Tax Alert

Federal Tax Implications of U.S. Supreme Court Ruling on DOMA

(June 28, 2013)

On June 26, in United States v. Windsor, the U.S. Supreme Court ruled Section 3 of the Defense of Marriage Act (DOMA) to be unconstitutional.

DOMA is a 1996 federal law that defines marriage as “a legal union between one man and one woman.” Edith Windsor, Thea Spyer’s surviving spouse and executrix of her estate, challenged the law in court when Spyer’s estate was denied a marital deduction for Spyer’s assets passed on to Windsor. In its decision, the Court struck down Section 3 of DOMA, holding that same-sex individuals who are married under state law must be treated as married for income and estate tax purposes. 

Some states recognize same-sex marriages from other states, while others do not. The Court’s decision is expected to have the following results for taxpayers residing in states that recognize same-sex marriage:

In general:

  • Joint returns can be filed for federal income tax purposes. If a joint return is not filed, each spouse needs to file using married filing separately status. Affected taxpayers should review their 2013 filing status, including the marriage penalty for joint filers, and adjust their 2013 withholding and estimated payments as necessary. Amended returns likely will be required for prior years to file as joint or married filing separately. Taxpayers should wait for IRS guidance before filing amended returns.
  • Employer-provided medical insurance is now available to same-sex spouses on a tax-free basis. Prior to the Court’s decision in Windsor, these benefits were taxable to the nonemployee spouse. Employers might be able to claim a refund of payroll taxes paid on these benefits on a taxable basis, and individuals might be able to claim a refund of income taxes paid on these amounts.
  • The state income tax treatment of people in a same-sex marriage who reside in states that do not recognize same-sex marriages likely will remain unchanged.

For estate and gift tax purposes:

  • An estate tax marital deduction is available, and affected taxpayers should file refund claims if a tax was paid as a result of the unavailability of the estate tax marital deduction.
  • Gift splitting should be available for 2013 gift tax returns and 2012 returns on extension.
  • Taxpayers in a same-sex marriage should review their estate plan to determine any effects as a result of the Court’s decision, particularly if nonadopted children are involved.

The Court’s decision will have an impact on many tax laws other than those discussed here. Though being treated as married for federal tax purposes might provide certain tax benefits, it might also result in increased tax liability.

The IRS is expected in the near future to provide guidance on the federal income tax treatment of these items for both 2013 and prior years.

For More Information on Income Tax Implications
Howard Wagner

For More Information on Estate and Gift Tax Implications
Marv Hills

For More Information on Benefits Implications
Dave Horvath

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Howard M. Wagner
Partner, National Tax Services