IRS Issues Proposed Rule Clarifying Laws Regarding 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 23, 2015, the question of how employers and other entities must handle the definition of marriage for IRS tax purposes was answered in the IRS proposed rule regarding implementation of the Windsor and Obergefell v. Hodges based laws for same sex marriage.

In addition, it clarifies 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 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.

“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. The proposed regulations 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
  • Claiming the earned income tax credit or child tax credit

But, wait… there’s more!

The proposed regulations will not treat registered domestic partnerships, civil unions, or similar relationships not denominated as marriage under state law as marriage for federal tax purposes.  These clarifications serve to clear the confusion surrounding administration of same sex marriage employee benefits along-side their opposite sex co-workers.

The Bottom Line

Under these clarifications, employers are 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.

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, and the final rule is anticipated to be released in early 2016.

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