Federal Income Tax Implications of DOMA

Sept. 5, 2013

Revenue Ruling 2013-17, released on Aug. 29, 2013, provides guidance on the income tax implications of the Supreme Court’s decision in United States v. Windsor, which held Section 3 of the Defense of Marriage Act unconstitutional. The IRS also released a series of FAQs to assist individuals with various items related to the ruling. The Revenue Ruling is effective prospectively as of Sept. 16, 2013. The ruling also allows, but does not require, taxpayers to file amended income tax returns for prior years as long as the statute of limitations is open.

Under the ruling, any individual married in a state or foreign country that recognizes same-sex marriage will be treated as married for all purposes of the Internal Revenue Code. This applies even if the individual resides in a state that does not recognize same-sex marriage. The ruling also clarifies that the term “marriage” does not include registered domestic partnerships, civil unions, or other similar formal relationships recognized under state law that are not denominated as a marriage under that state’s law.

Individuals in recognized same-sex marriages will be required to file their 2013 income tax returns as either joint filers or as married filing separately. Individuals in same-sex marriages should review their 2013 withholding and estimated payments and make adjustments as necessary. It remains to be seen what position the states will take with respect to joint filing.

Before amending prior-year returns to file as married taxpayers, same-sex couples should consider the pros and cons of doing so. For example, individuals who purchased same-sex spouse health insurance coverage from their employers on an after-tax basis may treat the amounts paid for that coverage as pretax salary reduction amounts on amended returns. The benefit of the health insurance exclusion may be offset by the marriage penalty on amended returns.

The Revenue Ruling indicates the IRS plans on issuing further guidance on the retroactive application of the Supreme Court’s opinion in Windsor to other employee benefits and employee benefit plans and arrangements. The IRS separately announced that it will provide 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. Employers should stop withholding on these benefits and make adjustments for amounts withheld in 2013 prior to the release of the ruling. Businesses also should begin the process of reviewing all employee benefit plans that will be affected by the change in the definition of marriage.

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Howard M. Wagner
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