HR News, Human Resources, Payroll

Breaking News: IRS Proposed Rule Clarifying the Laws for Same Sex Marriage

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 Breakdown

  1. 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.
  2. 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.
“The proposed regulations confirm that terms in the federal tax code relating to marriage should be interpreted to include same-sex spouses as well as opposite-sex spouses, ensuring that all are treated equally under the law,” said Secretary Lew. “These regulations provide additional clarity on how the federal government will treat same-sex couples for tax purposes in light of the Supreme Court’s historic decision on same-sex marriage.”
Today’s announcement would clarify and strengthen guidance provided in a 2013 IRS revenue ruling implementing the marriage equality laws based on the Supreme Court’s decision in United States v. Windsor.  That revenue ruling said that same-sex couples legally married in jurisdictions that authorize same-sex marriage will be treated as married for federal tax purposes.   The proposed regulations update these rules to reflect that same-sex couples can now marry in all states and that all states will recognize these marriages.
The proposed regulations will apply to all federal tax provisions where marriage is a factor, including:
  • 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 proposed regulations would not treat registered domestic partnerships, civil unions, or similar relationships not denominated as marriage under state law as marriage for federal tax purposes.  This rule protects individuals who have specifically chosen to enter into a state law registered domestic partnership, civil union, or similar relationship rather than a marriage, because they can retain their status as single for federal tax purposes. These clarifications will serve to clear the confusion surrounding administration of same sex employee benefits along-side their opposite sex co-workers.

The Bottom Line

  1. 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.
  2. Married is married.
  3. Civil unions and domestic partnerships are not marriages.
  4. 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,

Lisa Smith


Lisa Smith is CEO of Andere Seminars, LLC and Chief Content Developer at BeAuditSecure.com. Follow her on Twitter, connect with her on LinkedIn, listen to her Small Business Spoonfuls Podcast, and find more from her in Audit-Secure Authority at BeAuditSecure.com.

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