UHY E-Newsletter - Equal Tax Treatment for Same-Sex Marriages

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Jeff Goins, CPA, discusses The Defense of Marriage Act (DOMA).

Currently same-sex marriages are legal in 13 states as well as the District of Columbia. The Defense of Marriage Act (DOMA), which was signed into law by President Bill Clinton in 1996, in part prevented the federal government from recognizing same-sex marriages for purposes of federal laws. This meant that a same-sex couple who was legally married under the laws of their state would not be recognized as being married for federal purposes. This affected items such as taxation of fringe benefits or even the filing status of a federal tax return. On June 26, 2013, the Supreme Court ruled (in the Windsor case) that Section 3 of DOMA was unconstitutional because it violated the Fifth Amendment. The result is a same-sex couple who was legally married under a particular state law, would be treated as legally married for federal purposes.

The impact of the Supreme Court’s ruling on DOMA left many unanswered questions on how it would impact taxation of same-sex marriages in states that do not recognize same-sex marriages. On August 29, 2013, the IRS issued Revenue Ruling 2013-17, which answered some of those questions. The ruling states that, for federal tax purposes, a same-sex married couple will be considered married if they entered into marriage in a state which allows marriage between individuals of the same-sex even if the state in which they are now domiciled does not recognize the marriage. The ruling also indicates that the term “marriage” does not include registered domestic partnerships, civil unions or other similar formal arrangements recognized under state law that are not denominated as a marriage under that state’s law.

One of the major changes arising from the court’s ruling is the taxation of health coverage and fringe benefits which may be excludable from income based on an individual’s marital status. Section 1.106-1 states that gross income does not include contributions by an employer to an accident or health plan for personal injury or sickness incurred by the employee, the employee’s spouse, or the employee’s dependents. Section 119 states that the value of any meals and lodging provided by an employer to an employee, the employee’s spouse, or the employee’s dependents may be excluded from income. Sections 117(d), 129, and 132 covering qualified tuition reduction, dependent care assistance programs and certain fringe benefits are other examples of circumstances where married couples would enjoy tax benefits that non-married couples would not benefit from. Many same-sex couples will benefit from these changes going forward and may even amend prior year’s tax filings.

For past years, it may be beneficial for couples to amend but they will not be required to do so. The statute of limitations for filing a refund claim is the later of three years from the date the return was filed or two years from the date the tax was paid. This could mean potential refunds for couples who were not eligible to file a joint income tax return and who had to include benefits paid to their spouse in income. For 2013, all legally married couples must file their return using either Married Filing Jointly or Married Filing Separately.

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Editor’s Note:     To schedule an interview or for further questions, please contact Shannon Gnesda at sgnesda(at)uhy-us(dot)com or 586 843 2637.

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UHY LLP is a licensed independent CPA firm that performs attest services in an alternative practice structure with UHY Advisors, Inc. and its subsidiary entities. UHY Advisors, Inc. provides tax and business consulting services through wholly owned subsidiary entities that operate under the name of “UHY Advisors.” UHY Advisors, Inc. and its subsidiary entities are not licensed CPA firms. UHY LLP and UHY Advisors, Inc. are U.S. members of Urbach Hacker Young International Limited, a UK company, and form part of the international UHY network of legally independent accounting and consulting firms. “UHY” is the brand name for the UHY international network. Any services described herein are provided by UHY LLP and/or UHY Advisors (as the case may be) and not by UHY or any other member firm of UHY. Neither UHY nor any member of UHY has any liability for services provided by other members.

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Shannon Gnesda
UHY LLP
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