On August 29, 2013 the IRS and Treasury departments announced additional guidance on the federal tax aspects of the Supreme Court's ruling earlier this summer on the Defense of Marriage act. Under the "state of celebration" rule, same-sex couples who were legally married in jurisdictions that recognize their marriage will be treated as married for federal tax purposes, regardless of whether the couple lives in a jurisdiction that recognizes same sex marriage or one that does not. The ruling applies to all federal tax provisions where marriage is a factor including filing status, claiming exemptions and standard deductions, and employee benefits.
how does the ruling affect employer sponsored benefit plans?
Group health plans that allow employees to pay premiums on a pre-tax basis will no longer need to compute the imputed income value of employer-funded health coverage for a same-sex spouse for federal tax purposes, although it may still need to be calculated for state tax purposes if the employee resides in a state that does not recognize same-sex marriage. In addition, an employer may claim a refund of, or make an adjustment for, any excess social security taxes and Medicare taxes paid as long as the period of limitations for filing a refund claim is open (generally three years from the date the return was filed or two years from the date the tax was paid, whichever is later).
Qualified retirement plans will now need to treat a same-sex spouse as a spouse for purposes of satisfying federal tax laws relating to qualified retirement plans, including spousal notice and consent rules, survivor benefit requirements, hardship and minimum distribution requirements and rules related to domestic relations orders.
Treasury and IRS are developing streamlined procedures for employers who wish to file refund claims for payroll taxes paid on previously taxed health insurance and fringe benefits, and will address the steps needed to bring qualified retirement plans into compliance including the timing and nature of any required plan amendments.
While the Treasury and the IRS will begin applying this ruling on September 16, 2013, “taxpayers who wish to rely on the terms of the Revenue Ruling
for earlier periods may choose to do so". Also of note, nothing in the ruling applies to registered domestic partners, civil unions or other similar relationships recognized under some states’ laws. Thirteen states and the District of Columbia have legalized same-sex marriage, as have 15 other countries.
We will continue to provide updates on related developments and welcome your questions on this topic.