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.Today's ruling produces an immediate tax savings to same-sex couples in Indiana who take advantage of health care benefits offered by their employer. As it stands currently, the health care benefits provided to the same-sex spouse of an employee is taxed unlike benefits provided to straight married couples. Because Indiana repealed its inheritance tax this year, gays are no longer penalized when they leave their estate to their same-sex spouse regardless of whether they are legally married. Today's IRS ruling will allow legally married same-sex couples residing in Indiana to take advantage of the marital exemption when they leave their estates to their surviving spouse for federal inheritance tax purposes. Indiana same-sex couples will also qualify for refunds based on their newly-recognized status for up to the three past years; however, like straight married couples, they will have to pay the marriage penalty if their joint income reaches the threshold that triggers a higher tax rate.
Companies like Eli Lilly, Cummins and Wellpoint can breathe a sigh of relief after today's ruling. If the IRS had not extended the tax benefits of being legally married to same-sex couples throughout the country regardless of whether their marriage is recognized under state law, companies offering same-sex benefits would find their employees residing in Indiana being treated at a great tax disadvantage to their employees residing in other states where their marriages were legally recognized. These employers would find it difficult to retain and attract talent to Indiana if their employees face discriminatory tax treatment. The move by the IRS also puts the Indiana Department of Revenue and Gov. Mike Pence in a precarious situation if the state doesn't adopt a similar rule. The Indiana income tax is coupled with the federal income tax. If Indiana does not treat legally married same-sex couples the same way as the federal law, state income tax compliance for same-sex couples will become highly complicated. In light of today's ruling, the Indiana Chamber of Commerce may have to reconsider whether it remains neutral in the gay marriage debate opponents have vowed to renew when the legislature convenes next year.
Immediately following the Supreme Court's ruling at the end of this year's term, the Department of Homeland Security announced that it would extend the same immigration benefits to legally married same-sex couples as have traditionally been extended to opposite-sex couples. USCIS has already started processing and approving immigrant benefits for alien spouses of U.S. citizens who are legally married to a U.S. citizen regardless of whether they reside in a state which legally recognizes their marriage.