IRS Recognizes Legal Same Sex Marriages for Tax Purposes

Late last month, the Obama administration announced that same-sex couples that are married will be “treated the same as opposite-sex couples for tax purposes,” according to an article in USA Today. In other words, the federal government will treat all legally married same-sex couples just like they‘ve been treating opposite-sex married couples. Right now, there are more than 130,000 same-sex married couples in the country, based on census figures reported in a Newsday article.

So what does this ruling mean in practical terms? For example, same-sex married couples will now get all of the benefits that opposite-sex married couples have been receiving for years, including those benefits connected to “income and gift and estate taxes,” according to a press release from the Department of the Treasury. These new federal tax guidelines will have an effect on all “personal and dependent exemptions and deductions, employee benefits, IRA contributions and tax credits,” reported USA Today.

One of the most notable effects of the recent ruling, perhaps, is the tax exclusion for employer-paid health insurance. Before the recent ruling, many gay couples purchased this on an after-tax basis. Now, it will be included. According USA Today, this may be “the biggest financial bonanza” for many same-sex married couples. Indeed, it could end up being worth “more than $1,000 per couple.”

Importantly, while same-sex couples who are filing joint tax returns this year must have been legally married in a jurisdiction recognizing same-sex marriage, it doesn‘t matter if they currently reside in that jurisdiction. In short, as long as the marriage itself is legal, same-sex couples can live in states that don‘t recognize their marriage while still having access to these federal tax benefits.

The press release from the Treasury Department emphasized the invalidity of a “key provision” of the 1996 Defense of Marriage Act, a contested piece of legislation that the U.S. Supreme Court overruled back in June. Now, according to Treasury Secretary Jacob J. Lew, the new ruling from the Department of the Treasury and the Internal Revenue Service (IRS) “provides certainty and clear, coherent tax filing guidance for all legally married same-sex couple nationwide.” Lew explained that it “provides access to benefits, responsibilities and protections under federal tax law that all Americans deserve.” Most notably, Lew made clear that “this ruling also assures legally married same-sex couples that they can move freely throughout the country knowing that their federal filing status will not change.”

At the same time, however, those same-sex couples likely won‘t be entitled to a joint filing status when it comes to their state returns if they‘re living in a jurisdiction that doesn‘t recognize gay marriage. Additionally, the new ruling doesn‘t have an impact on Social Security, “which will only recognize couples living in states that allow same-sex marriages,” according to USA Today.

As of now, thirteen states and the District of Columbia permit same-sex marriage. Those states include California, Connecticut, Delaware, Iowa, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New York, Rhode Island, Vermont, and Washington. And regardless of where gay marriage is currently legal, lawyers and economists continue to cite the significance of the IRS and the Treasury Department‘s ruling. For example, a lawyer who deals with pension plans and benefits explained that the ruling “is uniformly good for everybody,” as health benefits for gay married couples “just went from taxable to non-taxable.”

For the 2013 tax year, gay married couples will have the option to use the “married filing jointly” or the “married filing separately” status. In addition, according to Treasury Department‘s press release, the statute of limitations for filing a claim refund is generally three years from the date the return was originally filed. As a result, same-sex married couples will also be able to amend returns for tax years 2010, 2011, and 2012.


Related Reading:
Brewing Conflicts Between State and Federal Law on Same Sex Marriage

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