IRS and DOL Issue Guidance Under the Supreme Court’s Decision in Windsor on the Definition of “Spouse” and “Marriage”
On June 26, 2013, in United States v. Windsor, a majority of the Supreme Court held as unconstitutional Section 3 of the Defense of Marriage Act (“DOMA”), which defined marriage for purposes of federal law as the union of a man and a woman. Please see our prior Tax and Trusts & Estates Update, Supreme Court Invalidates Key Section of “DOMA” on Constitutional Grounds, July 2013. As a result of the Supreme Court’s decision, DOMA no longer provides a uniform definition of “marriage” and “spouse” for federal law purposes, including the Employee Retirement Income Security Act (“ERISA”) and the Internal Revenue Code (“Code”), which govern employer-sponsored retirement and health plans.
While the Supreme Court’s decision clarified the treatment of same-sex spouses for purposes of federal law, the treatment of same-sex spouses for purposes of state law remains unclear and is in an ongoing flux. Currently, licenses for same-sex marriages may be issued in California, Connecticut, Delaware, Iowa, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New York, Rhode Island, Vermont, Washington and the District of Columbia.
As a result, federal agencies have needed to clarify whether they will look to the state of residency or the state of the marriage celebration to determine if a couple is married for purposes of federal law. In this regard, both the Internal Revenue Service (“IRS”) and the Department of Labor (“DOL”) have recently announced that, pursuant to the Supreme Court’s decision in Windsor, they have adopted a “state-of-celebration” rule to determine the validity of same-sex marriages.
In Revenue Ruling 2013-17, the IRS stated that, for federal tax purposes (including with respect to employee benefit plans): (i) the terms “spouse,” “husband and wife,” “husband,” and “wife” include an individual married to a person of the same sex if the individuals are lawfully married under state law, and the term “marriage” includes such a marriage between individuals of the same sex; and (ii) the IRS adopts a general rule recognizing a marriage of same-sex individuals that was validly entered into in a state whose laws authorize the marriage of two individuals of the same sex even if the married couple is domiciled in a state that does not recognize the validity of same-sex marriages. In addition, Revenue Ruling 2013-17 provides that, for federal tax law purposes, the terms “spouse,” “husband and wife,” “husband,” and “wife” do not include individuals (whether of the opposite sex or the same sex) who have entered into a registered domestic partnership, civil union, or other similar formal relationship recognized under state law, and the term “marriage” does not include such formal relationships.
Shortly after Revenue Ruling 2013-17 was issued, the DOL issued Technical Release No. 2013-04, stating that: (i) in general, where the Secretary of Labor and the DOL have authority to issue regulations, rulings, opinions, and exemptions in title I of ERISA and the Code, the term “spouse” will be read to refer to any individuals who are lawfully married under any state law, including individuals married to a person of the same sex who were legally married in a state that recognizes such marriages, but who are domiciled in a state that does not recognize such marriages; and (ii) the term “marriage” will be read by the DOL to include a same-sex marriage that is legally recognized as a marriage under any state law. Similar to Revenue Ruling 2013-17, Technical Release No. 2013-04 further provides that the terms “spouse” and “marriage” do not include individuals in a formal relationship recognized by a state that is not denominated a marriage under state law, such as a domestic partnership or a civil union, regardless of whether the individuals who are in these relationships have the same rights and responsibilities as those individuals who are married under state law (and regardless of whether these individuals are in these relationships with an individual of the opposite sex or same sex).
Under this guidance from the IRS and DOL, a same-sex couple married in a state that recognizes such marriage will be treated as married for federal income tax and employee benefit plan purposes, even though the couple may now live and work in a state that does not recognize same-sex marriage. As a result, under a retirement plan a same-sex former spouse will be entitled to spousal survivor annuities and the right to require spousal consent for designated non-spouse beneficiaries, waivers of survivor annuities, loans and in-service withdrawals. However, the allocation of accrued employee benefits determined pursuant to a qualified domestic relations order (“QDRO”) may depend, in part, on whether a state court, consistent with state law, may issue a domestic relations order (“DRO”) that addresses such allocation. In some cases, therefore, a same-sex couple married in a state that recognizes such mar riage but residing in a state that does not, and seeking a divorce decree that allocates accrued employee benefits, may have to obtain a DRO in a state that recognizes such marriage in order to facilitate the allocation of accrued employee benefits pursuant to a QDRO.
To ease plan administration and avoid having to track plan participants’ residency to ascertain the validity of a participant’s same-sex marriage, employers should consider adopting a uniform definition of “spouse” and “marriage” for employer-sponsored benefit plan purposes.
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.
Federal agencies, including the IRS and DOL, are expected to issue further guidance, including guidance on the retroactive application of the Supreme Court’s decision. The decision will be applied retroactively at least in some instances. For example, the IRS recently issued guidance which clarified that employers may recover excess employment taxes paid in previous years due to imputing income to an employee for a same-sex spouse’s health coverage. In Notice 2013-61, the IRS provides special administrative procedures for employers to file refund claims (or make adjustments) for excess social security and Medicare taxes.
We will keep you posted on further guidance which the IRS and DOL are expected to issue later this year regarding the impact of the Windsor decision, including any additional guidance on the retroactive application of the decision to federal taxes on employee benefits for same-sex couples.
