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Treasury Ruling: Same Sex Marriage Recognized for All Federal Tax Purposes

Last Thursday, August 29, 2013, the Treasury Department issued Revenue Ruling 2013-17 which provides that for all federal tax purposes, the terms "spouse," "husband and wife," "husband," and "wife" include an individual married to a person of the same sex if the individuals are lawfully married in a state (or foreign country) whose laws authorize the marriage of two individuals of the same sex. The ruling states: "Although states have different rules of marriage recognition, uniform nationwide rules are essential for efficient and fair tax administration."

Thirteen states and Washington, D.C. have legalized same-sex marriage as of August: California, Delaware, Connecticut, Iowa, Maine, Maryland, Massachusetts, Washington, Vermont, Rhode Island, New York, Minnesota and New Hampshire.

For federal tax purposes, the term "marriage" does not include persons who have entered into a registered domestic partnership, civil union, or other similar formal relationship recognized under state law that is not called a marriage.

In the June 26, 2013 U.S. Supreme Court case of United States v. Windsor, the court held that section 3 of the Defense of Marriage Act ("DOMA") is unconstitutional because it violates the principles of equal protection. The Treasury's intention in issuing Rev. Rul. 2013-17 is to give guidance on the effect of Windsor of the provisions of the Internal Revenue Code that refer to a taxpayer's marital status.

It is very important to note that the ruling states that marital status is based on the laws of the state where a marriage is initially entered into, regardless of the married couple's state of domicile. That is big news. The ruling cites our increasingly mobile society and the importance of having a uniform rule of recognition that can be applied with certainty by the Internal Revenue Service and taxpayers for all federal tax purposes.

The ruling states that it is to be applied prospectively beginning September 16, 2013. It will affect all federal tax provisions where marriage is a factor: filing status, personal exemptions, dependency exemptions, taking the standard deduction, employee benefits, contributing to an IRA, and claiming the earned income tax credit or child tax credit. Since September 16 is the deadline for filing third quarter estimates, affected couples might want to recalculate their estimated payments.

Taxpayers may also rely on the ruling for the purposes of filing original returns, amended returns, or claims for credit or refund for any overpayment of tax resulting from the ruling's holding on the condition that the applicable limitations period (generally three years) has not expired. For refund purposes that is generally 2010, 2011, and 2012.

The Service intends to issue further guidance on the retroactive application of the Supreme Court's opinion in Windsor to employee benefits, employee benefit plans and other arrangements.

As of the 2013 tax year, same-sex spouses who are legally married will not be able to file federal tax returns as if either were single. Instead, they must file together as "married filing jointly" or individually as "married filing separately."

Do not assume same-sex couples will get better tax treatment than opposite-sex couples. You've heard of the "marriage penalty?" Couples who have similar levels of income often pay the marriage penalty, with their tax liability as a couple being much higher than it would be if they were single and filing as two individuals.

For married same-sex couples who live in any of the 37 states that do not recognize their marriages, the couples will have to file their federal returns as married couples, but may be required to file their state returns as individuals.

Separately, the Health and Human Services Department has said that Medicare would extend certain key benefits to same-sex spouses. The Department's memo said that it "specifically clarifies that this guarantee of coverage applies equally to couples who are in a legally recognized same-sex marriage, regardless of where they live."

"Today, Medicare is ensuring that all beneficiaries will have equal access to coverage in a nursing home where their spouse lives, regardless of their sexual orientation," Centers for Medicare & Medicaid Services Administrator Marilyn Tavenner said in a statement. "Prior to this, a beneficiary in a same-sex marriage enrolled in a Medicare Advantage plan did not have equal access to such coverage and, as a result, could have faced time away from his or her spouse or higher costs because of the way that marriage was defined for this purpose."

So far, the Social Security Administration is using a "place of residence" standard in determining spousal benefits, not the "place of celebration" as the Treasury is. The SSA has issued instructions to personnel to deny claims for spousal benefits from same-sex couples living in states where such marriages are not recognized. This could change, especially in view of the IRS's announcement.

 

 

 

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