Windsor v. United States, U.S. Supreme Court
June 26, 2013

On June 26, 2013 the U.S. Supreme Court struck down Section 3 of the Defense of Marriage Act (DOMA) as unconstitutional.

Same-sex couples, who are considered married under state law, are now considered married for federal tax purposes and have the same benefits (and drawbacks) afforded to opposite-sex married couples.

State Law Defines Marriage: However, Section 2 of DOMA, which allows states to refuse to recognize same-sex marriages of other states, is still valid. The Supreme Court did NOT force states to allow same-sex marriages. State law definitions of marriage still apply and vary between the states.

Issues Affected by the Ruling: The Supreme Court ruling has obvious implications for a long list of financial items including federal tax issues, Social Security benefits, healthcare benefits and various rights with regard to retirement assets under ERISA.

IRS has just announced that a same-sex couple will be treated as married for federal tax purposes as long as the couple was married in a state or country that recognized their same-sex marriage (Rev. Rul. 2013-17 released August 29, 2013). This will be true regardless of the state in which the couple currently resides. The same federal tax benefits that have been available to opposite-sex couples will now be available to same-sex couples.

These benefits include, among other things:

  • IRA Spousal Benefits (making spousal IRA and Roth IRA contributions, spousal rollovers at death, and tax-free splitting of retirement plans in a divorce)
  •  Employer Retirement Plan Issues (spousal protection under ERISA, spousal consent needed to change beneficiary and take withdrawals, QDRO exception to 10% early distribution penalty and rollover option for divorce)
  •  Required Minimum Distributions (use of joint life tables for a spouse more than 10 years younger, recalculating of life expectancy for inherited spousal IRAs, inherited IRAs – can wait until deceased spouse would have reached age 70 ½ to take RMDs, treated as beneficiary under plan default language in absence of a named beneficiary)
  • Federal Income Tax (filing joint tax returns, ability to claim each other’s deductions such as medical expenses, use of joint thresholds for various items such as the 3.8% surtax, 0.9% Medicare surtax, limits on itemized deductions and personal exemption phase-outs, the “marriage penalty”)
  • Federal Estate and Gift Tax (unlimited marital deduction, tax free lifetime transfers, portability of estate and gift tax exemptions, gift splitting)

Many Unanswered Questions
Because of the Supreme Court ruling in Windsor and the fact that states have different definitions of marriage, this will create a host of complications, some of which are yet unknown. Many issues will have to be addressed in the future. Some of the issues resolved in Rev. Rul. 2013-17 include:

  • The status of “domestic partnerships” and “civil unions” under state law (Domestic partnerships and civil unions will NOT be recognized for federal tax purposes)
  • Section 2 of DOMA, which allows states to refuse to recognize same-sex marriages of other states, is still valid. This creates an awkward patchwork of conflicting state laws when marriage laws that apply in one state may not apply when state borders are crossed.
  • The effective date of the ruling – whether the decision will be applied
    retroactively isn’t clear.