How the Recent I.R.S. Ruling on DOMA May Impact Employers

Employers take note: The recent I.R.S. ruling on the Defense of Marriage Act (DOMA) may impact your benefit plan and payroll reporting.

In June, the Supreme Court of the United States found DOMA unconstitutional in U.S. v. Windsor. This meant the federal government had to recognize same-sex marriage. However, since marriage is a state law jurisdiction, the I.R.S. had determined that taxpayers who were legally married in states that recognize same-sex marriage and were living in one of those states could file a return with the status of married filing joint (MFJ). However, the I.R.S. did not recognize married filing joint status for same-sex couples who had been legally married and did not currently reside in a state that recognized their marriage.

The I.R.S. has determined and announced that same-sex couples that were legally married can file a joint return regardless of their current state of residency. Furthermore, the I.R.S. position applies for all federal tax purposes, including filing status, exemptions, standard deductions, employee benefits, retirement contributions, and certain tax credits. Therefore, in 2013, legally married same-sex couples must file a joint return or “married filing separately.” Also, these couples can amend prior year returns for open years (2010, 2011, and 2012) and seek refunds. Employees who purchased same-sex spouse health insurance from their employers on an after-tax basis may treat the amounts paid for that coverage as pre-tax and excludable from income (assuming their employer had established a qualified Section 125 Plan).

Remember that this ruling only applies to legally married same-sex couples, i.e. couples married in a state that recognizes same-sex marriage, the District of Columbia, a U.S. territory, or a foreign country. These employees will still have to deal with the tangled web of state tax laws, but for now the federal rules are much clearer.

Special note to employers: We will continue to watch for future guidance coming from the I.R.S. for employers who may want to file refund claims for payroll taxes paid on previously taxed health insurance and fringe benefits provided to same-sex spouses. We will keep you updated and informed as those rules are clarified.