Minnesota Issues Tax Guidance on Same-Sex Spousal Benefits

Author: Rena Pirsos, XpertHR Legal Editor

The Minnesota Department of Revenue (the Department) has issued a news release implementing the Internal Revenue Service's (IRS's) recent revenue ruling regarding the tax treatment of health insurance benefits provided by employers to employees' same-sex spouses as a result of the Supreme Court decision in United States v. Windsor, 2013 U.S. LEXIS 4921 (2013). Same-sex marriage became legal in Minnesota on August 1, 2013, and the state considers as married for the entire tax year anyone legally married as of the last day of 2013.

This means Minnesota employers should treat all legally married same-sex couples the same as married opposite-sex couples for purposes of employee benefits, Individual Retirement Account contributions, the earned income tax credit and the child tax credit. Accordingly:

  • Employers should not treat employer-paid health insurance premiums for same-sex spouses as taxable income for withholding purposes.
  • Employers should not include flexible spending accounts and other uses of pre-tax dollars for same-sex spouses in state taxable wages for withholding purposes.
  • Employers should advise all same-sex married spouses who have changes to income tax exemptions, adjustments, deductions or credits as a result of the new rules to complete and submit a new Form W-4, Employee's Withholding Allowance Certificate, or state Form W4-MN, to change their withholding status or the number of allowances they wish to claim. This is because Minnesota taxpayers are required to use the same marital filing status on their state income tax return as used on their federal income tax return. Employers should use the marital status employees provide on their federal Form W-4 or state Form W4-MN to determine the amount of state income tax to withhold from an employee's wages.

In conformity with federal law, Minnesota will not extend the same favorable tax treatment to registered domestic partners, civil union partners or those in other similar relationships not considered marriages under the IRS's revenue ruling. Note that the state Department of Revenue is still reviewing how the IRS's revenue ruling may apply to prior tax years and plans to release additional information in the near future.