On August 29, the Treasury Department issued Revenue Ruling 2013-17 and associated FAQ guidance on how the IRS will treat same-sex spouses and domestic partners following the Supreme Court's decision in U.S. v. Windsor. The Windsor decision invalidated the provision of the federal Defense of Marriage Act (DOMA) that had previously recognized only opposite-sex marriages for certain purposes under federal law.

The guidance states that, generally, all same-sex couples who are married in a state or other jurisdiction (either foreign or domestic) that performs same-sex marriages will be recognized as legally married for federal tax purposes, regardless of where they live following their marriage. However, same-sex or opposite-sex couples in civil unions, domestic partnerships or other similar formal relationships recognized under state law that are not denominated as marriages under the laws of that state will still not be considered legally married for federal tax purposes.

While the ruling affects many areas of federal tax law, the effects on employee benefit plans include the following:

Qualified Retirement Plans

A same-sex spouse of a qualified retirement plan participant will be the participant's default beneficiary (as well as the automatic beneficiary of a survivor annuity under a plan that provides a "qualified joint and survivor annuity") and must consent to the participant's naming of another beneficiary. This requirement applies to all validly married same-sex spouses regardless of their current state of residence, but does not apply to domestic partners or individuals in a civil union or similar relationship.

This rule is effective as of September 16, 2013, and the IRS has stated that further guidance will be issued with respect to periods prior to that date. Such guidance is expected to include plan amendment requirements and any necessary corrections relating to plan operations for periods before future guidance is issued. The current IRS guidance does not explain how to treat a plan participant with a same-sex spouse who has already designated a non-spouse beneficiary without obtaining spousal consent (which was not required prior to the Windsor decision), nor does it obligate a plan to notify such participant that a current beneficiary designation form may no longer be valid. Presumably these questions of the possible retroactive effect of Windsor will be resolved in the additional guidance or by the courts. In the meantime, plan administrators should carefully review the guidance before the payment of a death benefit to a non-spouse beneficiary.

Welfare Benefit Plans

The guidance provides that a participant in a welfare benefit plan is eligible to file for a refund of the income tax paid on the value of health coverage provided to such participant's same-sex spouse. This rule is applicable for all years for which the period of limitations for filing a claim for a tax refund is open (generally, three years from the date the return was filed or two years from the date the tax was paid, whichever is later).

The guidance provides that employers may also claim a refund (or make an adjustment) for Social Security and Medicare taxes paid on the value of health coverage provided to the same-sex spouse of a welfare benefit plan participant, for years within the statute of limitations, even if the participant has not filed for such a refund.

However, an employer may not claim a refund for over-withheld income tax on the value of health coverage provided in prior years to the same-sex spouse of a welfare benefit plan participant, but may adjust over-withheld income tax for 2013, provided that the participant is repaid or reimbursed by the end of the calendar year.

Questions Remain

This guidance clarifies some of the issues raised by the Windsor decision on how same-sex spouses residing in a state that has not legalized same-sex marriage will be treated for federal tax purposes. However, there remain many unanswered questions.

All employers should begin reviewing, and perhaps amending, their benefit plans and updating their procedures and benefit election forms to account for any employee with a same sex spouse. See What Employers Should Do Now in the "New Employee Benefits Rules for Some Same-Sex Marriages,"Employee Benefits and Executive Compensation Alert (July 1, 2013 ) Although the ruling leaves unresolved how plans should treat same-sex spouses for periods prior to the Windsor decision, further guidance on this issue should be forthcoming.