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Monday, September 23, 2013

Same-Sex Married Couples: The IRS ruling treats as married for all federal tax purposes

Posted by Armanino Nonprofit Team

On Aug. 29, 2013 the IRS issued Revenue Ruling 2013-17 clarifying that same-sex couples married in jurisdictions recognizing same-sex marriage will be treated as married for all federal tax purposes — regardless of where they reside. The ruling is in response to the U.S. Supreme Court’s landmark decision on June 26, 2013 (in United States v. Windsor) that struck down the definition of marriage for federal benefits purposes as just being between a man and a woman.

The IRS ruling will take effect September 16, 2013. Under the ruling, same-sex married couples will be treated as married for all federal tax provisions in which marriage is a factor, such as filing status, claiming personal and dependency exemptions, tax-advantaged treatment of certain employee benefits, IRA contribution limits, claiming the child tax credit, and gift and estate tax breaks such as the marital deduction and exemption portability.

This article provides a brief overview of the guidance provided in the IRS ruling addressing federal tax provisions affecting employers and same-sex married couples. The IRS has indicated additional guidance will be published in the very near future so the information below outlines in general terms what we know today.  Please keep in mind that each situation is different so contact us or your benefits consultant to discuss your specific fact pattern.

Employers – Effective September 16, 2013

The federal ruling will affect all employers located in every state (whether that particular state recognizes/permits same-sex marriages or not).  Considerations employers will need to address now include (but are not limited to):

  • Review current health/fringe benefit plan coverage/policies to make sure any spousal coverage includes same-sex spouses as required by the IRS ruling.
  • Update language in employment related documents (benefits plans, retirement plans, policy manuals, etc.) so that definition of marriage includes same-sex marriage and the definition of spouse includes same-sex spouse as now required by the IRS.
  • Update payroll withholding policies to be incompliance with the new IRS federal guidelines effective September 16, 2013.  For example, cease imputing federal income tax and FICA taxes on excludable benefits paid on behalf of same-sex spouses (since now paid with before tax dollars).
  • Obtain retirement plan consent forms from same-sex couples since a same-sex spouse is to be treated as a spouse for federal tax purposes with respect to qualified retirement plans.
  • Consider advantage of amending prior federal payroll tax returns to secure refunds of employee and employer FICA taxes paid on benefits paid to same-sex spouses (we expect further guidance from the IRS soon).  Establish procedure for refunding employees’ share.

 

Same-Sex Married Couples – Effective September 16, 2013

Starting Sept. 16, 2013, all original federal income tax returns filed by same-sex married couples must reflect their marital status (married filing jointly or married filing separately). Considerations same-sex married couples will need to address now include (but are not limited to):

  • Determine if advantageous to file your 2012 extended federal income tax returns as “single” since to meet the deadline the returns would need to be postmarked before September 16, 2013. Same-sex married couples who have obtained extensions to file their 2012 returns can’t use the filing status “single” after September 15, 2013.
  • Review your employer’s health and fringe benefit plans to make sure you and your spouse are taking advantage of such benefits.
  • Project your 2013 tax liabilities using married filing status and identify any income tax planning opportunities to reduce taxes and to avoid penalties for underpayment of tax.
  • Review your estate plans and determine whether any changes are warranted to take advantage of the federal gift and estate tax benefits available to married couples.
  • Determine if beneficial to amend any prior gift tax or estate returns filed.

If you are affected by the IRS ruling, we’d be pleased to help you assess the tax impact and determine the specific steps you should take. Please contact Barbara Cyphers at 925-790-2618 or at Barbara.Cyphers@amllp.com.

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