Same-Sex Married Couples And Federal Tax Law Changes

The Internal Revenue Service on Friday (8/29/2013) ruled that same-sex couples who have legally wed in jurisdictions that recognize same-sex marriage will be treated as married for federal tax purposes, even if they live in a jurisdiction that does not recognize their marriage as valid.  Revenue Ruling 2013-17 implements federal tax aspects of the June 26^th SCOTUS ruling in Windsor v United States which invalidated parts of the 1996 Defense of Marriage Act.

Any same-sex marriage legally entered into in one of the 50 states or the District of Columbia, a U.S. Territory, or a foreign country is covered by the ruling.  Registered domestic partnerships, civil unions, or other relationships recognized under state law are not covered.

This means that even though North Carolina does not recognize same-sex marriages, North Carolina residents that are same-sex couples who have been (or will be this year) legally married under the laws of another jurisdiction generally must file their 2013 federal income tax return using the “married filing jointly” or the “married filing separately” filing status.  It also meant that they may, though they need not, file amended returns choosing to be treated as married for prior tax years on which the statute of limitations to amend a return has not tolled.

The ruling applies to all federal tax provisions to which marriage is a factor.  Besides filing status, these include personal and dependent exemptions, employee benefits, contributing to an IRA, and claiming of the earned income tax credit and child tax credit.  Further, funds used for the purchase of health insurance for a same-sex spouse from an employer on an after-tax basis may now be treated as pre-tax and excluded from income.

It also means that North Carolina same-sex couples who have been legally wed in another jurisdiction have federal estate-tax portability available to them as an estate planning tool, and that transfers between same-sex partners who are married are exempt from gift tax considerations.  (North Carolina has repealed its estate tax for all deaths after January 1^st for 2013.)  Again, individuals impacted by this decision have the option of filing an amended return for years for which the statute to amend remains open (generally 3 years from the date the return was filed).  Going forward, same-sex couples who have or will wed in a jurisdiction recognizing their marriage need to take advantage of this in their estate planning.