As promised, I am updating my earlier blog outlining many tax law questions left unanswered as a result of the recent Supreme Court decision invalidating a key provision of the 1996 Defense of Marriage Act (DOMA). The IRS has recently announced their ruling addressing the tax law implications arising from the Court’s decision on DOMA.
The IRS took a surprisingly bold stand in their recognition of a same-sex marriage in the eyes of federal tax law. While it was clear early on that a same-sex couple married and residing in a state or jurisdiction recognizing same-sex marriages would be considered an married couple, there were questions as to whether other same-sex marriages with different situations would be recognized similarly. The IRS was courageous and decided to recognize all same-sex marriages regardless of circumstance as valid marriages in the eyes of the tax code.
What does this mean? As I pointed out in my earlier blog, questions remained for same-sex couples who were married in a state that obviously recognizes same-sex marriage but now reside in a state that does not recognize those marriages. Further, many same-sex couples have made the decision to marry and traveled from their state of residence to a state or jurisdiction that recognizes same-sex marriage to celebrate a legal same-sex marriage. These couples were also unsure of where they would stand in the eyes of the tax law.
On August 29, 2013, the IRS answered their questions…all of the same-sex marriages discussed above are recognized as a legal marriage for 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 or child tax credit. According IR-2013-72:
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 (RDP’s), civil unions or similar formal relationships recognized under state law. Couples who have an RDP or similar must continue to file as they have in the past which can be complicated by those residing in states that have community property laws such as the State of Nevada.
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.
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.
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.
As our country moves forward in terms of equality in marriage, so too does the tax law. However, tax law has always been equal in one regard…it is, and continues to be, complicated. Please remember that we at Barnard Vogler & Co., CPA’s are always ready to help you trudge through the process of compliance and keep you on the right track.