Payroll Guidance for DOMA Decision: Early Analysis

Payroll Guidance for DOMA Decision: Early Analysis covers the Treasury Department and IRS position on same sex marriages for tax purposes, as well as evolving state requirements. The report also covers lingering questions about the retroactive application of the ruling and the refund process for federal tax purposes.

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Following the Supreme Court’s ruling on the constitutionality of the federal Defense of Marriage Act (DOMA), employers have been waiting for guidance on how to handle payroll for employees in same-sex marriages that are newly recognized under federal law.

The court ruled that the act violated the federal constitutional guarantee of equal protection when applied to same-sex couples who were legally married under state law in United States v. Windsor. The ruling stopped short of requiring all states to recognize the validity of same-sex relationships. Thirty-seven states do not recognize same-sex marriage for tax purposes.

Recent IRS guidance declared that same-sex couples legally married in a state are to be recognized as legally married for federal tax purposes regardless of where they live. The guidelines, which took effect on September 16, 2013, were released as Revenue Ruling 2013-17. The revenue ruling instructs employers on how the IRS will view pre-tax benefits such as employer-provided health care for same-sex spouses of employees. Employers will need more detailed guidance from not only the federal government on retroactivity and the refund process, but also from states that recognize or do not recognize same-sex marriages, to be assured of proper application of the various tax laws to affected employees.

Further complicating the matter, other federal agencies, such as the Labor Department and the Social Security Administration, have taken the position that the validity of the marriage is determined by the laws of the state where the couple resides.

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