IRS Will Recognize All Legal Same-Sex Marriages – Regardless of State of Residence

The IRS announced today that all legal same-sex marriages will be recognized for Federal Tax purposes. The looming question about whether the IRS would use the state of domicile or the state of celebration to define “legal marriage” has been answered. They have chosen the state of celebration which means IRS marriage recognition will be based on where the marriage license came from, not where you live. This isn’t surprising since it makes the most sense for all parties and lessens the burden to both taxpayers and the IRS. Additionally, it ensures consistent federal taxation to all same-sex married couples (SSMCs)

If you are a SSMC, you are now able, and required, to file as Married Filing Joint (MFJ) or Married Filing Separately (MFS) for tax year 2013. The IRS is also allowing, but not requiring, SSMCs to amend prior year returns to MFJ/MFS.[i] The change in tax status will have varying impacts on taxpayers. Those couples in which one spouse earns a majority of the income will likely see a benefit while those couples in which both spouses are high earners may see an increase in tax.

For tax purposes, you will be treated as married for the entire year regardless of what date you were married. Here are some of the things that should be considered in your tax planning:

W-2 Withholdings

Now that you can file MFJ, adjustments to your W-2 withholding for federal income tax may be needed. Whether and how to adjust your withholding will depend on your particular tax situation. You can use the IRS withholding tables to estimate what your withholding should be as a MFJ taxpayer. Comparing these amounts with your year-to-date withholding from your pay-stub will help you to determine what withholding is needed for the rest of the year. Wage withholding is only one piece to the puzzle, though. Talk to your tax preparer to plan for your overall tax picture.

Employer Provided Health and Other Benefits Covering Your Spouse

Before the DOMA decision, and today’s IRS announcement, certain employer-provided benefits covering same-sex spouses have been included in taxable income. Thankfully, this is no longer a correct treatment of these benefits. If this situation applies to you, a conversation with your employer may be warranted. Find out if and when they will stop withholding tax on these benefits. Make sure to ask them whether you can take advantage of any available benefits immediately or if you’ll have to wait until the next open enrollment period.

IRA Contributions

Now that same-sex spouses are actually considered spouses by the IRS you may be newly eligible to make tax-deductible contributions to a Traditional IRA. Late last year I posted about your prior inability to do this. If you have no earned income (taxable compensation) and have thus been ineligible to contribute, you can now use your spouse’s earned income to qualify you for this benefit. There are other applicable restrictions, however. Here is a link to more information on Traditional IRA contributions.

Amended Returns

Those couples who will benefit from filing as MFJ should consider amending their prior open-year returns. An “open-year” return is a return for a year that has not yet passed the three-year statute of limitations for amending. The three years begins on the date the return was filed. For most taxpayers this means that 2010 will be as far back as you can go. Luckily, those who will not benefit from MFJ status are not required to amend prior year returns at all.

[i] If you have a legal marriage and your 2012 return is still on extension, you can file MFJ/MFS for tax year 2012.

Thank you to our current and former team members and colleagues for helping us develop this content.

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