The U.S. Treasury Department ruled in late August that married same-sex couples in all 50 states, U.S. territories and districts will be treated as married for federal tax purposes.
The ruling applies to all federal tax provisions where marriage is a factor, including filing status, claiming personal and dependency exemptions, taking the standard deduction, employee benefits, contributing to an IRA and claiming the earned income tax credit or child tax credit.
“Today’s ruling provides certainty and clear, coherent tax filing guidance for all legally married same-sex couples nationwide. It provides access to benefits, responsibilities and protections under federal tax law that all Americans deserve,” Treasury Secretary Jacob J. Lew said in a statement. “This ruling also assures legally married same-sex couples that they can move freely throughout the country knowing that their federal filing status will not change.”
Proponents of marriage equality heralded the ruling, released by the Internal Revenue Service mid-day on Aug. 29, for having widespread implications.
“The federal government is right to recognize that people’s marriages shouldn’t dissolve when they cross state lines,” said James Esseks of the American Civil Liberties Union LGBT Project.
In late June, the U.S. Supreme Court released two marriage rulings. One, a technical decision, cleared the way for finally overturning California’s constitutional amendment barring same-sex marriage. The second decision overturned a key provision in the 1996 federal Defense of Marriage Act – Section 3, which barred the federal government from recognizing same-sex marriages.
Section 3 of DOMA defined marriage for federal purposes as the union of a man and a woman. It was enacted before any state recognized same-sex marriages, but at a time when Hawaii seemed poised to do so in 1996. The provision prevented same-sex couples who legally married in their states from accessing more than 1,300 federal rights and benefits associated with marriage.
Since the Court’s ruling, federal officials have been examining how to update rules and regulations to extend federal marriage rights and benefits to gay and lesbian couples across the nation. The work has involved research and rulings throughout the vast federal system, with leadership from the president, attorney general, office of management and budget and secretaries of state, homeland security, health and human services, labor, housing, education, defense, veterans affairs, treasury and even transportation, energy and interior.
The joint announcement from the Treasury Department and the IRS means that married same-sex couples now can file joint federal income tax returns, even if they live in a jurisdiction that does not recognize their same-sex marriage.
“This is the biggest news we’ve seen since the Supreme Court struck down the Defense of Marriage Act, and it’s a game changer,” said Katie Belanger, president and CEO of Fair Wisconsin. “Same-sex couples living in Wisconsin, who were legally married elsewhere, will be treated the same as those living in states with full marriage equality, for tax purposes. And in the coming weeks and months, I believe we’ll continue to see more announcements from federal departments offering guidance and clarification on how they’re implementing the Supreme Court decision ending DOMA.”
Before the ruling, married same-sex couples had to declare themselves “unmarried” to file their federal income tax returns. Furthermore, transfers of property, gifts and inheritances between same-sex spouses were taxed, unlike those between opposite-sex spouses. Even health insurance benefits provided for a same-sex spouse were treated as taxable income, costing the average same-sex couple more than $1,000 a year in additional taxes, according to the Human Rights Campaign, the nation’s largest LGBT civil rights group.
The ruling, according to the Treasury Department, does not apply to registered domestic partnerships, civil unions or similar formal relationships recognized under state law, and it likely will mean that a married same-sex couple in a non-equality state will file jointly at the federal level but as individuals with the state.
Some details from the IRS:
• Legally-married same-sex couples generally must file their 2013 federal income tax return using either the “married filing jointly” or “married filing separately” filing status.
• Generally, the statute of limitations for filing a refund claim is three years from the date the return was filed or two years from the date the tax was paid, whichever is later. As a result, refund claims can still be filed for tax years 2010, 2011 and 2012. Some taxpayers may have special circumstances that permit them to file refund claims for tax years 2009 and earlier.
• Employees who purchased same-sex spouse health insurance coverage from their employers on an after-tax basis may treat the amounts paid for that coverage as pre-tax and excludable from income.
The new rules from the department will become effective on Sept. 16.
“With today’s ruling, committed and loving gay and lesbian married couples will now be treated equally under our nation’s federal tax laws, regardless of what state they call home,” said HRC president Chad Griffin. “These families finally have access to crucial tax benefits and protections previously denied to them under the discriminatory Defense of Marriage Act.”
He urged all federal agencies to join the Treasury Department and the IRS in recognizing the legal marriages of all same-sex couples in the United States, including those residing in non-equality states.
“No family should have to worry about losing important federal rights and benefits, simply because they live in a state that doesn’t recognize them as equal under the law,” Griffin said.
U.S. Rep. Mark Pocan, D-Madison, said he applauded the Treasury for “siding with equality and treating all legally married couples in America the same.”
The congressman, who is gay, married his husband in Canada in 2006. Based on the IRS’s statement, the couple should be eligible to receive all federal marriage-based tax benefits, including employee benefits, child tax credits, as well as gift and estate taxes.
Earlier on Aug. 29, Health and Human Services Secretary Kathleen Sebelius announced that all beneficiaries in private Medicare plans have access to equal coverage when it comes to care in a nursing home where their spouse lives.
Before the finding, a beneficiary in a same-sex marriage enrolled in a Medicare Advantage plan did not have equal access to such coverage and, as a result, could have faced time away from his or her spouse or higher costs because of the way that marriage was defined for this purpose.
The announcement is the “first of many steps that we will be taking over the coming months to clarify the effects of the Supreme Court’s decision and to ensure that gay and lesbian married couples are treated equally under the law,” Sebelius said in a news release.
She added that the guarantee of coverage applies equally to couples who are in a legally recognized same-sex marriage, regardless of where they live.
“These are huge wins we’re seeing thanks to the Supreme Court ruling that struck down a key component of DOMA,” said Rea Carey of the National Gay and Lesbian Task Force.
Earlier this summer, Homeland Security, the State Department, the Defense Department and the personnel office released rules in response to the DOMA decision. But the agencies are using different standards: The IRS and HHS are basing benefits on where a marriage takes place, while the Social Security Administration is currently relying on residential status, which means that a married gay couple living in a non-equality state may not have the same Social Security benefits as a same-sex couple in a state that recognizes the marriage.