Bradley & Riley PC

In late June, 2013, we reported that the U.S. Supreme Court's decision striking down Section 3 of the Defense of Marriage Act (DOMA) would have significant impacts on employers. As we noted then, U.S. v. Windsor left a key question unanswered:

"It remains to be seen whether that recognition will be limited to same-sex married couples who continue to reside in a marriage equality state, or will be "portable", i.e., extend to same-sex married couples who married in a marriage-equality state but reside in a state that does not recognize same-sex marriage."

On August 29, 2013, IRS and Treasury provided the answer. In Revenue Ruling 2013-17, IRS ruled that same-sex couples married in any jurisdiction recognizing same-sex marriage will be treated as married for all federal tax purposes irrespective of the legal status of their marriage in the state in which they are domiciled. The decision applies to all tax issues where marital status is relevant, including filing status, dependent exemptions, earned income and child tax credits, IRA contributions and employee benefits. As IRS recognized, the domicile-based alternative would pose serious problems for employers:

"A rule of recognition based on the state of a taxpayer's current domicile would also raise significant challenges for employers that operate in more than one state, or that have employees (or former employees) who live in more than one state, or move between states with different marriage recognition rules. Substantial financial and administrative burdens would be placed on those employers, as well as the administrators of employee benefit plans."

The decision provides much-needed predictability and uniformity for employers and employees alike. Treasury and IRS have also provided helpful FAQs (here and here) which clarify consequences of the Ruling. In the case of qualified retirement plans, for example:

"A qualified retirement plan must treat a same-sex spouse as a spouse for purposes of satisfying the federal tax laws relating to qualified retirement plans. ..."

The Ruling will take prospective effect September 16, 2013, and may be relied on retroactively for original, amended or adjusted returns and for claims for credits and refunds for which the statutory limitations period has not expired. This retroactive component may have major implications for employment-based benefit plans, and will be the subject of subsequent guidance by IRS and Treasury. To determine the status of your company's employee benefit plans in light of the new rules and to make the necessary adjustments to ensure compliance, please consult your legal counsel immediately.

 

For any questions regarding these updates or other aspects of DOMA, please contact Adam Tarr.

Categories: Employment Law

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