IRS Announces That All Legal Same-Sex Marriages Will Be Recognized For Federal Tax Purposes

The U.S. Department of Treasury and the Internal Revenue Service today announced that in response to the Supreme Court decision holding the federal Defense of Marriage Act (“DOMA”) is unconstitutional, they will adopt a “place of celebration” rule that will treat same-sex couples who are legally married in a state that recognizes such marriages as married for purposes of all federal tax laws – including tax laws relating to employee benefits. Put simply, for purposes of federal tax laws, it will not matter if a married same-sex couple resides in a state where such marriages are not recognized; all that matters is whether they were married in a state where such marriages are recognized. The new rules are set forth in Revenue Ruling 2013-17. The ruling also addresses how employees can file claims for refunds for income tax that was previously imputed to them based on the extension of health and welfare benefits to a same-sex spouse.

In addition, the agencies issued responses to two sets of “Frequently Asked Questions,” one addressing the tax treatment of same-sex couples, and one addressing the tax treatment of domestic partners. These FAQs indicate that this guidance will apply to retirement plans as of September 16, 2013 with future guidance to be issued on implementation and necessary corrections (if any). Notably, with respect to retroactivity, Revenue Ruling 2013-17 provides that the IRS intends to “to issue further guidance on the retroactive application of the Supreme Court’s opinion . . . to other employee benefits and employee benefit plans and arrangements. Such guidance will take into account the potential consequences of retroactive application to all taxpayers involved, including the plan sponsor, the plan or arrangement, employers, affected employees and beneficiaries. The Service anticipates that the 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.”

The agencies also announced that they will issue streamlined procedures for employers that wish to file refund claims for payroll taxes paid on previously-taxed health insurance and fringe benefits provided to same-sex spouses. In addition, the agencies stated that they will be issuing 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 this Revenue Ruling.

This guidance will significantly impact the design and operation of retirement, health and welfare, and fringe benefit plans, and requires close study by plan sponsors.

Groom Law Group will hold a complimentary webinar discussing the IRS guidance and its implications for plan sponsors on Wednesday, September 11, 2013, at 12:00 pm, Eastern.

View the Ruling

View the FAQS