In the wake of the landmark U.S. Supreme Court’s Obergefell decision, the Internal Revenue Service (IRS) has now formally recognized same-sex marriages that are legally performed in all American states, territories, and possessions. The guidelines, issued September 1st, also redefine the meaning of “spouse” in the eyes of the IRS for federal tax purposes.
Going forward, the terms “spouse,” “husband,” or “wife” all refer to an individual lawfully married to another individual, and “husband and wife” denotes two individuals lawfully married to each other. This applies to all regulations involving income, employment, estate, gift, and generation-skipping transfer taxes.
Of particular note in the new guidelines:
- The IRS does not distinguish between same-sex and opposite-sex marriages. This was a purposeful choice to minimize confusion and to make them gender-neutral.
- A couple is considered legally married if the marriage was performed lawfully in a U.S. state, territory, or possession, regardless of where the couple actually lives learn this here now.
- The guidelines also provide clarification regarding foreign marriages. If two individuals are legally married in a foreign jurisdiction, they are considered married in the United States for tax purposes if the marriage would be considered legal in at least one U.S. state, territory, or possession.
- The IRS will also recognize same-sex common law marriages for federal tax purposes, even though some state laws only recognize opposite-sex common-law unions.
Tax and Estate Planning Implications for Same-Sex Couples
Now that the new IRS guidelines have been finalized, LGBT individuals should review all tax and estate plans to ensure they reflect the new definitions of marriage. Estate planning and probate issues to consider include:
- Filing Status: Same-sex couples considered married by the IRS will now have to submit federal income taxes as either married filing jointly or married filing separately. This is retroactive to the 2013 tax year. Couples may need to file amended returns for 2013, 2014, and 2015, though that might not always be the case.
- Employer Withholding: Individuals should update their employers if their marital status has now changed in the eyes of the IRS so that proper amounts are withheld from compensation. This might also be a good time to review any benefits you and your family might now be entitled to.
- Tax Planning: Consider whether the new IRS guidelines affect any year-end gifts, donations, etc., made to reduce an individual’s tax burden.
- Estate Planning: The new definitions of “spouse,” “husband,” and “wife” may also affect any estate plans. Consider updating all wills, trusts, and other important documents with an eye to the new guidelines.
At Shelton & Deon we have years of experience assisting LGBT individuals and couples with all aspects of tax and estate planning. The new IRS guidelines provide for significant changes in this area, and we would be happy to advise as you review your situation.