On June 26, 2013, the U.S. Supreme Court ruled on a landmark case related to same-sex marriage (SSM) (United States v. Windsor). The 5-4 decision changes the application of federal tax rules for married same-sex couples.
In the first case, the court struck down Section 3 of the Defense of Marriage Act of 1996 (DOMA). Section 3 defined marriage as the union of a man and a woman and barred recognition of gay and lesbian same-sex marriages for all federal purposes including insurance benefits, Social Security benefits, the filing of joint tax returns, and the unlimited marital estate tax exemption available to opposite-sex married couples. The second case concerned California's Proposition 8, which banned same-sex marriage in that state. The justices ruled that the petitioners did not have standing to defend Proposition 8 in federal court, thus leaving in place a lower federal court decision that threw out the ban on gay marriage in California, effectively legalizing same-sex marriage in that state.
Generally, this ruling should enable same-sex married couples to obtain the same treatment under federal rules as has been available to heterosexual married couples. Federal agencies are working on issuing guidance on the effect of the Windsor decision, including whether federal rules treat a couple as married based on the state of celebration (where the marriage was performed) or state of domicile (where the couple lives).
On August 29, 2013, the U.S. Treasury Department and IRS recently announced that “same-sex couples, legally married in jurisdictions that recognize their marriages, will be treated as married for federal tax purposes.” The IRS also issued a revenue ruling (Rev. Rul. 2013-17) and FAQs providing guidance on the topic. This guidance states that for federal tax purposes, a marriage is recognized if validly entered into in a domestic or foreign jurisdiction that has the legal authority to sanction marriages. Thus, for federal tax purposes, the IRS is following the state of celebration rule to determine if a couple is married. The Departments of Labor, Defense and Homeland Security have also adopted a state of celebration rule. However, it is important to realize that the Social Security Administration, by law, currently uses a state of domicile rule.
The ruling will apply to all federal tax provisions where marriage is a factor, for all federal taxes, including income, estate, and gift taxes. Tax provisions in which marriage is a factor include filing status, personal and dependency exemptions, the standard deduction, employee benefits, contributions to IRAs, and the earned income tax credit, and the child tax credit, among others.
Amended Returns and Refund Claims
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. Taxpayers who wish to file a refund claim for income taxes should use Form 1040X, Amended U.S. Individual Income Tax Return.
State Tax Impact
There may be some state tax issues to address as well. For example, federal employees may be entitled to certain benefits that others are not, and states likely will need to clarify what the state tax treatment is if the state does not recognize same-sex marriage. Also, for couples living in states that do not recognize same-sex marriage, the state will likely provide guidance on how to obtain the federal tax amounts to file state income tax returns.
In all states, preparers should determine how same-sex married couples or RDPs are required to file for state income tax purposes. In addition, preparers may want to determine if there are any special rules for such couples for other types of state taxes, such as property taxes.