What provisions of the federal tax code now apply to same-sex married couples?

In 2013, the IRS published Revenue Ruling 2013-17 to state its position regarding same-sex married couples who file an original tax return on or after Sept. 16, 2013, the effective date of the revenue ruling.   Since that time, the IRS has clarified how this ruling should be interpreted through a series of Q&As.  Excerpts from such information published by the IRS indicate that for federal tax purposes:

  • The IRS looks to state or foreign law to determine whether individuals are married.
  • The IRS has a general rule recognizing a marriage of same-sex spouses that was validly entered into in a domestic or foreign jurisdiction whose laws authorize the marriage of two individuals of the same sex even if the married couple resides in a domestic or foreign jurisdiction that does not recognize the validity of same-sex marriages.
  • For tax year 2013 and going forward, all such same-sex couples generally must file using a married filing separately or jointly filing status using the same criteria as apply to all other married couples.
  • For tax year 2012, all such same-sex couples who file an original tax return on or after Sept. 16, 2013, generally must file using a finling status of married filing separately or married filing jointly.
  • For tax year 2012, such same-sex spouses who filed their tax return before Sept. 16, 2013, may choose (but are not required) to amend their federal tax returns to file using married filing separately or married jointly filing status.
  • For tax years 2011 and earlier, such same-sex spouses who filed their tax returns timely may choose (but are not required) to amend their federal tax returns to file using married filing separately or married filing jointly filing status, provided the period of limitations allowed for amending personal income tax returns for the year(s) affected has not expired.  All taxpayers generally may file a claim for refund for three years from the date the return was filed or two years from the date the tax was paid, whichever is later. See Tax Topic 308, Amended Returns.
  • All such same-sex married couples are subject to the same requirements and restrictions as other married couples when filing their federal income tax returns, including but not limited to the rules for filing status, dependents, standard deduction entitlements, itemized deduction rules and limitations, adoption credits, community income taxation, taxability of health insurance benefits, qualified retirement plan regulations, and spouses employed by self-employed individuals, as well as applicable limits of eligible income and tax credit limitations for items such as passive activity loss limitation restrictions, AMT exemption threshold amounts, personal exemption phase out limits, standard deduction limits, additional standard deduction limits for the elderly and blind, itemized deduction phase out limits, education loan interest deduction limitations, adoption credit amounts, adoption credit phase out limits.

Some FAQ examples enumerated by the IRS include the following:

Can a taxpayer’s same-sex spouse be a dependent of the taxpayer?  No. A taxpayer’s spouse cannot be a dependent of the taxpayer.

If same-sex spouses (who file using the married filing separately status) have a child, which parent may claim the child as a dependent?  If a child is a qualifying child under section 152(c) of both parents who are spouses (who file using the married filing separate status), either parent, but not both, may claim a dependency deduction for the qualifying child. If both parents claim a dependency deduction for the child on their income tax returns, the IRS will treat the child as the qualifying child of the parent with whom the child resides for the longer period of time during the taxable year. If the child resides with each parent for the same amount of time during the taxable year, the IRS will treat the child as the qualifying child of the parent with the higher adjusted gross income.

Can a taxpayer who is married to a person of the same sex claim the standard deduction if the taxpayer’s spouse itemized deductions?  No. If a taxpayer’s spouse itemized his or her deductions, the taxpayer cannot claim the standard deduction (section 63(c)(6)(A)).

If a taxpayer adopts the child of his or her same-sex spouse as a second parent or co-parent, may the taxpayer (“adopting parent”) claim the adoption credit for the qualifying adoption expenses he or she pays or incurs to adopt the child?  No. The adopting parent may not claim an adoption credit. A taxpayer may not claim an adoption credit for expenses incurred in adopting the child of the taxpayer’s spouse (section 23).

Do provisions of the federal tax law such as section 66 (treatment of community income) and section 469(i)(5) ($25,000 offset for passive activity losses for rental real estate activities) apply to same-sex spouses?  Yes. Like other provisions of the federal tax law that apply to married taxpayers, section 66 and section 469(i)(5) apply to same-sex spouses because same-sex spouses are married for all federal tax purposes.

If an employer provided health coverage for an employee’s same-sex spouse and included the value of that coverage in the employee’s gross income, can the employee file an amended Form 1040 reflecting the employee’s status as a married individual to recover federal income tax paid on the value of the health coverage of the employee’s spouse?  Yes, for all years for which the period of limitations for filing a claim for refund has not expired.  If an employer provided health coverage for an employee’s same-sex spouse, the employee may claim a refund of income taxes paid on the value of coverage that would have been excluded from income had the employee’s spouse been recognized as the employee’s legal spouse for tax purposes.

If an employer sponsored a cafeteria plan that allowed employees to pay premiums for health coverage on a pre-tax basis, can a participating employee file an amended return to recover income taxes paid on premiums that the employee paid on an after-tax basis for the health coverage of the employee’s same-sex spouse?  Yes, for all years for which the period of limitations for filing a claim for refund has not expired. If an employer sponsored a cafeteria plan under which an employee elected to pay for health coverage for the employee on a pre-tax basis, and if the employee purchased coverage on an after-tax basis for the employee’s same-sex spouse under the employer’s health plan, the employee may claim a refund of income taxes paid on the premiums for the coverage of the employee’s spouse.

May the employer claim a refund for the Social Security taxes and Medicare taxes paid on the benefits?   Yes. If the period of limitations for filing a claim for refund is open, the employer may claim a refund of, or make an adjustment for, any overpayment of Social Security taxes and Medicare taxes. The requirements for filing a claim for refund or for making an adjustment for an overpayment of the employer and employee portions of Social Security and Medicare taxes can be found in the Instructions for Form 941-X, Adjusted Employer’s QUARTERLY Federal Tax Return or Claim for Refund. Notice 2013-61 provides special administrative procedures for employers to file claims for refunds or make adjustments for overpayments of Social Security taxes and Medicare taxes paid on same-sex spouse benefits.

In the situations described in Q&A #10 and Q&A #11, may the employer claim a refund or make an adjustment of income tax withholding that was withheld from the employee with respect to the benefits in prior years?   No. Claims for refund of over-withheld income tax for prior years cannot be made by employers. The employee may file for any refund of income tax due for prior years on Form 1040X, provided the period of limitations for claiming a refund has not expired.  Employers may make adjustments for income tax withholding that was over-withheld from an employee in the current year provided the employer has repaid or reimbursed the employee for the over-withheld income tax before the end of the calendar year.

If a sole proprietor employs his or her same-sex spouse in his or her business, can the sole proprietor get a refund of Social Security, Medicare and FUTA taxes on the wages that the sole proprietor paid to the same-sex spouse as an employee in the business?  Services performed by an employee in the employ of his or her spouse are excluded from the definition of employment for purposes of the Federal Unemployment Tax Act (FUTA). Therefore, for all years for which the period of limitations has not expired, the sole proprietor can claim a refund of the FUTA tax paid on the compensation that the sole proprietor paid his or her same-sex spouse as an employee in the business. Services of a spouse are excluded from Social Security and Medicare taxes only if the services are not in the course of the employer’s trade or business, or if it is domestic service in a private home of the employer.

What rules apply to qualified retirement plans pursuant to Rev. Rul. 2013-17?  Qualified retirement plans are required to comply with the following rules pursuant to Rev. Rul. 2013-17:

  • 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.
  • For purposes of satisfying the federal tax laws relating to qualified retirement plans, a qualified retirement plan must recognize a same-sex marriage that was validly entered into in a jurisdiction whose laws authorize the marriage, even if the married couple lives in a domestic or foreign jurisdiction that does not recognize the validity of same-sex marriages.
  • A person who is in a registered domestic partnership or civil union is not  considered to be a spouse for purposes of applying the federal tax law requirements relating to qualified retirement plans, regardless of whether that person’s partner is of the opposite or same sex.

DISCLAIMER: This information reflects the published interpretations of the IRS concerning Revenue Ruling 2013-17 in 2013-38 IRB 201The best source of information for answers to questions about federal income tax treatment for individuals of the same sex under this interpretation is the IRS itself.  The IRS provides information, webinars and videos for this topic on a separate FAQ page of its website for such questions.

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Roy & Associates, PC serves clients in western Pennsylvania located predominantly in Westmoreland County, Allegheny County, and Fayette County.

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