In a 5 to 4 decision, the United States Supreme Court found that Section 3 of the federal Defense of Marriage Act (DOMA) violates the equal protection clause of the Fifth Amendment of the U.S. Constitution as applied to persons of the same sex who are legally married under the laws of their state (U.S. vs. Windsor).
In response to Windsor, the IRS has issued Rev. Rul. 2013-17, which implements federal aspects of the decision. Under this ruling, same-sex couples who are legally married in jurisdictions that recognize their marriages will be treated as married for federal tax purposes regardless of whether or not their current place of domicile recognizes same-sex marriage. This so-called “state of celebration” approach mirrors the treatment of common law marriage set forth over 50 years ago. As a result, same-sex couples need to consider many tax implications. For more information, read below or contact our team of Accountants in NYC.
Federal Benefits Available
This ruling opens the door for same-sex married couples to enjoy all of the federal tax-related benefits previously available only to opposite-sex married couples. 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 is covered by the ruling. These benefits include (but are not limited to):
- Income tax benefits
- Estate and gift tax benefits
- Married filing jointly (MFJ) or married filing separately (MFS) filing status
- Claiming personal and dependency exemptions
- Taking the MFJ or MFS standard deduction
- Taxpayer-friendly employee benefits
- Spousal IRAs
- Claiming the earned income tax credit, the child tax credit, or the adoption credit
The IRS has updated their Answers to Frequently Asked Questions (FAQs) for Individuals of the Same Sex Who Are Married Under State Law to cover the application of these issues in more detail. The FAQs are posted on the IRS website.
Filing Federal Income Tax Returns
Same-sex married couples who were not considered married under federal law prior to the Windsor decision are considered married retroactively to the date of their marriage under state law for purposes of this ruling. Generally, for 2013 and all future tax years, legally married same-sex couples must file their federal income tax returns using either the married filing jointly (MFJ) or the married filing separately (MFS) filing status.
For all prior open tax years, same-sex spouses who file an original return on or after September 16, 2013 must also generally file as MFJ or MFS.
Amended Returns for Open Years
Individuals who are in same-sex marriages may opt (but are not required) to file original or amended returns choosing married treatment for federal tax purposes for one or more prior tax years still open under the statute of limitations. All items reported on the return or claim for refund that are affected by the marital status of the taxpayer must be adjusted to be consistent with the newly-claimed MFJ or MFS filing status.
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 2011, 2012 and 2013. In special circumstances, such as signing an agreement with the IRS to keep the statute of limitations open, refund claims may be filed for tax years 2010 and earlier.
Domestic Partnerships and Civil Unions
Registered domestic partnerships and individuals in civil unions are not considered as married or spouses for federal tax purposes under this ruling. Therefore, they are not accorded the corresponding favorable tax treatment. On the IRS website, an updated FAQs: Answers to Frequently Asked Questions for Registered Domestic Partners and Individuals in Civil Unions, addresses aspects of the Windsor decision. These include filing status, joint returns, dependency exemptions, itemized and standard deductions, and the adoption credit. A number of questions are posed and answered in the context of state community property laws as applied to registered domestic partnerships and civil unions.
Guidance is forthcoming on issues pertaining to qualified retirement plans, as well as streamlined procedures to file refund claims for payroll taxes paid on previously taxed benefits provided to same-sex couples. We will keep you informed as more guidance is released. In the meantime, please call our office as soon as possible to make an appointment with a Certified Public Accountant in NYC to review your prior year tax returns for a potential refund.