Posted August 30th, 2013 in Top Stories

Employers Provided Guidance by IRS on Impact of Same-Sex Marriage Ruling

Since the June 26, 2013 United States Supreme Court ruling in United States v. Windsor, individuals and employers across the country have eagerly awaited guidance from the IRS on how the ruling affects employee benefits, specifically how health insurance benefits provided to employees’ same-sex spouses will be taxed and which state laws apply when determining whether a couple is married.  The IRS provided that guidance yesterday in Revenue Ruling 2013-17, deciding broadly in favor of recognizing same-sex marriages, providing that marriages between people of the same-sex are accorded all of the same federal tax benefits as marriages between people of the opposite sex and finding that a marriage is defined by the jurisdiction where it is celebrated, not the couple’s state of residence.  Therefore, couples in states that do not recognize same-sex marriage can still have their marriage recognized by the IRS so long as they were legally married in another state or foreign jurisdiction.

With this ruling, which takes effect September 16, 2013, employers have clear guidance on how to treat the taxation of employee benefits, and those that employ workers in multiple states particularly stand to benefit from new administrative relief.  Employers should discontinue the practice of imputing income to those employees who cover their same-sex spouses of health insurance plans and the employees’ benefits should otherwise be administered the same as those benefits of employees in opposite-sex marriages. Further, employers should apply these rules across the board, regardless of jurisdiction.

Two other important points for employers: First, taxpayers have the option (but are not mandated) to amend previous years’ returns and request a refund. This is particularly useful for employers who have been paying taxes on the value of insurance benefits they have provided to their employees’ same-sex spouses.  Even in states that do not or have not recognized same-sex marriage, employers can take advantage of this option if the employees were married in another jurisdiction.  Second, the IRS specifically noted that it intends to issue further guidance on the retroactive application of the Windsor decision to other employee benefits and employee benefit plans and arrangements, so companies should stay tuned for more.

Sarah Riskin