In our Aug. 8th article, we addressed the financial and tax issues of clients in same sex marriages that would be affected by the Supreme Court’s summer ruling striking down the 1996 Defense of Marriage. The IRS recently announced its interpretation of that ruling.

This is a major topic for financial advisors, accountants and attorneys with same-sex couples as clients. You want to be current on the revenue ruling and to talk to your clients about its impact.

The IRS and the Department of Treasury on Aug. 29 announced that same-sex couples that were legally married in jurisdictions that recognize their unions will be treated as married for federal tax purposes — no matter where they live. (

For example, a couple that was married in New York but lives in Florida — which does not recognize same-sex marriage — will still receive the federal tax breaks that heterosexual married couples enjoy.

The Supreme Court said the federal government must provide to legally married gay couples all the federal tax, Social Security, tax and other benefits that heterosexual couples enjoy. The IRS ruling extends the Court’s benefits to all same-sex married couples — and they don’t have to be federal employees to receive them.

The taxman cometh

According to Forbes, the ruling applies to all federal tax laws where marriage is a factor: filing status, claiming personal and dependency exemptions, employee benefits, taking the standard deduction, contributing to an IRA and claiming the earned income tax or child tax credit. (

For federal income tax purposes in 2013, same-sex couples must file using “married filing jointly” or “married filing separately” status, Forbes reports. Depending on how their incomes break down, advisors can guide clients to receive the biggest tax breaks they are legally entitled to. Also, if it works in their financial favor, your clients can choose to amend their past returns to reflect their married status.

Estate and gift taxes

For estate planning purposes under the IRS ruling, same-sex couples can transfer as much as they want to each other, in life or death, as long as the recipient is a U.S. citizen. This is the marital deduction.

Along with the transfer rules, these assets retain portability. Your widow and widower clients can add to the unused estate tax exclusion, up to $5.25 million, of the spouse who died to their own estates. To take advantage, clients must file an estate tax return when one spouse dies, even if no tax is owed.

For gift-tax purposes, individuals are allowed to give up to $14,000 per year to as many recipients as they want without tax penalties. Now, married same-sex couples can combine their gifts, allowing them to give up to $28,000 a year to any person tax-free. The same applies to the lifetime exemption of $5.25 million that each spouse can give without incurring the 40 percent gift tax penalty. These couples can combine to transfer up to $10.5 million.

Important reminders

Currently, only 13 states and the District of Columbia recognize gay marriage, so although your client’s federal benefits are now protected, individual state laws still cover state taxes. The ruling does not apply to gay couples in registered domestic partnerships, civil unions or similar formal relationships recognized by certain states.

We hope this information was useful to you and helps your clients and their families. If you have a specific case or a question, don’t hesitate to call our office.

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