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New Considerations (and Opportunities) After 'Windsor'

Same-sex couples will be seeking the assistance of financial planners to help them navigate numerous changes in benefits and rights following the Supreme Court's DOMA decision.

Judith A. Hasenauer, 02/07/2014

In our last article, we discussed the U.S. Supreme Court's decision in United States v Windsor ("Windsor"), which found Section 3 of the "Defense of Marriage Act," or "DOMA," unconstitutional.

For federal purposes a couple, whether same-sex or opposite-sex, will be considered legally married if they were married in a jurisdiction that recognized their marriage. The result of this change in position has a profound effect on a number of financial and retirement planning considerations. Financial advisors to same-sex couples can provide a significant service to them, from answering basic questions to helping them sort out their long-range financial plan in light of Windsor.

Considerations for Individuals
Until Windsor, same-sex couples were required to file their federal income tax returns individually, as their marriages were not recognized by the federal government. In the aftermath of Windsor, same-sex spouses are now required to file their federal tax returns using the joint filing status or married-filing-separately status.

What about refunds for prior years? Same-sex spouses can amend previously filed returns subject to any limitations on the filing period. However, they are not required to file amended returns under their new status. A same-sex spouse is now treated as a spouse and cannot claim to be a dependent of the other spouse.

Prior to Windsor, if an employer provided health coverage to its employee's same-sex spouse, it was required to report the value of that coverage as part of the employee's income. Going forward, such amounts will no longer be included in the employee's income. In addition, the couple can file amended returns for any year that is not past the period for filing an amended return, and reflect in such amended return that the value of the benefit is excluded from income.

Some employers offer cafeteria plans that allow employees to pay for their health coverage with pre-tax dollars. Prior to Windsor, any amounts that were used to pay for health coverage for a same-sex spouse had to be paid for with after-tax dollars. Going forward that is no longer the case. Amended returns, timely filed, can be filed to request a refund based on the recomputed income reflecting the revised salary reduction amount.

Considerations for Employers
Employers are also directly affected as a result of Windsor.

Prior to Windsor, same-sex spouses were not considered spouses for computing withholding, Social Security taxes, and Medicare taxes. As a result, both the employer and employee portions of the taxes may have been overpaid. Employers should consult the Instructions for Form 941-X regarding adjustments to the employer's quarterly tax return. There are special administrative procedures for employers to file claims for refunds or make adjustments for overpayment of Social Security taxes and Medicare taxes paid on same-sex spouse benefits.

Judith A. Hasenauer, JD, CLU, is an attorney with the law firm of Blazzard & Hasenauer, P.C. She devotes her practice exclusively to the financial services industry, providing consulting on the development and regulatory clearance of products, compliance issues, distribution issues and related matters, such as advisory activities and industry initiatives.

The author is not an employee of Morningstar, Inc. The views expressed in this article are the author's. They do not necessarily reflect the views of Morningstar.

The author is a freelance contributor to MorningstarAdvisor.com. The views expressed in this article may or may not reflect the views of Morningstar.

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