Sulzberger Capital Advisors


Federal Taxation for Same Sex Married Couples After the Windsor Decision

The recent U.S. Supreme Court ruling in United States vs. Windsor over turning Section 3 of the Defense of Marriage Act (DOMA) has brought to the surface numerous federal tax implications for same-sex married couples.

The question arose whether there are different federal tax treatments for those U.S. same-sex couples legally married in domestic or foreign jurisdictions and residing in those jurisdictions adopting same-sex marriage, versus those couples legally married in domestic and foreign jurisdictions, but now residing in jurisdictions that do not recognize same-sex marriage.

How did the IRS address the Windsor decision?

The IRS issued guidance on the Windsor decision by adopting a “state of celebration” rule.This rule states that same-sex couples legally married in jurisdictions recognizing their marriages will be treated as married for federal tax purposes, regardless of whether the state they reside in recognizes their marriage.This change was effective on September 13, 2013.The IRS asserted the need for uniform rules nationwide so that there will be “efficient and fair tax administration” on federal tax matters.The IRS also said that a rule in which a couple’s marital status could change depending on their state of residence would be too difficult to maintain.Married same-sex couples also have the option to file amended US income and estate tax returns for prior years pursuant to the statute of limitations.The marital deduction for estate taxes is probably the most significant tax benefit to now apply to same-sex married couples…this was the fact pattern behind the Windsor decision.

What other issues have arisen from the Windsor decision?

The issue of health insurance benefits for same-sex couples was also revisited.For example, employees who previously purchased health insurance for a same-sex spouse on an after-tax basis, now have the ability to treat that premium as a pre-tax amount, excludable from income. There is an ability to go back and seek refunds for this extra amount for the periods within the statute of limitations (in general, three years from the date the return was filed or two years from the date the tax was paid, for the purposes of determining whether a return may be amended or a refund collected).

Also, the Department of Labor issued a “guidance” in September of 2013 stating that the “state of celebration” rule will also apply under the Employee Retirement Income Security Act (ERISA).The Secretary of Labor stated that if there were a rule based on the state of domicile it “would raise significant challenges for employers that operate or have employees (or former employees) in more than one state or whose employees move to another state while entitled to benefits.”This “approach is consistent with the core intent underlying ERISA of promoting uniform requirements for employee benefit plans.”Thus, for employee benefit plan purposes, a same-sex spouse should have all the rights of an opposite sex spouse under an employer’s qualified plans. Companies not adhering to this standard are violating ERISA guidelines.

Are there open questions regarding taxation for same-sex married couples?

There is an open issue regarding the filing of state income taxes.It is expected that most states that do not recognize same-sex marriage will deny same-sex married couples the ability to file joint state income tax returns.Also, the IRS’ statements are not binding on other federal agencies. For instance, the social security system looks to the state law on determining marital status and Medicaid is a federal program that is administered by the states.

Other state laws that would not apply are, for example, the homestead protections in Florida.If one spouse dies as part of a same-sex couple lawfully married in New York and residing in Florida, the surviving spouse would not be able to take advantage of the homestead protections granted in Florida. Much of estate planning is still based on state law concepts, including intestacy laws and the elective share.

Also, the new federal tax treatment will not apply to registered domestic partnerships, civil unions, or other similar relationships that may be recognized under state laws.

What is your advice for same-sex couples going forward?

This is the time for same-sex couples to be discussing their financial and estate planning with their estate planning attorneys, investment professionals and accountants.First, if they were married in a state that honors same-sex marriage, they may want to amend previous tax returns.They should also discuss with their employers about benefit coverage pursuant to the ERISA guidelines. Couples who are not legally married may want to determine if marriage is an option they wish to explore.

An important word of caution in this whole scenario is the legal concept of divorce. Divorce is a state law concept and to get divorced in a state that does not honor same-sex marriage is proving to be difficult. Divorce is an area of law that has to catch up.

Gene Sulzberger is president of Sulzberger Capital Advisors in Miami, Florida. He works with U.S. and international investment clients, helping them meet their wealth management goals. Gene is a CERTIFIED FINANCIAL PLANNER™ and a registered trusts and estate practitioner (TEP). He is also an attorney who previously practiced law in the area of trust and estate planning. He has over 20 years of experience in financial services. Gene can be reached at (305) 573-4900 or