On August 29, the Internal Revenue Service (IRS) released Revenue Ruling 2013-17, providing guidance on the tax treatment of same-sex spouses in the wake of United States v. Windsor. Under the new guidance, same-sex couples validly married in a jurisdiction whose laws authorize the marriage are treated as married for all federal tax purposes, regardless of the jurisdiction in which they live.
Prior to United States v. Windsor, 570 U.S. ___, 133 S. Ct. 2675 (2013), the Defense of Marriage Act (DOMA) included a provision that generally purported to prohibit the federal government from recognizing same-sex marriages. The IRS interpreted this provision to prevent same-sex spouses from being married for federal tax purposes. Earlier this year, however, the Supreme Court held in Windsor that this provision of DOMA is unconstitutional.
Same-Sex Spouses Treated as Married
In light of the Windsor decision, the IRS is providing guidance in the Revenue Ruling on how it will treat same-sex spouses. Beginning September 16, 2013, the IRS will treat all married same-sex couples as married for all tax purposes. This means that such same-sex spouses will qualify for all of the same benefits, and be subject to the same obligations, as opposite-sex spouses.
For example, this means that same-sex spouses will generally be required to file tax returns as "married filing jointly" or "married filing separately," and no longer will file as "single" or "head of household." Likewise, same-sex spouses will qualify for gift tax exemptions available to transfers between "spouses."
When Are Same-Sex Couples Married?
The IRS ruled that same-sex couples are married if the individuals are lawfully married under the laws of a jurisdiction (whether in the US or in a foreign jurisdiction) having the legal authority to sanction marriage. However, this treatment does not extend to individuals who have entered into a registered domestic partnership, civil union, or other similar formal relationship under applicable law that is not denominated as marriage under the laws of that jurisdiction. Accordingly, even if a same-sex couple with a civil union is treated the same as a married couple under state law, the same-sex couple will still not be treated as married for federal tax purposes.
That said, the IRS also ruled that the test is whether the marriage was lawful in the jurisdiction in which it occurred, not where the couple is living. So, a same-sex couple living in a jurisdiction that does not recognize same-sex marriage will be treated as married for federal tax purposes if they are married under the laws of a jurisdiction (whether in the US or outside the US) that sanctions same-sex marriage.
Although this new treatment is only mandated beginning September 16, 2013, the IRS is permitting taxpayers to apply this rule for filing returns and claiming credits and refunds for any open tax years. If a taxpayer files a return or claims a credit or refund, the taxpayer must adjust all items required to be reported on the return or claim that are affected by the marital status to be consistent with the ruling. A taxpayer cannot selectively apply these rules to only some items.
This means that same-sex couples may file amended returns for prior open tax years as a married couple if they were married at the time. Before doing so, couples should carefully consider the overall impact of the change on their situation. For example, filing as "married filing jointly" may result in the couple's joint income falling into a lower tax bracket or allowing them to exclude certain employer-provided benefits (such as health care) from income. But, they would lose any adoption credit they may have claimed for adopting their same-sex spouses' child. Similarly, if one spouse claims a standard deduction, the other spouse would not be allowed to itemize deductions.
Employers are similarly entitled to apply this rule retroactively to prior period returns. In particular, if an employer had provided benefits to a same-sex spouse of an employee that are tax-free when provided to the husband or wife of an employee (such as health care coverage) but had treated it as wage income to the employee under the old interpretation, the employer may claim a refund for payroll taxes paid on such benefits. Sole proprietors that employ their same-sex spouses may also claim refunds for payroll taxes.
In the Revenue Ruling, the IRS indicated that it will issue further guidance on applying the Windsor decision to employee benefits and employee benefit plans and arrangements, including the potential consequences of retroactive application of the rules to all taxpayers involved. Further, the IRS has indicated that it will issue guidance with a special administrative procedure for employers seeking refunds of payroll taxes where the employee cannot be found or elects not to participate in the refund.
IRS Frequently Asked Questions
In an effort to assist taxpayers with issues addressed in the ruling, the IRS has published a list of questions and answers at the following website: