IRS Recognizes Married Same-Sex Couples Regardless of Place of Residence
October 9, 2013
On August 29, 2013, the IRS announced that it will treat as married, for all federal tax purposes, any married same-sex couple whose marriage was valid in the jurisdiction in which it was entered into, regardless of the status of the couple as married in the jurisdiction in which they reside. This rule, announced in Revenue Ruling 2013-17, www.irs.gov/pub/irs-drop/rr-13-17.pdf
, generally will apply prospectively effective September 16, 2013. This means that legally married same-sex spouses will be entitled to all protections afforded to spouses under tax-qualified pension and profit-sharing plans, including the right to a survivor benefit in a pension plan, the right to obtain a qualified domestic relations order in the event of divorce, the right to make a direct rollover to his or her own IRA or qualified plan, and other spousal rights under tax-qualified retirement plans.
On September 18, 2013, the United States Department of Labor (DOL) issued guidance stating that the terms "spouse" and "marriage" in Title I of ERISA and in related regulations should be read to include same-sex couples legally married in any state or foreign jurisdiction that recognizes such marriages, regardless of where they currently live, as this position would promote uniformity in the administration of employee benefit plans and afford the most protection to same-sex couples. However, because the Employee Retirement Income Security Act, of 1974, as amended, the provisions of which are administered by the DOL, does not currently contain eligibility rules for health and welfare plans nor provide specific spousal rights except for those spouses already covered under a health plan (who would be entitled to COBRA rights, HIPAA rights, and other similar rights afforded to covered beneficiaries), it is not clear whether the DOL position would require self-insured ERISA-covered health plans to cover legally married same-sex spouses. The law is developing in this area and a decision not to cover such spouses should be reviewed for compliance with non-discrimination rules, fiduciary duty rules and other potentially applicable law.
Same-sex marriage is legally recognized in several jurisdictions within the United States. As of August 2013, thirteen states (California, Connecticut, Delaware, Iowa, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New York, Rhode Island, Vermont, and Washington) and the District of Columbia give same-sex couples the right to marry. In addition, it has been reported that five Native American tribes have legalized the issuing of same-sex marriage licenses.
Notwithstanding the prospective application, IRS will permit individuals who incurred tax on health and certain other fringe benefits provided to a same-sex spouse to file amended returns for all open years to claim a refund or credit if the couple would be treated as married under the new rule. For example, if an employer provided health coverage for an employee’s same-sex spouse and included the value of the coverage in the employee’s income, the employee may file amended Forms 1040 for all open years reflecting the employee’s status as married to recover the federal income tax paid on the value of the health coverage of the employee’s spouse. Generally, such refund claims must be filed within the later of 3 years after the tax return including the income was filed, or two years after the tax was paid.
Note that legally married same-sex spouses must file joint federal income tax returns or as married filing separately for tax years commencing with 2013. In addition, in the event that the original tax return for 2012 is first filed on or after September 16, 2013, such couples also must file as married for federal income taxes. For same-sex married couples who reside in states such as Pennsylvania, the couple will be filing as married for federal income tax purposes, but as single individuals for state tax purposes. Additional guidance for individuals is available in Frequently Asked Questions, http://www.irs.gov/uac/Answers-to-Frequently-Asked-Questions-for-Same-Sex-Married-Couples
, which the IRS also released on August 29th. Separate guidance is provided for employers with respect to overpayments of employment taxes on the value of health benefits treated as taxable income to married same-sex employees.
It is not clear the extent to which this rule will be applied retroactively, if at all, to pension and other non-health benefit plans and arrangements. The IRS stated that it will issue further guidance on retroactivity in the future and that it is developing such guidance by considering any retroactive effect on all affected parties, including the plan, the plan sponsor, affected employees and their beneficiaries, and contributing employers.