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June 27, 2013 deduction unnecessary in the majority of cases. However, as Windsor showed, it is a valuable tax benefit for larger estates. Many same-sex married couples may find it valuable to revisit their estate plans to make certain that interests passing to the other spouse qualify for the marital de- duction and other tax benefits. Portability. The American Taxpayer Relief Act of 2012 extended permanently the con- cept of portability, which generally allows the estate of a surviving spouse to utilize the unused portion of the estate tax applicable exclusion amount of his or her last prede- ceased spouse. Because of DOMA, only opposite-sex married couples could take ad- vantage of portability. IMPACT. The Supreme Courts decision presumably enables same-sex married couples to take advantage of portability as part of their estate planning. The IRS is expected to issue guidance. Gifts. Because of DOMA, only opposite- sex married couples were allowed to “split” gifts to take advantage of a doubled annual gift tax exclusion ($14,000 for 2013, for a total tax-free gift of $28,000). DOMA presented even more of a disadvantage for same-sex married couples in that only transfers between spouses, where both in- dividuals are U.S. citizens, are allowed an unlimited gift tax exclusion under Code Sec. 2523. IMPACT. Same-sex married couples can now presumably transfer assets between themselves with no concern of lifetime gift tax consequences. This creates consider- ably greater flexibility for estate planning. The IRS is expected to issue guidance. COMMENT. Gifts to cover medical and education expenses for an individual, if paid directly to the medical or education provider, are gift tax free without limit and are not counted against the annual $14,000 exclusion for any individual. COMMENT. Where one spouse is not a U.S. citizen, the annual exclusion from gift taxes for gifts made to the noncitizen spouse is $143,000 for 2013. EMPLOYEE BENEFITS Perhaps in no area outside of income taxes is the impact of the Supreme Court’s decision more expansive than on employee benefits. Because of DOMA, employers that allow an employee to add his or her same-sex spouse to their health plan had to impute income to the employee for federal income tax pur- poses equal to the fair market value of health coverage provided to the same-sex spouse. If the same-sex spouse qualified as a depen- dent, this rule did not apply. DOMA also precluded same-sex married couples from sharing the same benefits of health flexible spending accounts, health savings accounts and health reimbursement arrangements available to opposite-sex married couples. IMPACT. Employers in states that allow same-sex marriage will presumably need to amend plans to cover same-sex married spouses. The IRS is expected to provide guid- ance on the timing of plan amendments, in- cluding the issue of whether benefits need to be made retroactive or only prospective from the date of the Windsor decision. Domestic Partners. Many employee ben- efit plans in the private and public sectors refer to domestic partners rather than same- The definition of domestic In some cases, it may en- Sex spouses. partner varies. compass opposite-sex domestic partners as well as same-sex domestic partners. COMMENT. The federal governments Office of Personnel Management defines domestic partner for purposes of federal employee benefits as a committed relation- ship between two adults, of the same sex. Tax Treatment. Domestic partners who are not married under state law are not treated as spouses for federal income tax purposes. As a result, an employee must continue to pay taxes on the fair market value of the coverage for the employee's domestic partner (whether the domestic partner is a same-sex partner or an opposite-sex part- ner). However, domestic partner benefits are tax-free if the employee's partner quali- fies as a dependent under Code Sec. 152; that is, if benefits are paid for a person who meets the following requirements: m Receives more than half of his or her support from the taxpayer for the year. m Uses the taxpayer's home as the principal abode and is a member of the taxpayer's household during the entire tax year. m Is in a relationship with the taxpayer that is not a violation of local law. IMPACT. The Supreme Courts decision may open the window to refunds of taxes paid by employees on income imputed to employees for same-sex married spouse and refunds of payroll taxes paid by em- ployers on that income. FICA tax refund claims by employers and employees for prior, open years may also be possible. COMMENT. Some employers have at- tempted to equalize the treatment be- tween opposite-sex couples and same-sex couples by providing so-called gross-ups to cover the additional taxes that same- sex couples pay on health benefits. Many employers require an employee to certify that a domestic partner qualifies as a de- pendent under Code Sec. 152. Cafeteria Plans. Employer contributions to a cafeteria plan are usually made under a sal- ary reduction agreement between the employer and the employee in which the employee agrees to contribute a portion of his or her salary on a pre-tax basis to pay for the qualified benefits. Salary reduction contributions are not actually or constructively received by the participant. Therefore, those contributions are not consid- ered wages for federal income tax purposes. In addition, those sums generally are not subject to FICA and FUTA taxes. However, pre-tax dol- lars could not be used to pay for coverage of a same-sex spouse because of DOMA. This now should change as a result of the Court's decision. Health Flexible Spending Accounts. A health flexible spending arrangement (FSA) CCH Tax Briefing HOUSE_OVERSIGHT_029311