September 3, 2013
On June 26, 2013, the US Supreme Court issued its decision in United States v. Windsor, in which it held that section 3 of the Defense of Marriage Act was unconstitutional. Section 3 had provided that, for any federal law, ruling, regulation, or interpretation, the word “marriage” was limited to a legal union between one man and one woman as husband and wife. As a result of the Court’s decision, the IRS was expected to provide additional guidance regarding the federal tax implications for same-sex couples who are (or were) legally married pursuant to the laws of a state or foreign country. On August 29, 2013, the IRS issued Revenue Ruling 2013-17 in order to provide that guidance.
The IRS ruling says that same-sex marriages are recognized for all federal tax purposes, irrespective of where a married couple resides. In other words, a valid state-law marriage is recognized for federal tax purposes nationwide, even if the same-sex couple resides in a state that does not recognize the marriage. The ruling applies to same-sex marriages legally entered into in one of the 50 states, the District of Columbia, a U.S. territory, or a foreign country, but not to registered domestic partnerships, civil unions, or similar formal relationships recognized under state law.
Legally married same-sex couples will now be treated as married for income, gift and estate tax purposes. Specifically, 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 the child tax credit.
Beginning in 2013, those taxpayers in same-sex marriages must file their federal income tax returns as married taxpayers. This is not optional, meaning that all married individuals must now file their federal returns as married-filing jointly or as married-filing separately. They cannot file as single if that status yields a better result.
The IRS will begin applying the terms of Revenue Ruling 2013-17 on September 17, 2013, but taxpayers who wish to rely on the terms of the ruling for earlier periods may choose to do so, as long as the statute of limitations for the earlier year has not expired. This means that there may be opportunities for taxpayers to file amended tax returns for tax years 2009 through 2012 if married-filing-joint status will produce a better tax result. In addition, with the IRS adoption date of September 17, 2013, any same-sex married couples who have not yet filed their 2012 personal income tax returns will need to file their returns prior to that date if they do not wish to file jointly for 2012.
It is not yet known how this development will affect the filing of North Carolina income tax returns, if at all. For employers that offer employee benefits to same-sex spouses, previously those spousal benefits could not be provided on a pre-tax basis. Guidance will be issued soon on providing these benefits on a pre-tax basis as is allowed for the employee. In addition, opportunities for amended payroll tax returns and payroll tax refunds will also be announced soon.
Please stay tuned for additional guidance in regards to this ruling and contact us if you have questions concerning your particular situation.