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Proskauer's ERISA Practice Center Blog The View from Proskauer on Developments in the World of Employee Benefits, Executive Compensation & ERISA Litigation

IRS Adopts a “Place of Celebration” Rule in Implementing the U.S. Supreme Court’s Windsor Decision

Posted in Affordable Care Act, Defense of Marriage Act, DOMA, Domestic Partners, Same-Sex Spouse

On August 29, 2013, the U.S. Department of the Treasury and the Internal Revenue Service issued important guidance for employers and employees relating to the impact of the Windsor decision on employee benefit plans. In Revenue Ruling 2013-17, the agencies ruled that a same-sex couple legally married in any jurisdiction will be recognized as spouses by the IRS for federal tax purposes even if the couple resides in a jurisdiction that does not recognize the validity of their marriage. This “place of celebration” rule is welcome news for employers and other benefit plan sponsors, who may now administer their benefit plans in a uniform manner with regard to same- and opposite-sex married couples. (The Ruling confirms, however, that unmarried domestic partners and civil union partners will not be recognized as married for federal tax purposes, whether the partners are the same or opposite sex.). See (http://www.proskauer.com/publications/client-alert/special-alert-for-employers-and-other-benefit-plan-sponsors/) for our Client Alert discussing the impact of Windsor on employee benefit plans.

Although the Ruling is technically effective on a prospective basis as of September 16, 2013, it may be relied on by affected taxpayers on a retroactive basis for purposes of filing original, amended or adjusted tax returns, as well as claims for credits or refunds of overpaid taxes, provided that the applicable limitations period has not expired (i.e., generally, three years from the date the return was filed).

The IRS has updated its website to include FAQs providing guidance for employees on how they may recover federal income taxes paid on the value of health coverage provided to a same-sex spouse and on the premiums paid for such coverage on an after-tax basis. The FAQs also offer guidance for employers regarding refunds for Social Security and Medicare taxes paid on income imputed to employees for health benefits provided to same-sex spouses, and on the circumstances in which employers may make adjustments for overwitheld income taxes.

With regard to qualified retirement plans, the FAQs make clear that legally married same-sex spouses must be recognized as spouses for purposes of all federal tax rules applicable to qualified retirement plans.

The agencies intend to issue additional guidance relating to cafeteria plans and also on how Windsor and the IRS Ruling will apply to qualified retirement plans and other tax-favored arrangements for periods prior to the effective date of the Ruling.

Employers and plan sponsors need to consider carefully how to interpret the Ruling in the context of their various benefit plans and overall employment and HR policies. In addition, employers and plan sponsors should watch future guidance for how the Ruling impacts legal compliance under ERISA, COBRA, HIPAA (including HIPAA privacy), PPACA (health care reform), and other related federal and state laws affecting employee benefit plans.