Final IRS Regulations Define Marriage in Gender-Neutral Terms

Author: Rena Pirsos, XpertHR Legal Editor

September 6, 2016

On September 2, the IRS released immediately effective final regulations that define the term "spouse" in a gender-neutral manner under federal law. The regulations follow up on two Supreme Court decisions that have recognized same-sex marriage at the federal and state levels since 2013.

The Supreme Court first recognized same-sex marriage in Windsor v. U.S., 2013 U.S. LEXIS 4921 (2013). The IRS subsequently issued Revenue Ruling 2017-13, which defined the term "spouse" in a gender-neutral way for purposes of employer-provided health and retirement benefits and payroll taxes (e.g., claiming married status on a Form W-4). The revenue ruling limited the federal tax benefits to taxpayers who were married or in a civil union, regardless of their sexual orientation. Individuals in a domestic partnership or similar relationship continue to be treated as unmarried for federal tax purposes.

However, because many state laws in 2013 only recognized opposite-sex marriage, the revenue ruling also established a state-of-celebration rule. Under that rule, any marriage performed in a state, US territory or US possession that recognized same-sex marriage was valid for federal tax purposes, regardless of where the couple lived.

In 2015, however, the Supreme Court invalidated state laws that recognized only heterosexual marriage in Obergefell v. Hodges, 2015 U.S. LEXIS 4250 (2015), making same-sex marriage legal in every state.

The final regulations go one step further by distinguishing between domestic and foreign marriages.

Although made obsolete by the Obergefell decision, the final regulations maintain the state-of-celebration rule for domestic marriages. Regardless of gender, the terms "spouse," "husband" and "wife" mean an individual lawfully married to another individual. The term "husband and wife" means two individuals lawfully married to each other.

On the other hand, marriages performed in a foreign country are recognized as valid in the US for federal tax purposes, if at least one state, US territory or possession recognizes the marriage as valid. This is a low bar to meet, since at least one state - New York, for example - recognizes same sex marriage.

The final regulations also maintain the limitations on federal tax benefits established by the revenue ruling - taxpayers who are not married but enter into a civil union, domestic partnership or similar relationship, cannot claim the benefits of marriage, including tax-favored employer-provided benefits.

As a result of the final rule, Revenue Ruling 2013-17 is now obsolete. However, until further notice from the IRS, an employer may continue to rely on several pieces of guidance related to the application of the revenue ruling to employee benefit plans and the benefits provided under those plans. This includes guidance regarding refunds of FICA taxes, mid-year changes to retirement plans and cafeteria plans, and discretionary amendments to health and welfare plans in light of the Obergefell decision.