Treasury & IRS issue DOMA Guidance; ruling applies to tax provisions and employee benefits.
On August 29th federal administrators announced that “legally” married same-sex couples will be treated as married couples for federal tax purposes, regardless of where they live. In other words, the agencies have adopted a “state of celebration” rule rather than take a “state of residence” approach. Legal same-sex marriages are recognized in California, Connecticut, Delaware, Iowa, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New York, Rhode Island, Vermont, Washington, and the District of Columbia.
The guidance, stemming from the Supreme Court ruling earlier this summer that overturned the Defense of Marriage Act, says same-sex couples can begin filing tax returns as “married filing jointly” or “married filing separately” for the 2013 tax year.*
Per Revenue Ruling 2013-17, “taxpayers may rely on this revenue ruling retroactively with respect to any employee benefit arrangement/plan ONLY for purposes of filing original, amended, or adjusted returns…or for a tax refund with respect to employer-provided health coverage or fringe benefits that were provided by the employer (and are excludable from income).” Additionally, employees 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 pre-tax and excludable from income.
Treasury and the IRS intend to issue further instruction on exactly how cafeteria plans and other tax-advantaged accounts should treat same-sex spouses prior to the effective date of this Revenue Ruling (Sept. 16, 2013). Besides taking into account the potential consequences of retroactivity for all parties involved, such guidance is expected to provide sufficient time for any necessary plan amendments so that affected benefits may retain the favorable tax treatment for which they otherwise qualify.
This situation will require employers in all states – not just those listed above – to prepare for spousal benefit requests. Originally, TASC had asked that all DOMA-affected changes of election and new enrollments be entered by August 31, 2013. However, given these recent developments, that window will now remain open until further notice. We at Capital Connection encourage you to watch the blog for further developments.
NOTE: The ruling does not apply to registered domestic partnerships, civil unions, or similar formal relationships recognized under state law.
* Individuals who were in same-sex marriages may file original or amended returns for one or more prior tax years still open under the statute of limitations. Generally, the statute of limitations for filing a refund claim is three years from the date the return was filed or two years from the date the tax was paid, whichever is later. As a result, refund claims can still be filed for tax years 2010, 2011 and 2012.