August 30, 2013
Practice Group:
Benefits, ESOPs, and
Executive
Compensation
The Department of Treasury and IRS
Recognize All Legal Same-Sex Marriages
By Mary Turk-Meena, Emily D. Zimmer and Katie M. Morton
On August 29, 2013, the U.S. Department of Treasury and Internal Revenue Service (“IRS”) issued
Revenue Ruling 2013-17 providing that legally married same-sex couples will be treated as married
for Federal tax purposes. The ruling applies regardless of whether the couple lives in a jurisdiction
that permits or recognizes same-sex marriage. This ruling implements Federal tax aspects of the
June 26, 2013 Supreme Court decision, U.S. v. Windsor. In Windsor, the Court invalidated Section 3
of the 1996 Defense of Marriage Act (“DOMA”), which recognized “marriage” as only a legal union
between a man and a woman for purposes of Federal law.
Related Frequently Asked Questions were also issued to provide additional information that reflect the
holding in the Revenue Ruling and highlight areas in which future guidance will be issued.
In Rev. Rul. 2013-17, the IRS held, for Federal tax purposes:
• That 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 under state law,1 and the term
“marriage” includes such a marriage between individuals of the same sex.
• A marriage of same-sex individuals that was validly entered into in a state whose laws authorize
the marriage of two individuals of the same sex will be recognized even if the married couple is
domiciled in a state that does not recognize the validity of same-sex marriages.
• The terms “spouse,” “husband and wife,” “husband” and “wife” do not include individuals
(whether of the opposite sex or same sex) who have entered into a registered domestic partnership,
civil union, or other similar formal relationship recognized under state law that is not denominated
as a marriage under the laws of that state, and “marriage” does not include such formal
relationships.
Prospective and Retroactive Application of Ruling
The holdings of Rev. Rul. 2013-17 are to be applied prospectively beginning September 16, 2013.
Affected taxpayers must comply with the ruling for original returns filed on or after September 16,
2013. Affected taxpayers may, but are not required to, amend income tax returns filed before
September 16, 2013 if the statute of limitations on the return remains open. Generally, returns remain
open for 3 years from the date the return was filed or 2 years from the date the tax was paid,
whichever is later. As of the date of this guidance, returns for the 2010, 2011 and 2012 taxable years
generally are still open.
Affected taxpayers may also rely on the holdings retroactively for original returns, amended returns,
adjusted returns or claims for credit or refund of an overpayment of tax concerning employment tax
and income tax with respect to employer-provided health coverage or fringe benefits that were
provided by an employer and are excludable under the Code based on an individual’s marital status.
1
Under the Revenue Ruling, “state” means any domestic or foreign jurisdiction that has the legal authority to sanction marriages.
The Department of Treasury and IRS Recognize All Legal
Same-Sex Marriages
Further guidance is to be issued addressing retroactive application to other employee benefit plans,
including qualified retirement plans.
Frequently Asked Questions (“FAQs”)
The IRS also published FAQs pertaining to Rev. Rul. 2013-17, with the following additional
information:
Filing Issues for Individual Income Tax Returns
• For years beginning in 2013, same-sex spouses generally must file Federal tax returns using a
“married filing separately” or “married filing jointly” filing status.
• A same-sex spouse cannot itemize deductions if his or her spouse claims a standard deduction.
• If the taxpayer adopts the child of his or her same-sex spouse as a second parent or co-parent, the
adopting parent taxpayer cannot claim an adoption credit.
Dependent
• A taxpayer’s spouse cannot be a dependent of the taxpayer.
• If the same-sex spouses have a child that qualifies as a “child” under applicable Code sections,
either parent, but not both, may claim a dependency deduction for the qualifying child.
Claiming a Refund - Employee
• If an employer provided health coverage for an employee’s same-sex spouse and included the
value of that coverage in the employee’s gross income, the employee can file an amended
Form 1040 reflecting the employee’s status as a married individual to recover Federal income tax
paid on the value of the health coverage for the employee’s same-sex spouse for all years for
which the period of limitations for filing a claim for refund is still open.
• Similarly, subject to the statute of limitations, if an employer sponsored a cafeteria plan that
allowed employees to pay premiums for health coverage on a pre-tax basis, the participating
employee may file an amended return to recover income taxes paid on premiums that the employee
paid on an after-tax basis for health coverage for that employee’s same-sex spouse.
• Claims for refunds of over-withheld income tax for prior years generally cannot be made by
employers.
Claiming a Refund - Employer
• If the period of limitations for filing a claim for refund is open, an employer may claim a refund of,
or make an adjustment for, any excess Social Security taxes and Medicare taxes paid on amounts
included in an employee’s income due to employer-provided health coverage for the employee’s
same-sex spouse. (See Instructions for Form 941-X, Adjusted Employer’s Quarterly Federal Tax
Return or Claim for Refund.)
• The IRS expects to establish a special administrative procedure to facilitate refunds or adjustments
of excess Social Security taxes and Medicare taxes.
• Employers cannot claim a refund or make an adjustment of income tax withholding that was
withheld from the employee with respect to benefits in prior years; rather, the employee may file
for any refund of income tax due for prior years on Form 1040X, provided the period of limitations
for claiming a refund has not expired.
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The Department of Treasury and IRS Recognize All Legal
Same-Sex Marriages
• Employers may make adjustments for income tax withholding that was over-withheld from an
employee in the current year provided the employer has repaid or reimbursed the employee for the
over-withheld income tax before the end of the calendar year.
Qualified Retirement Plans
• Qualified Retirement Plans are required to comply with the rules of Rev. 2013-17 as of
September 16, 2013. Future guidance will be issued addressing (1) plan amendment requirements
(including the timing of any required amendments) and (2) any necessary corrections relating to
plan operations for periods before future guidance is issued.
Practical Implications of Rev. Rul. 2013-17
2013 Impacts for Welfare Plans
• Income may not be imputed for federal tax purposes for coverage of same-sex spouses in 2013.
• Income currently being imputed for federal tax purposes on a pay-period basis for coverage of
same-sex spouses should stop effective September 16, 2013 (if administratively possible).
• Same-year adjustments to income previously imputed in 2013 should be applied to the extent
possible to correct over-withholding of federal income taxes and overpayment of payroll taxes (to
the extent permitted by normal same-year adjustment rules).
• Open enrollment materials and other fall communications should be reviewed to reflect the
Treasury guidance.
• Employers should determine whether to file a refund claim of any excess Social Security taxes and
Medicare taxes paid on imputed income for coverage of same-sex spouses.
Corrected W-2’s for Years Before 2013
• The guidance does not require employers to issue Form W-2c’s back to 2010 to employees for
whom income was imputed due to welfare plan coverage for a same-sex spouse. The guidance
seems to imply that employees filing for a refund for prior-year withholding on the cost of
coverage for a same-sex spouse know the total amount imputed for the year and/or puts the burden
on the employee to figure it out.
• Employers may want to consider how much help they will provide to employees filing for refunds.
Evaluation of Qualified Plan Provisions and Benefits
• Employers should determine the extent to which benefit design changes are necessary or desired
(e.g., make a domestic partner the default beneficiary of an unmarried participant who does not
designate any other beneficiary).
• Participant communications (including SPDs, notices and distribution forms) should be reviewed
for conforming changes.
Validation of Marital Status
• Employers should reconsider their existing procedures relating to validation of marital status for
both opposite-sex and same-sex marriages as well as domestic partner and civil union
relationships.
• Employers will need to establish an ongoing process to stay abreast of changes to state laws
regarding the validity of same-sex marriage.
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The Department of Treasury and IRS Recognize All Legal
Same-Sex Marriages
Continued Application of State Tax Law
• The Treasury Department guidance does not impact the application of state tax law (except to the
extent that a state’s tax law incorporates or follows federal tax law).
• Employers will need to continue to apply applicable state tax withholding and other income tax
rules.
Authors:
Mary Turk-Meena
mary.turk-meena@klgates.com
+1.704.331.7590
Emily D. Zimmer
emily.zimmer@klgates.com
+1.704.331.7405
Katie M. Morton
katie.morton@klgates.com
+1.704.331.7527
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©2013 K&L Gates LLP. All Rights Reserved.
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