Employers! You no longer need to hold your breath hoping you are “doing it right” regarding same sex marriage equality laws. On October 23rd, 2015, the question of how employers and other entities must handle the definition of marriage for IRS tax purposes was answered in the new IRS proposed rule regarding implementation of the Windsor and Obergefell v. Hodges based laws for same sex marriage. Also clarified was treatment of domestic partnerships and civil unions for IRS tax purposes. This clarification reaches out and touches many other issues you face regarding civil unions, domestic partnerships and opposite sex relationships of same or similar nature. This is pretty exciting stuff! So, let’s break it all down.
- The U.S. Department of the Treasury and the Internal Revenue Service (IRS) announced proposed regulations providing that a marriage of two individuals, whether of the same sex or the opposite sex, will be recognized for federal tax purposes if that marriage is recognized by any state, possession, or territory of the United States.
- The proposed regulations would also interpret the terms “husband” and “wife” to include same-sex spouses as well as opposite-sex spouses. These regulations implement the Supreme Court’s decision in Obergefell v. Hodges.
- filing status,
- claiming personal and dependency exemptions,
- taking the standard deduction,
- employee benefits (specifically same sex marriage benefits),
- contributing to an IRA, and
- claiming the earned income tax credit or child tax credit.
But, wait… there’s more!
The Bottom Line
- Under these clarifications, employers will be better equipped to appropriately classify the marital status of workers for all sorts of various issues that come up in human resources, benefits and payroll departments regarding employee benefits, taxes and most policies in general.
- Married is married.
- Civil unions and domestic partnerships are not marriages.
- Same-sex and opposite-sex couples are to be treated equally.
- Some opposite-sex couples may choose to enter into civil unions or domestic partnerships for various reasons. They are to be treated as single for IRS purposes.
- When same-sex couples decide not to legally marry and choose to continue in civil unions or domestic partnerships, they are also single.
Why would couples remain in civil unions or domestic partnerships?
Good question. Here is an example from the Department of the Treasury.
“Some individuals who were previously married and receive Social Security benefits as a result of their previous marriage may choose to enter into a civil union or registered domestic partnership (instead of a marriage) so that they do not lose their Social Security benefits. More generally, the rates at which some couples’ income is taxed may increase if they are considered married and thus required to file a married-filing-separately or married-filing-jointly federal income tax return. Treating couples in civil unions and registered domestic partnerships the same as married couples who are in a relationship denominated as marriage under state law could undermine the expectations certain couples have regarding the scope of their relationship. Further, no provision of the Code indicates that Congress intended to recognize as marriages civil unions, registered domestic partnerships, or similar relationships. Accordingly, the IRS will not treat civil unions, registered domestic partnerships, or other similar relationships as marriages for federal tax purposes.”
This is the clarification many employers have needed in order to proceed with the revision of many policies and procedures regarding married and unmarried employees. The comment period for this proposed rule ends on December 7, 2015. If you have thoughts you would to enter before the final rule on these items is issued, feel free to comment here.
If you have any questions, please reach out to your legal counsel. I am not an attorney and this is not legal advice. Be smart and Be Audit-Secure!
Until Next Time,