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September 12, 2013

For Federal Tax Purposes, a Spouse is a Spouse, Whether Same or Opposite Sex, says the IRS and Treasury

In late June, the Supreme Court rendered two opinions relating to the recognition of same-sex marriage (see CBIZ Benefit Beat, Supreme Court Opines on Same-Sex Marriage Issues, 7/5/13). 

In the United States v. Windsor case, the Supreme Court determined that §3 of the Defense of Marriage Act (DOMA), a 1996 federal law defining marriage as, “a legal union between one man and one woman as husband and wife, and the word “spouse” refers only to a person of the opposite sex who is a husband or a wife”, is unconstitutional as a violation of the Equal Protection provisions of the U.S. Constitution.  As a result of this decision, couples in a same-sex marriage, sanctioned by a state, will have all of the benefits of the federal law.  

Now, a couple months later, guidance from federal government agencies is beginning to be issued.  This guidance is most welcome in that it will help employers and taxpayers begin to plan for benefit and tax matters relating to a same-sex marriage, though much more guidance is likely to come and is needed.  

Most recently, the IRS and Treasury issued Revenue Ruling 2013-17, along with some Frequently Asked Questions for same-sex couples.  In a nutshell, a same-sex couple that is legally married in a jurisdiction, whether domestic or foreign, is to be treated for all federal tax purposes as an opposite-sex married couple is treated for all federal tax purposes, including income taxes, and gift and estate taxes.  This is true whether the couple resides in the jurisdiction in which the marriage was celebrated or moves to another jurisdiction, even if the jurisdiction in which the couple resides does not recognize same-sex marriage.  This is known as the “Rule of Celebration” and is consistent with how the IRS and Treasury have treated common law marriage.   

The Revenue Ruling affirms that relationships other than legal marriages, such as civil unions, domestic partnerships or registered domestic partnerships are not afforded this tax treatment – only those couples in a legal marriage will receive the tax advantage afforded opposite-sex married couples. 

Effective Date:  The effective date of the Revenue Ruling is September 16, 2013.  

The Revenue Ruling provides for retroactive reliance for purposes of employer contributions to health coverage, qualified tuition reduction, meals and lodging, dependent care assistance programs and certain fringe benefits pursuant to IRC §132, based on an individual’s marital status. 

At the moment, for retirement plan purposes, the September 16th date is relevant, though; future guidance may provide some retroactivity. 

Family and Medical Leave

At this point, the Department of Labor’s (DOL) position differs from that of the IRS and Treasury.  Specifically, the DOL has taken the position that the state of residence, not the state of celebration, defines eligibility for federal family and medical leave purposes; thus, meaning that only those same-sex couples residing in the 14 jurisdictions sanctioning same-sex marriage could be entitled to the benefits of FMLA.  The following states recognize same-sex marriage: 

States with Same-Sex Marriage Laws

California*

Massachusetts

Connecticut

Minnesota (effective 8/1/13)

Delaware (effective 7/1/13)

New Hampshire

District of Columbia

New York

Iowa

Rhode Island (effective 8/1/13)

Maine

Vermont

Maryland

Washington

 *With regard to California, the 9th Circuit Court of Appeals Court lifted the stay restricting same-sex marriage on June 28, 2013, allowing same-sex marriages to resume.

 Note:  While there is no specific state law prohibiting or permitting same-sex marriage in New Mexico, currently 8 of the 33 counties within the state are issuing same-sex marriage licenses.

 It will be important to monitor developments from the DOL on this matter.  The DOL has updated one of their FMLA Fact Sheets to reflect entitlement to FMLA leave for qualifying events such as birth, adoption or foster care, or to care for the employee’s spouse, son, daughter, or parent who has a serious health condition.  For this purpose, a spouse is a “husband or wife as defined or recognized under state law for purposes of marriage in the state where the employee resides, including 'common law' marriage and same-sex marriage."

 For a more in-depth discussion regarding the Windsor decision and its impact on employee benefit plans, please refer to the September 2013 special edition of At Issue.

 

The information contained in this article is provided as general guidance and may be affected by changes in law or regulation. This article is not intended to replace or substitute for accounting or other professional advice. Please consult a CBIZ professional. This information is provided as-is with no warranties of any kind. CBIZ shall not be liable for any damages whatsoever in connection with its use and assumes no obligation to inform the reader of any changes in laws or other factors that could affect the information contained herein.

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