered into registered domestic partnerships, civil unions or other similar formal relationships recognized under state law. Unless that couple is legally married in a jurisdiction that permits same-sex marriage, the same-sex partner of the participant will not be considered a spouse for purposes of federal tax law, including taxes relating to employee benefit plans.

This ruling does not control whether states that do not recognize same-sex marriage will pass along similar tax treatment for purposes of state and local income taxes.

What Next?

Employers should review the administration and operation of their employee benefit plans and payroll systems to determine and implement necessary changes. For example:

  • employers should cease withholding federal income and employment taxes on amounts paid by employees for coverage of same-sex spouses under the employer's group health plan and consider whether to adjust payroll withholding prospectively, so that the employee spouse can recover overpaid federal income and FICA taxes withheld on imputed income in 2013 to date
  • employers should consider whether to seek refunds of employer and employee FICA paid on imputed income for open tax years
  • reimbursement of qualifying medical expenses incurred by the same-sex spouse of an employee from flexible spending arrangements, health reimbursement arrangements and health savings accounts should be permitted, and
  • plan administrators should review retirement plan beneficiary designations of participants with same-sex spouses and, if necessary, either change the beneficiary designation to the same-sex spouse, or require that the participant obtain the consent of the same-sex spouse to the non-spouse beneficiary designation.

Links to Ruling and FAQs

http://www.irs.gov/pub/irs-drop/rr-13-17.pdf

http://www.irs.gov/uac/Answers-to-Frequently-Asked-Questions-for-Same-Sex-Married-Couples

http://www.irs.gov/uac/Answers-to-Frequently-Asked-Questions-for-Registered-Domestic-Partners-and-Individuals-in-Civil-Unions

Footnote

1. The holding of Revenue Ruling 2013-17 takes effect on September 16, 2013. However, taxpayers and employers may rely on the ruling prior to that date.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Andrew J. Rudolph
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions