IRS proposed regulations recognize same-sex marriage
The Supreme Court's June 2015 ruling in Obergefell v Hodges holds that no state can refuse to recognize a lawful same-sex mariage performed in another state. States are also unable to distinguish between marriage and same-sex-marriage.
Supreme Court justices ruled that the 14th amendment requires a state to license a marriage betwen two poeple of the same sex. States must also treat same-sex marriages no differently than heterosexual marriages.
The IRS' proposed regulations based on the ruling will impact married couples, employers, sponsors, and administrators of employee benefit plans and executors.
Here's what to know abut the IRS Proposed rule changes and clarifications:
- terms indicating sex - such as "husband", "wife", and "husband and wife" - will be interpreted in a neutral way to include same-sex and opposite-sex spouses
- marriages recognized by any state, possession or territory of the United States will be recognized for federal tax purposes. Marriages in foreign jurisdiction will be recognized if the marriage would be recognized in at least one state, possession, or territory of the United States.
- the term "marriage" does not include registered domestic partnerhips, civil unions or similar relationships recognized under state law.
- couples choose between relationship types deliberately, and for some there are benefits to being in a relationship that provies some but not all protections and responsibilities of marriage.
Comments on changes stemming from Obergefell v Hodges will be accepted through Dec. 7, 2015.
To read the Proposed rule as outlined in the Federal Register, click here.
What Employers Need to Know About Court’s Gay-Marriage Ruling
Originally posted by Rachel Emma Silverman on June 30, 2015 on wsj.com.
The Supreme Court on Friday ruled that same-sex couples have a constitutional right to marry, meaning that same-sex marriages must be recognized nationwide. The ruling will have vast implications for employers, which until now have been operating under a patchwork of different state and federal laws governing the legal and tax treatment of same-sex unions.
Here’s what businesses should keep in mind as they navigate the new landscape.
If an employer offers spousal health-insurance benefits, do they need to offer them to all married employees, gay or straight?
In general, yes.
Companies that offer spousal health benefits and use a separate insurance company to fund their benefits will now be required to cover both gay and straight spouses. “Based on the court’s ruling. there is simply one type of spouse,” says Todd Solomon, a law partner in the employee-benefits practice group at McDermott Will & Emery in Chicago, who has been tracking same-sex employee benefits for nearly two decades.
But companies that are self-insured, which means they assume the insurance risks for their own employees, a common practice among large companies, aren’t under the same legal constraints. “There is technically no legal requirement that a self-insured company has to include a same-sex spouse,” Mr. Solomon says. As a result, self insurance “is where we are going to see a lot of activity and a lot of litigation.”
Companies should think twice about self-insuring but denying benefits to gay spouses because they will be vulnerable to discrimination suits, he says.
What if an employer has a religious objection to gay marriage?
They have limited options.
Companies could choose not to offer benefits to spouses altogether. Or they could self-insure and attempt to offer benefits to only straight spouses, but they run a high risk of discrimination suits, Mr. Solomon says.
Now that same-sex marriage is legal, will it add a lot of people to employers’ benefits plans? Will this be expensive for employers?
It could, but it depends on what type of plan a company already had.
If a company already covered unmarried same-sex domestic partners, it could be cheaper because covering spouses doesn’t have negative tax implications and is easier to administer than most domestic partnership benefits, Mr. Solomon says.
But if a company only offered spousal benefits, the ruling will add new couples that previously weren't allowed to marry.
Will the Supreme Court ruling lead to fewer employers offering spousal benefits?
Yes—that has been the trend, and the ruling might exacerbate it.
Employers have been cutting spousal benefits to save money, either dropping spousal coverage or imposing surcharges on spouses who can obtain health insurance elsewhere. A survey from consulting firm Mercer of more than 1,100 large employers found that 17% either excluded spouses with other coverage available or imposed a surcharge in 2014, compared with 12% in 2012.
The Supreme Court ruling might spur some employers who were already inclined to cut spousal benefits to do so, Mr. Solomon says.
What are the tax implications?
It equalizes the tax treatment of gay and straight married couples.
Until the ruling, there were a patchwork of state and federal tax laws governing same-sex couples. Employers, depending on the state, sometimes faced additional payroll taxes for same-sex employees, and workers sometimes faced additional income taxes.
Now, for both federal and state tax purposes, companies and employees won't face different tax treatment for gay and straight married couples. That will make benefits easier for companies to administer, Mr. Solomon says.
What does this mean for domestic partnership benefits?
This is a particularly complicated issue for employers.
Over the past decade, a growing number of companies offered “domestic partnership” coverage for gay employees and their partners as a way to provide equal benefits for couples who couldn’t legally wed. Others companies offer coverage more broadly to unmarried domestic partners, regardless of sexual orientation, recognizing that some employees simply prefer not to marry.
Companies that offer unmarried partnership benefits to both gay and straight couples will likely continue to do so.
But companies that offer partnership benefits just to gay couples may begin to phase them out because now all their employees can legally marry. Offering domestic partnership benefits just to gay couples but not straight ones might make firms vulnerable to reverse discrimination lawsuits, lawyers say.
On the other hand, firms may choose to keep domestic partnership benefits to help protect gay employees from discrimination. The majority of U.S. states lack anti-discrimination protection for gay employees, so workers can be fired for their sexuality. Because marriage certificates are public, forcing employees to get married for spousal benefits may end up “outing” an employee, while domestic partnerships are typically private matters, gay advocates say.
Limited Employer Impact Likely from Gay Marriage Ruling
Originally posted by Joanne Deschenaux on June 26, 2015 on shrm.org.
All 50 states must issue marriage licenses to same-sex couples and must recognize same-sex marriages legally performed out of state, the U.S. Supreme Court ruled June 26, 2015, in a historic victory for gay civil rights (Obergefell v. Hodges, No. 14–556).
“Under the Constitution, same-sex couples seek in marriage the same legal treatment as opposite-sex couples, and it would disparage their choices and diminish their personhood to deny them this right,” Justice Anthony Kennedy wrote for the majority. He was joined by the court’s liberal justices Ruth Bader Ginsburg, Stephen Breyer, Sonia Sotomayor and Elena Kagan.
Each of the four conservative justices who dissented from the opinion—Chief Justice John Roberts and justices Antonin Scalia, Clarence Thomas and Samuel Alito—wrote a separate opinion, saying that the court had usurped a power that belongs to the people.
Implications for Employers
The impact of this decision on many employers will be limited, Scott D. Schneider, an attorney in Fisher & Phillips’ New Orleans office, told SHRM Online.
In states where same-sex marriage is currently legal, this ruling will have no effect, he said. But in other states, “employers should sit down and ask, ‘Where do we stand in light of this ruling?’ ”
One area that may be impacted is the granting of leave under the Family and Medical Leave Act (FMLA), Schneider said. “Someone who enters into a same-sex marriage may be entitled to FMLA leave.”
Similarly, employers in states that have not allowed same-sex marriage to date should examine their medical insurance and retirement plans. Same-sex spouses may qualify as beneficiaries under these plans now, where previously they might have been legally excluded from participating.
“The bottom line is that all employer policies related to spouses should apply to same-sex marriages,” according to Nonnie Shivers, an attorney in the Ogletree Deakins Phoenix office. In addition, employers should require the same level and type of proof of a same-sex marriage as they would of any other marriage, she said.
In some ways, this will make things easier for employers, she noted. “They won’t have to try to figure out whether they need to recognize someone’s same-sex marriage performed in another state. Anyone who has entered into a same-sex marriage is protected as a spouse.”
But, as a practical matter, employers should be aware that in states that have not previously allowed same-sex marriage, things are not going to change overnight, Shivers added. “Some county clerks—the ones who issue marriage licenses—have said that they are going to wait to hear about changes from the attorney general,” she said. This means that employers should be somewhat cautious about changing certain policies. For example, if an employer has policies in place regarding domestic partnerships, it may not want to change those policies immediately, she suggested.
And she cautioned that just because the legality of same-sex marriage is now a settled issue, that doesn’t mean that it won’t sometimes be a “hot-button" issue in the workplace. Employers need to be prepared to deal with possible employee reactions—whether based on religious beliefs or other factors—to gay and lesbian employees in the workplace, she said.
Court Finds 14th Amendment Protection
Kentucky, Michigan, Ohio and Tennessee are four of the states that have defined marriage as a union between one man and one woman. Fourteen same-sex couples and two men whose same-sex partners are deceased had filed suits in federal district courts in their home states, claiming that state officials violated the 14th Amendment of the U.S. Constitution by denying them the right to marry or to have their marriages that were lawfully performed in another state given full recognition in their home state. Each district court ruled in the plaintiffs’ favor, but the 6th U.S. Circuit Court of Appeals consolidated the cases and reversed, ruling in favor of the states.
In reversing the 6th Circuit decision, the high court first examined the history of marriage as a union between two persons of the opposite sex, noting that while state officials arguing against same-sex marriage claimed that “it would demean a timeless institution if marriage were extended to same-sex couples,” the plaintiffs “far from seeking to devalue marriage, seek it for themselves because of their respect—and need—for its privileges and responsibilities.”
The court then noted the changes over time in the nature of marriage—such as the decline of arranged marriages and the abandonment of the laws that declared a wife the property of her husband—noting that these changes “have worked deep transformations in the structure of marriage, affecting aspects of marriage once viewed as essential.” These new insights “have strengthened, not weakened, the institution,” the court said.
The opinion next discussed the country’s experience with gay and lesbian rights. Well into the 20th century, many states condemned same-sex intimacy as immoral, the court noted, and homosexuality was treated as an illness. Later in the century, public attitudes shifted, allowing same-sex couples to lead more open lives. Then, questions about the legal treatments of gays and lesbians began reaching the courts, with numerous same-sex marriage cases reaching the federal courts and state supreme courts.
The Supreme Court’s majority opinion now sets forth its holding that the U.S. Constitution requires a state to license a marriage between two people of the same sex and to recognize a same-sex marriage performed out of state.
The court has long held that the right to marry is protected by the 14th Amendment, the opinion noted, and the reasons marriage is fundamental under the Constitution apply with equal force to same-sex couples. “The right to personal choice regarding marriage is inherent in the concept of individual autonomy. This is true for all persons, whatever their sexual orientation.”
Final Rule to Revise the Definition of “Spouse” Under the FMLA
Originally posted on www.dol.gov.
The Family and Medical Leave Act (FMLA) entitles eligible employees of covered employers to take unpaid, job-protected leave for specified family and medical reasons. The FMLA also includes certain military family leave provisions.
The Department of Labor issued a Final Rule on February 25, 2015 revising the regulatory definition of spouse under the Family and Medical Leave Act of 1993 (FMLA). The FMLA entitles eligible employees of covered employers to take unpaid, job-protected leave for specified family and medical reasons.
The Final Rule amends the regulatory definition of spouse under the FMLA so that eligible employees in legal same-sex marriages will be able to take FMLA leave to care for their spouse or family member, regardless of where they live. This will ensure that the FMLA will give spouses in same-sex marriages the same ability as all spouses to fully exercise their FMLA rights.
The effective date for the final rule is March 27, 2015.
On March 26, 2015, the United States District Court for the Northern District of Texas, in Texas v. United States, Civil Action No. 7:15-cv-00056 (N.D. Tex.), granted a request made by the states of Texas, Arkansas, Louisiana, and Nebraska for a preliminary injunction with respect to the Department's Final Rule revising the regulatory definition of spouse under the Family and Medical Leave Act (FMLA). The Government informed the Court of how the Government is complying with the injunction and the Government’s understanding of the scope of the injunction in a March 31 filing. A hearing date has been set for April 10th.
Major features of the Final Rule
- The Department has moved from a “state of residence” rule to a “place of celebration” rule for the definition of spouse under the FMLA regulations. The Final Rule changes the regulatory definition of spouse in 29 CFR §§ 825.102 and 825.122(b) to look to the law of the place in which the marriage was entered into, as opposed to the law of the state in which the employee resides. A place of celebration rule allows all legally married couples, whether opposite-sex or same-sex, or married under common law, to have consistent federal family leave rights regardless of where they live.
- The Final Rule’s definition of spouse expressly includes individuals in lawfully recognized same-sex and common law marriages and marriages that were validly entered into outside of the United States if they could have been entered into in at least one state.
Additional Information on the Final Rule.
Download the "Final Rule to Revise the Definition of 'Spouse' Under the FMLA" article here.
Download the Department of Labor - Wage and Hour Division's updated "Fact Sheet On The Final Rule" here.
Download the full text of the Final Rule here.
Download the FMLA Final Rule FAQs here.
Download the Press Release - "US Labor Dept. updates Family and Medical Leave Act's definition of spouse" here.
Download the FMLA - An Overview and News Updates here.
DOL Updates Definition of Spouse in FMLA Regulations
Originally posted February 24, 2015 by Rick Montgomery, JD on ThinkHR.com.
On June 26, 2013, in U.S. v. Windsor, 570 U.S. 12, 133 S. Ct. 2675 (2013), the U.S. Supreme Court struck down section 3 of the Defense of Marriage Act (DOMA) as unconstitutional under the Due Process Clause of the Fifth Amendment. Immediately following the decision in Windsor, the U.S. Department of Labor (DOL) announced what the then-current definition of “spouse” under the Family and Medical Leave Act (FMLA) allowed, given the decision: Eligible employees could take leave under the FMLA to care for a same-sex spouse, but only if the employee resided in a state that recognized same-sex marriage. This has been commonly referred to as the “state of residence” rule.
In order to provide FMLA rights to all legally married same-sex couples consistent with the decision in Windsor, the DOL issued a Final Rule on February 25, 2015, revising the definition of spouse under the FMLA. The Final Rule amends the definition of spouse in 29 C.F.R. §§ 825.102 and 825.122(b) to include all individuals in legal marriages, regardless of where they live. More specifically, the definition of spouse is now a husband or wife as defined or recognized in the state where the individual was married (“place of celebration”) rather than where the individual resides, and specifically includes individuals in same-sex and common law marriages. The Final Rule also defines spouse to include a husband or wife in a marriage that was validly entered into outside of the United States if it could have been entered into in at least one state.
The Final Rule goes into effect on March 27, 2015.
To assist employers, the DOL has released a Fact Sheet and Frequently Asked Questions about the Final Rule.
IRS eases same-sex health care tax break rules
Originally posted December 17, 2013 by Allen Greenberg on https://www.benefitspro.com
Thanks to last-minute action by the IRS, employee benefits administrators this year will have one more important change to communicate to employees as soon as possible: legally married same-sex couples can claim tax benefits this year if they’re enrolled in a flexible spending account, health care savings account or cafeteria plan.
The IRS – responding to the Supreme Court’s ruling in June invalidating part of the Defense of Marriage Act – said plans also are able to allow a midyear election change for participants marrying a same-sex spouse after the so-called Windsor decision.
Although it’ll mean more work, IRS Notice 2014-1 shouldn’t be a big surprise to HR managers. In August, the government said same-sex couples will be viewed as married for federal tax purposes, regardless of whether their marriages were recognized by the state in which they lived.
Carol Calhoun, a Washington, D.C., based attorney and former IRS official, said employers will need to move quickly to take advantage of relief granted under the latest guidance.
Calhoun said employees can use benefits remaining in their 2013 FSA accounts for same-sex spousal benefits, even in the case of FSAs set up as self-only FSAs.
“This information obviously needs to be communicated to those responsible for processing FSA benefits,” she said in a post on her firm’s website.
Employers, she wrote, also can now correct inadvertent overwithholding or underwithholding due to the recognition of an employee’s marital status, “but only if they act quickly to do so before the end of the year.”
The IRS notice will affect the amount reportable as income on W-2s, she said, so it’s important for HR departments to be aware of the new guidance as soon as possible.
Retirement plan sponsors are still awaiting IRS guidance on whether they will be compelled to retroactively apply the DOMA decision in calculating spousal and other benefits to same-sex partners.
Here are excerpts from the latest notice, offered by the IRS in Q&A form:
Question: If a cafeteria plan participant was lawfully married to a same-sex spouse as of the date of the Windsor decision, may the plan permit the participant to make a mid-year election change on the basis that the participant has experienced a change in legal marital status?
Answer: Yes. A cafeteria plan may treat a participant who was married to a same-sex spouse as of the date of the Windsor decision (June 26, 2013) as if the participant experienced a change in legal marital status for purposes of Treas. Reg. § 1.125-4(c).
Accordingly, a cafeteria plan may permit such a participant to revoke an existing election and make a new election in a manner consistent with the change in legal marital status. For purposes of election changes due to the Windsor decision, an election may be accepted by the cafeteria plan if filed at any time during the cafeteria plan year that includes June 26, 2013, or the cafeteria plan year that includes December 16, 2013.
A cafeteria plan may also permit a participant who marries a same-sex spouse after June 26, 2013, to make a mid-year election change due to a change in legal marital status.
Q: May a cafeteria plan permit a participant with a same-sex spouse to make a midyear election change under Treas. Reg. § 1.125-4(f) on the basis that the change in tax treatment of health coverage for a same-sex spouse resulted in a significant change in the cost of coverage?
A: A change in the tax treatment of a benefit offered under a cafeteria plan generally does not constitute a significant change in the cost of coverage for purposes of Treas. Reg. § 1.125-4(f). Given the legal uncertainty created by the Windsor decision, however, cafeteria plans may have permitted mid-year election changes under Treas. Reg. § 1.125-4(f) prior to the publication of this notice.
Q: When does an election made by a participant in connection with the Windsor decision take effect?
A: An election made under a cafeteria plan with respect to a same-sex spouse as a result of the Windsor decision generally takes effect as of the date that any other change in coverage becomes effective for a qualifying benefit that is offered through the cafeteria plan.
With respect to a change in status election that was made by a participant in connection with the Windsor decision between June 26, 2013 and Dec. 16, 2013, the cafeteria plan will not be treated as having failed to meet the requirements of section 125 or Treas. Reg. § 1.125-4 to the extent that coverage under the cafeteria plan becomes effective no later than the later of (a) the date that coverage under the cafeteria plan would be added under the cafeteria plan’s usual procedures for change in status elections, or (b) a reasonable period of time after Dec. 16, 2013.
The rules set forth (in the questions above) are illustrated by the following examples:
Example 1. Employer sponsors a cafeteria plan with a calendar year plan year.
Employee A married same-sex Spouse B in October 2012 in a state that recognized same-sex marriages. During open enrollment for the 2013 plan year, Employee A elected to pay for the employee portion of the cost of self-only health coverage through salary reduction under the cafeteria plan. Employer permits same-sex spouses to participate in its health plan. On Oct. 5, 2013, Employee A elected to add health coverage for Spouse B under Employer’s health plan, and made a new salary reduction election under the cafeteria plan to pay for the employee portion of the cost of Spouse B’s health coverage. Employer was not certain whether such an election change was permissible, and accordingly declined to implement the election change until the publication of this notice.
After publication of this notice, Employer determines that Employee A’s revised election is permissible as a change in status election in accordance with this notice. Employer enrolls Spouse B in the health plan as of Dec. 20, 2013, and begins making appropriate salary reductions from the compensation of Employee A for Spouse B’s coverage beginning with the pay period starting Dec. 20, 2013. The cafeteria plan is administered in accordance with this notice.
Example 2. Same facts as Example 1, except that Employee A submitted the election to add health coverage for Spouse B under Employer’s cafeteria plan on Sept. 1, 2013. Prior to publication of this notice, Employer implemented the election change and enrolled Spouse B in the health plan as of Oct. 1, 2013, and began making appropriate salary reductions from the compensation of Employee A for Spouse B’s coverage beginning with the pay period starting Oct. 1, 2013. The cafeteria plan was administered in accordance with this notice.
Q: How does the Windsor decision affect the tax treatment of health coverage for a same-sex spouse in the case of a cafeteria plan participant who had been paying for the cost of same-sex spouse coverage on an after-tax basis?
A: In the case of a cafeteria plan participant who elected to pay for the employee cost of health coverage for the employee on a pre-tax basis through salary reduction under a cafeteria plan and also paid for the employee cost of health coverage for a same-sex spouse under the employer’s health plan on an after-tax basis, the participant’s salary reduction election under the cafeteria plan is deemed to include the employee cost of spousal coverage, even if the employer reports the amounts as taxable income and wages to the participant. Accordingly, the amount that the participant pays for spousal coverage is excluded from the gross income of the participant and is not subject to federal income or federal employment taxes. This rule applies to the cafeteria plan year including Dec. 16, 2013, and any prior years for which the applicable limitations period under section 6511 has not expired.
8 things employers must do to comply with post-DOMA rules
Originally posted November 21, 2013 by Paula Aven Gladych on https://www.benefitspro.com
Employers need to ensure their retirement plans are in compliance with new rules regarding same-sex marriage.
With the Supreme Court’s decision in June to strike down a key provision of the Defense of Marriage Act allowing the federal government to recognize same-sex marriages and subsequent clarification by the IRS and the Department Labor, many plan sponsors now have to recognize same-sex couples when it comes to retirement benefits.
Only 14 states and the District of Columbia allow same-sex marriage. But according to new rules which went into effect in mid-September, same-sex couples are entitled to all of the federal rights entitled to opposite sex couples, including workplace benefits —even if the couple resides in a state that doesn’t recognize same-sex marriage.
According to Laura Pergine and Janet Luxton of Vanguard Strategic Retirement Consulting, there are eight things plan sponsors must do to make sure their retirement plans are in compliance post-DOMA:
1. Review plan documents.Vanguard recommends that plan sponsors sift through plan documents to determine if there is a definition of “spouse.” If a definition is there, they need to make sure it is compliant. The company said that plan sponsors also should review provisions in their documents that refer to domestic partnerships or civil unions.
2. Review marital status when it comes to beneficiary determination. If a plan participant who is legally married to a same-sex spouse dies, but his beneficiary designation is for someone he isn’t married to, that person may not receive the promised benefits unless the same-sex spouse waives his spousal rights.
3. Review qualified domestic relations procedures.Legally married same-sex couples have the same rights and obligations as opposite-sex couples if their marriage is dissolved. Qualified Domestic Relation Order procedures need to be reviewed to make sure there are no gender-specific references. If there are, they should be removed, Vanguard said.
4. Hardship withdrawals for same-sex spouses are now available.Plan sponsors need to follow the same rules regarding hardship withdrawals as those that apply to opposite-sex spouses.
5. Required minimum distributions.Gender-specific references to required minimum distributions in plan documents need to be removed. Spouses have more options regarding the treatment of distributions received as beneficiary payments.
6. Gender-specific references to rollovers in plan documents or distribution forms need to be removed. Spouses have more flexibility than non-spouses in how they treat rollover distributions, according to Vanguard.
7. Gender-specific references should be eliminated from participant communications. Plan sponsors should consider targeted communication to those employees most likely affected by these changes. Same-sex couples should be reminded to update their beneficiary designations.
8. Previous payment/Denial of benefits based on marital status. The IRS plans to issue guidance on whether or not same-sex couples who were denied an annuity benefit prior to the DOMA decision can now receive that benefit because of the Supreme Court decision.
All Legal Same-Sex Marriages Will Be Recognized for Federal Tax Purposes
Originally published on https://www.treasury.gov
Ruling Provides Certainty, Benefits and Protections Under Federal Tax Law for Same-Sex Married Couples
WASHINGTON — The U.S. Department of the Treasury and the Internal Revenue Service (IRS) today ruled that same-sex couples, legally married in jurisdictions that recognize their marriages, will be treated as married for federal tax purposes. The ruling applies regardless of whether the couple lives in a jurisdiction that recognizes same-sex marriage or a jurisdiction that does not recognize same-sex marriage.
The ruling implements federal tax aspects of the June 26th Supreme Court decision invalidating a key provision of the 1996 Defense of Marriage Act.
“Today’s ruling provides certainty and clear, coherent tax filing guidance for all legally married same-sex couples nationwide. It provides access to benefits, responsibilities and protections under federal tax law that all Americans deserve,” said Secretary Jacob J. Lew. “This ruling also assures legally married same-sex couples that they can move freely throughout the country knowing that their federal filing status will not change.”
Under the ruling, same sex couples will be treated as married for all federal tax purposes, including income and gift and estate taxes. The ruling applies to all federal tax provisions where marriage is a factor, including filing status, claiming personal and dependency exemptions, taking the standard deduction, employee benefits, contributing to an IRA, and claiming the earned income tax credit or child tax credit.
Any same-sex marriage legally entered into in one of the 50 states, the District of Columbia, a U.S. territory, or a foreign country will be covered by the ruling. However, the ruling does not apply to registered domestic partnerships, civil unions, or similar formal relationships recognized under state law.
Legally-married same-sex couples generally must file their 2013 federal income tax return using either the “married filing jointly” or “married filing separately” filing status.
Individuals who were in same-sex marriages may, but are not required to, file original or amended returns choosing to be treated as married for federal tax purposes 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. Some taxpayers may have special circumstances (such as signing an agreement with the IRS to keep the statute of limitations open) that permit them to file refund claims for tax years 2009 and earlier.
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.
How to File a Claim for Refund
Taxpayers who wish to file a refund claim for income taxes should use Form 1040X, Amended U.S. Individual Income Tax Return.
Taxpayers who wish to file a refund claim for gift or estate taxes should file Form 843, Claim for Refund and Request for Abatement.
For information on filing an amended return, go to Tax Topic 308, Amended Returns athttps://www.irs.gov/taxtopics/tc308.html or the Instructions to Forms 1040X and 843. Information on where to file your amended returns is available in the instructions to the form.
Future Guidance
Treasury and the IRS intend to issue streamlined procedures for employers who wish to file refund claims for payroll taxes paid on previously-taxed health insurance and fringe benefits provided to same-sex spouses. Treasury and IRS also intend to issue further guidance on cafeteria plans and on how qualified retirement plans and other tax-favored arrangements should treat same-sex spouses for periods before the effective date of this Revenue Ruling.
Other agencies may provide guidance on other federal programs that they administer that are affected by the Code.
For Revenue Ruling 2013-17, click here.
For Frequently Asked Questions, click here.
For registered domestic partners who live in community property states, click here for Publication 555, Community Property.
Treasury and the IRS will begin applying the terms of Revenue Ruling 2013-17 on September 16, 2013, but taxpayers who wish to rely on the terms of the Revenue Ruling for earlier periods may choose to do so (as long as the statute of limitations for the earlier period has not expired).
IRS Recognizes All Same-Sex Marriages for Pretax Benefits
Originally posted by Stephen Miller on https://www.shrm.org
Under a new Internal Revenue Service ruling, employees who pay for employer-provided health insurance for their same-sex spouse may treat these costs as excludable from federal income taxes, even if they live in a state that doesn't recognize their marriage. State income taxes are another matter, however.
The U.S. Department of the Treasury and the IRS ruled on Aug. 29, 2013, that same-sex couples who were legally married will be treated as married for federal tax purposes, including the pretax treatment of a spouse's health insurance coverage, in all 50 states and the District of Columbia. Revenue Ruling 2013-17 applies, in other words, regardless of whether the couple now live in a state that recognizes same-sex marriage or a state that does not recognize same-sex marriage.
The ruling implements federal tax aspects of the Supreme Court's June 26 decision in United States v. Windsor, which invalidated a key provision of the 1996 Defense of Marriage Act.
Revenue Ruling 2013-17 applies to all federal tax provisions in which marriage is a factor, including filing status, claiming personal and dependency exemptions, employee benefits, and claiming the earned income tax credit or child tax credit.
The ruling covers same-sex marriages entered into in one of the U.S. jurisdictions where such marriages are recognized as legally valid (sometimes referred to as the "state of celebration," as opposed to a couple's state of residency), as well as legal marriages performed in a foreign country. However, the ruling does not apply to registered domestic partnerships, civil unions or similar formal relationships recognized under state law.
Employee Benefits Affected
Under the ruling, same-sex couples will be treated as married for all federal tax purposes. Those who purchased same-sex spouse health insurance coverage from their employer on an after-tax basis may treat the costs of that coverage as pretax and excludable from income (for federal income tax purposes; state income taxes may still apply).
"Same-sex spouses legally married anywhere no longer are taxed on health benefits coverage for their spouses and can pay premiums pretax, even if they live in a non-recognition state such as Florida, Texas, etc. This is a huge development and a relief for these employers and employees," Todd Solomon,a partner in the employee benefits practice group of McDermott Will & Emery LLP in Chicago, told SHRM Online.
"However, state taxation of benefits may continue to be quite complex, although it remains to be seen how states will treat this," Solomon added. "On the flip side, the guidance may not be welcome for employers who currently do not offer same-sex partner benefits because now they are legally required to offer benefits to same-sex spouses in all states" (see box below).
Treasury and the IRS intend to issue streamlined procedures for employers who wish to file refund claims for payroll taxes paid on previously taxed health insurance and other benefits provided to same-sex spouses. Treasury and IRS also intend to issue further guidance on cafeteria plans and on how qualified retirement plans and other tax-favored arrangements should treat same-sex spouses for periods before the effective date of Revenue Ruling 2013-17.
Other agencies may provide guidance on federal programs they run that are affected by the Internal Revenue Code, Treasury said.
Are Employers Obligated to Provide Equal Treatment?
Are employers located in states that do not recognize same-sex marriage now required to grant access to health care benefits to the spouses of employees in legal same-sex marriages (entered into elsewhere), if they grant health benefits to spouses in opposite-sex marriages?
"This is an open question, and only time and legal challenges—which there are certain to be—will tell," commented Todd Solomon of McDermott Will & Emery LLP.
Employers are not "required" to offer medical plan coverage to same-sex spouses the way they are required to offer a qualified joint and survivor annuity (QJSA) and a qualified preretirement survivor annuity (QPSA) in a pension plan because there are no similar statutory benefit mandates in the welfare plan context, Solomon explained. However, "employers that do not cover same-sex spouses will be very vulnerable to discrimination claims, in particular sex discrimination under Title VII. State and local discrimination claims are also possible, but private sector employers can likely argue that these claims are preempted by ERISA. But ERISA does not preempt Title VII."
While Title VII does not protect against sexual orientation discrimination, Solomon pointed out that guidance from the Equal Employment Opportunity Commission suggests that it might interpret this type of exclusion of same-sex spouses as sex discrimination, and therefore "an employer denying coverage to a same-sex spouse will be at risk for having to defend a costly sex discrimination lawsuit."
Retroactive Application and Refund Claims
The IRS set a prospective effective date for the ruling of Sept. 16, 2013. Legally married same-sex couples must file their 2013 federal income tax return using either the “married filing jointly” or “married filing separately” filing status.
For prior tax years still open under the statute of limitations, individuals who were in same-sex marriages may opt to file original or amended returns choosing to be treated as married for federal tax purposes. 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. Some taxpayers may have special circumstances (such as signing an agreement with the IRS to keep the statute of limitations open) that permit them to file refund claims for tax years 2009 and earlier.
With respect to retroactivity for prior years, "employers are still in wait-and-see mode until the IRS issues further guidance," said Solomon. "What we know is that employees and employers have the right—but not the obligation—to file for refund claims on past taxes paid on same-sex spouse benefits in open tax years—typically 2010, 2011, and 2012."
"Employers can expect to get requests from employees for corrected Form W-2s from these prior years," Solomon noted. "But what is not clear yet is how to handle cafeteria plan participation and tax reporting for prior years and whether adjustments need to be made. The IRS will be issuing more guidance on this issue as well as the retroactive impact of the guidance on retirement benefits that have or in many cases have not been paid to same-sex spouses."
Along with Revenue Ruling 2013-17, the IRS released two related sets of frequently asked questions and answers:
- Answers to Frequently Asked Questions for Individuals of the Same Sex Who Are Married Under State Law.
- Answers to Frequently Asked Questions for Registered Domestic Partners and Individuals in Civil Unions.
The IRS ruling "assures legally married same-sex couples that they can move freely throughout the country knowing that their federal filing status will not change,” Treasury Secretary Jacob J. Lew noted in a released statement.
10 post-DOMA tips for benefits managers
Originally posted by Dan Cook on https://www.benefitspro.com
When the U.S. Supreme Court ruled in United States v. Windsor that the federal government is required to recognize same-sex marriages performed in states that allow such marriages, benefits managers started dialing 911.
In an article posted on the Sutherland Asbill & Brennan website, attorneys Vanessa Scott, Carol Weiser, Joanna Myers and Mikka Gee Conway offer considerable guidance on how to amend a benefits plan to meet the implications of Windsor.
Their 10 tips should be read with the understanding that forward-looking plan managers will be anticipating that same-sex marriages will sooner or later be part of the domestic law landscape and will revise their plans accordingly. One major issue currently centers on the state in which a same-sex marriage was performed vs. the state where a same-sex couple resides. But again, assume that residence will eventually prevail for those couples married elsewhere.
Here are their 10 tips:
1. Generally, spousal provisions in an employer’s employee benefit plans, including qualified retirement plans, welfare plans and fringe benefit plans, should apply to same-sex spouses in the same manner as they are applied to opposite-sex spouses.
2. There may be an exception to the general rule above in the case of welfare plans and fringe benefits that define covered “spouses” by reference to the law of a state that does not recognize same-sex spouses or such plans that do not clearly define the term “spouse.” In these cases, plan administrators may still have the authority to interpret the term “spouse” to exclude same-sex spouses. However, it is unclear whether such interpretation might now be considered “arbitrary and capricious” if challenged in litigation following the Windsor decision.
3. Any plan or benefit policy amendment or interpretation that relates to spouses —including prospective verification of spousal status — should be applied to opposite-sex couples in the same manner as same-sex spouses.
4. Plans that do not currently offer spousal benefits at all will not be required to offer spousal benefits as a result of the Windsor decision.
5. For qualified retirement plans, there are implications for application of qualified joint and survivor annuity rules, Internal Revenue Code (Code) section 415 maximums, minimum required distributions, and qualified domestic relations orders. The implications for health plans include the need to offer COBRA to same-sex spouses.
6. Welfare plans that currently offer benefits to same-sex spouses of employees and impute income on the value of the benefit to the employee for federal tax purposes will no longer need to do so. This may require amendments to plan documents and communication materials.
7. Welfare plans that do not impute income on the value of benefits provided to same-sex spouses for state tax purposes in states that allow (or recognize) same-sex marriage will continue this practice. In states that do not allow (nor recognize) same-sex marriage, welfare plans will continue to impute income on the value of benefits provided to same-sex spouses for state tax purposes.
8. It is unclear whether the Windsor decision will have a retroactive impact. Guidance on this issue from federal agencies is anticipated in the coming days and weeks. However, a retroactive application by agencies, such as the Internal Revenue Service (e.g., if the Service reads the Code as if Section 3 of DOMA was never enacted) could be costly, even for plans that currently provide same-sex spousal benefits.
9. Employers will no longer be required to pay FICA taxes on the value of welfare benefits provided to a same-sex spouse. Employers that currently offer same-sex benefits should consider whether they should seek a refund for FICA taxes paid on those benefits during the past three years.
10. The Windsor decision does not require employers to recognize rights granted under “marriage-like” relationships, such as domestic partnerships and civil unions.