Under new IRS guidance, same-sex married employees are entitled to all federal spousal tax benefits, even if they live in a state that doesn’t recognize same-sex marriage.
Warning: This favorable tax treatment applies only to employees who are married. The IRS released this guidance in response to the U.S. Supreme Court’s June ruling in Windsor v. United States, which held that Section 3 of the federal Defense of Marriage Act (DOMA) was unconstitutional because it denied legally married same-sex couples equal protection of the law.
The IRS began applying the guidance prospectively on Sept. 16, 2013. (Rev. Rul. 2013-17, IRB 2013-38)
The IRS’ broad interpretation makes payroll and benefits administration much easier, since it allows for a uniform rule and doesn’t require employers to delve into the details of a state’s marriage law. However, employers may still need to inquire about employees’ marital status, since employees in civil unions and domestic partnerships aren’t covered under this guidance.
At the outset, all same-sex married employees may refile their W-4s and claim married status. For payroll and benefit purposes, same-sex married employees are now entitled to the following benefits on a tax-free basis:
- Employer-provided health insurance, including pretax deductions into cafeteria plans
- Qualified tuition reduction provided by educational institutions
- Meals or lodging furnished to employees at employers’ convenience
- Dependent care assistance
- Tax-free fringe benefits under tax code section 132—no-additional-cost services, qualified employee discounts, spousal travel as a working condition fringe, qualified retirement planning services and access to on-site gyms.
Although the IRS’ ruling applies prospectively, the IRS also says that employers may apply for FICA refunds with respect to taxes paid on those benefits, provided the statute of limitations is still open (generally tax years beginning in 2010). Employees must file amended 1040s to claim tax refunds for past years. Employers may refund to employees income taxes withheld on benefits this year.
The IRS also says that it intends to issue streamlines procedures for employers that wish to file refund claims for payroll taxes paid on previously-taxed benefits.
Guidance on amendments to cafeteria plans and retirement plans will also be forthcoming.
