Same-Sex Spouses in Pennsylvania

[This article was published in the PBA Real Property, Probate and Trust Law Newsletter, No. 73 (Summer 2013), p. 12, and has not been significantly revised beyond updating some citations.]

In United States v. Windsor, 570 U.S. 744, 133 S. Ct. 2675 (6/26/2013), the U.S. Supreme Court held that section 3 of the “Defense of Marriage Act” (DOMA), U.S.C. § 7, which defined “marriage” and “spouse” under federal law as meaning only a marriage between a man and a woman, was unconstitutional as a violation of equal protection because it failed to give effect to same-sex marriages that are valid under state law.

The Windsor decision did not directly affect Pennsylvania’s own DOMA, 23 Pa.C.S. § 1704, because the Windsor holding was limited to marriages that were valid under state law, and it did not address whether states may be required to recognize same-sex marriages.  However, there were several lawsuits challenging the constitutionality of Pennsylvania’s DOMA, and it was declared to be unconstitutional in Whitewood v. Wolf, 992 F.Supp.2d 410 (Pa. 5/20/2014).

Federal Taxes

According to the IRS, there are more than two hundred Internal Revenue Code provisions and tax regulations that include the terms “spouse,” “marriage” (or “marries” or “married”), “husband and wife,” “husband,” or “wife.”  Applying principles that previously applied to common law marriages recognized by some states but not others, the IRS has ruled that a same-sex marriage will be recognized for federal tax purposes if it was was valid in the state where it was entered into, regardless of the married couple’s place of domicile.  Rev.  Rul. 2013-17, 2013-38 I.R.B. 201, Issue 2 (http://www.irs.gov/pub/irs-drop/rr-13-17.pdf).

So, for federal tax purposes, a same-sex couple that was married in Massachusetts or New York will continue to be considered to be married while they are living in Pennsylvania even though Pennsylvania will not recognize their marriage.

However, it must be a “marriage.”  Domestic partnerships, civil unions, or “other similar formal relationships” that are recognized under state law but are not denominated as a “marriage” under that state’s law, will not be considered to be a marriage for federal tax purposes.  Rev. Rul. 2013-17, 2013-38 I.R.B. 201, Issue 3.

This will have a number of federal tax consequences for same-sex spouses in Pennsylvania, and the following are likely to the most common or significant:

  • Married taxpayers have different income tax brackets than unmarried taxpayers, as well as different standard deductions and phase-out thresholds for personal exemptions and itemized deductions.  Same-sex couples who have been legally married must either file jointly or as married filing separately; they can no longer file a federal income tax return as though they are unmarried.  This can reduce the total income tax burden if one spouse has more income than the other, but can increase the total tax if both spouses have income, due to the so-called “marriage penalty.”  (The “marriage penalty” was reduced, but not eliminated, by some changes that were in the Economic Growth and Tax Relief Reconciliation Act of 2001.)
  • There are also some employer-provided benefits that might be tax-free for spouses but result in taxable compensation to the employee when the beneficiary is not recognized as the employee’s husband or wife.  For example, health insurance provided for an employee and an employee’s spouse and children are not taxable, but the cost of employer-provided health insurance for an same-sex partner has been considered to be both taxable income for federal income tax purposes and “wages” for FICA (Social Security tax) purposes.  The recognition of same-sex marriages can reduce both income taxes and FICA taxes for employees in same-sex marriages who have been receiving those kinds of benefits.
  • Same-sex spouses can now qualify for tax-free rollovers to (or from) individual retirement accounts and employer retirement plans.
  • Gifts to same-sex spouses now qualify for the federal gift tax and estate tax marital deductions (though not the inheritance tax treatment for “sole use” trusts under 72 P.S. § 9113).

The IRS has provided answers to some expected questions at http://www.irs.gov/uac/Answers-to-Frequently-Asked-Questions-for-Same-Sex-Married-Couples.

Income Tax Filings for 2013

Same-sex couples who have been legally married must either file jointly or as married filing separately; they can no longer file federal income tax returns as though they are unmarried.  As explained above, this change in filing status can either increase or decrease their total income tax liabilities.

In order to reduce unnecessary tax withholdings (and comply with federal tax law), same-sex spouses should be advised to file corrected Forms W-4 with their employers, so that proper FICA taxes and income tax will be withheld.  (An employer probably has no obligation to change the way taxes are withheld until an employee informs the employer of the correct marital status.)  Fortunately, the Pennsylvania income tax is a flat rate regardless of marital status, so there will be no increased burden on employers who are required to treat employees as married for federal tax purposes but unmarried for Pennsylvania tax purposes.

Amended Tax Returns

In Rev. Rul. 2013-17, the IRS ruled that taxpayers may rely on the holdings of the ruling in applying for tax refunds in the applicable limitations period for filing a refund claim under IRC section 6511 has not expired.  Claims for income tax refunds must generally be filed within two years of the date the original return was filed or the tax was paid, whichever is later.  That means that many same-sex spouses may be able to file amended returns claiming federal income refunds for the years 2011 and 2012.

As explained above, same-sex spouses now have no choice about whether to file as married or unmarried going forward, but they have a choice about whether or not to file amended returns.  Generally speaking, there is no obligation to file an amended return if the original return was believed to be correct at the time it was filed.  Same-sex spouses who filed as unmarried taxpayers for the years 2011 and 2012 had every reason to believe that their returns were correct at the time they were filed, because DOMA (and the IRS) said that they were not married.  So they have no obligation to file amended returns, but they can file returns if it is to their advantage.

Same-sex spouses should therefore prepare new federal income tax returns for 2011 and 2012, this time as married filing jointly instead of unmarried, to see if they owe more tax or less.  If they owe more tax as married, they can throw the new returns away and forget about it, but if they owe less tax, they can file amended returns and claim refunds.

The IRS has also issued guidance to employers to simplify claims for refunds of employment taxes.  Notice 2013-61, 2013-44 I.R.B. 432 (http://www.irs.gov/irb/2013-44_IRB/ar10.html).

Retirement Benefits

The Employee Retirement Income Security Act of 1972 (ERISA) requires employer-sponsored retirement plans to provide certain kinds of benefits to surviving spouses.

And ERISA pre-empts state law, so a state law cannot reduce or deny rights granted by ERISA.  In re Estate of Sauers, 613 Pa. 186, 32 A.3d 1241 (2011) (20 Pa.C.S. § 6111.2 is pre-empted by ERISA); Mancilla Estate, 3 Fid.Rep.3d 297, 61 Chester Co. Rep. 349 (2013) (20 Pa.C.S. § 6111.1 is pre-empted by ERISA when divorce action is pending at death).

In Technical Release 2013-04 (9/18/2013; http://www.dol.gov/ebsa/newsroom/tr13-04.html), the U.S. Department of Labor reached the same conclusion as the IRS, and declared that, for purposes of ERISA, “the term ‘spouse’ will be read to refer to any individuals who are lawfully married under any state law, including individuals married to a person of the same sex who were legally married in a state that recognizes such marriages, but who are domiciled in a state that does not recognize such marriages.”

It therefore appears that a surviving spouse of a same-sex marriage may claim retirement benefits protected by ERISA regardless of Pennsylvania law.

Social Security Benefits

In the past, the Social Security Administration has followed the policy that the validity of a marriage is determined by the law of the place where it ocurred.  If the marriage is valid in that jurisdiction, it is “usually” held to be valid in other places, subject to some exceptions (such as polygamy).  SSA Program Operations Manual System GN 00305.005.B.1.

As of the writing of this article, the SSA has not yet decided whether to apply that policy to same-sex marriages, and has been instructing its employees to grant applications when the applicant was married in a state that permits same-sex marriages and is domiciled in a state that recognizes same same-sex marriage, but to hold applications in other cases.  SSA Program Operations Manual System GN 00210.100 (Updated 08-13).

The delay (or indecision) by the SSA on the choice of state law may be due to 42 U.S.C. § 416(h), which provides that an applicant is the spouse of an insured person for purposes of federal old-age, survivors, and disability benefits “if the courts of the State in which such insured individual is domiciled … would find that such applicatnt and such insured individual were validlty married….”  So, for Social Security benefits, federal law seems to require that the validity of the marriage be determined under the law of the state of domicile and not the state of celebration.

Federal Employee (and Military) Benefits

Whether a person is a “spouse” for purposes of federal employee benefits should be a question of federal law.  See Hillman v. Maretta, 569 U.S. ___, 133 S.Ct. 1943 (2013) (federal law pre-empts state law, and the effect of a divorce of a beneficiary designation under the Federal Employees’ Group Life Insurance Act of 1954 is determined by federal law and not state law).

Like other federal agencies described above, the Office of Personnel Management has announced that, for purposes of Federal Employees Health Benefits Program, Federal Employees Group Life Insurance, and other federal employee benefit programs, coverage is available to a legally married same-sex spouse of a Federal employee or annuitant, regardless of his or her state of residency.  OPM Benefits Administration Letter No. 13-203 (7/17/2013).

On Aug. 14, 2013, the Department of Defense announced that it would provide spousal and family benefits to same-sex spouses of service members even if they are stationed in a jurisdiction that does not recognize same-sex marriage.  U.S. Department of Defense Release No. 581-13.  Public statements by Secretary of Defense Chuck Hagel made it clear that this policy also applied to the National Guard units in states that do not recognize same-sex marriages.  See, e.g., “Hagel: States Denying Same-sex Family Benefits Must Comply,” (American Forces Press Service, 10/31/2013).

The Veterans Administration has not yet taken a public position on what state law to apply in determining marital status, but it may not be necessary.  38 U.S.C. §103(d) states that, in determining whether or not a person is or was the spouse of veteran, the marriage shall be proven as valid “according to the law of the place where the parties resided at the time of the marriage or the law of the place where the parties resided when the right to benefits accrued.”  So a same-sex marriage should be valid for purposes of veterans benefits if the marriage was valid in the state in which the marriage was entered into (assuming that the parties “resided” in the state in which they were married).

Healthcare Benefits

The validity of a marriage can have a number of consequences under the Affordable Care Act, including federal credits for insurance purchased through the “exchanges” and the scope of “family coverage” under both individually purchase and employer-provided health insurance.

There is not yet a broad pronouncement from the Department of Health and Human Services on how the validity of same-sex marriages will be determined, but there are two items that seem relevant:

  • On August 29, 2013, HHS issued a memo stating that all beneficiaries in private Medicare plans should have access to equal coverage for nursing home care, and that coverage applies to couples “who are in a legally recognized same-sex marriage, regardless of where they live.”
  • In Technical Release 2013-04, cited above, the U.S. Department of Labor stated that it had “coordinated” with both the IRS and Health and Human Services and that the three agencies had agreed to recognize marriages based on the validity of the marriage in the state of celebration.

Summary

Based on the regulatory and agency pronouncements that have been made to date, it appears that the policy of the federal government will be to recognize same-sex marriages throughout the United States, regardless of the laws of the state in which the married couple reside, as long as the marriage was legally entered into in a state that recognizes same-sex marriages.  Pennsylvania residents who have entered into valid same-sex marriages in other states will therefore be able to claim the benefit (and burden) of all federal laws which depend upon the existence of a marriage.

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