Here’s something that should be at the top of your to do list on this Monday morning: make sure your benefits and other employee policies are in compliance with new guidance from the IRS that becomes effective today relating to federal tax treatment of same-sex marriages under the U.S. Supreme Court’s decision in U.S. v. Windsor. In Windsor, the Supreme Court struck down provisions of the Defense of Marriage Act (“DOMA”), which had prohibited recognition of same-sex marriages under federal law. That decision has several implications for employers, including application of employee leave laws such as the Family Medical Leave Act (“FMLA”), which we blogged about recently.
Since the Windsor ruling, federal agencies have been busy carrying out President Obama’s directive to update regulations and guidance accordingly. On August 29, the IRS issued Revenue Ruling 2013-17 and two sets of FAQs (here and here), advising how the IRS will treat same-sex marriages for federal tax purposes. (Windsor was, after all, a tax case, in which the issue was whether the IRS was allowed to disregard a same-sex marriage for federal estate tax purposes). The guidance becomes effective today, September 16, 2013.
Under that new guidance, the IRS will apply the marriage laws of the state or country in which the marriage was celebrated (‘state of celebration”) to determine if the couple is validly married for federal tax purposes, including tax and other issues relating to employee benefits. Under the new IRS guidance, any same-sex marriage validly entered into in any state or foreign country that allows same-sex marriage will be recognized by the IRS for income, estate, and other tax purposes, even if the couple does not live or work in a state that recognizes the marriage. For example, if a same-sex couple is married in Washington (or Canada), which recognizes same-sex marriage, and then moves to Oregon, which currently does not, the couple will still be considered married for federal tax purposes.
According to the IRS guidance, applying the state of celebration rule will provide certainty and consistency for same-sex couples under federal tax law: “Given our increasingly mobile society, it is important to have a uniform rule of recognition that can be applied with certainty by the Service and taxpayers alike for all Federal tax purposes.” In declining to adopt the state of residence rule for determining married status, the IRS guidance follows most of the other guidance issued by other federal agencies, although the DOL has announced that it will follow the state of residence for FMLA purposes (which, post-Windsor and due to how that statute is drafted, allows an employee to take family leave to care for a same-sex spouse only if the employee actually resides in a state recognizing same-sex marriage).
Employers should immediately review the new IRS guidance and any benefits, family leave, or other policies that may be affected by the changes Windsor brings. Our Howard Bye-Torre has published a detailed Q&A that walks you through the implications of Windsor for tax, employee benefits, and other issues potentially affecting employers.