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On December 19, President Obama signed legislation extending a number of tax breaks that had expired at the end of 2013. For many individuals and businesses, these deductions and credits can provide substantial tax savings for the 2014 tax year. Below are some of the more significant provisions in the extender package.

Individuals

State and Local Sales Tax Deduction. Individuals who itemize their deductions may choose to deduct state and local sales taxes instead of state and local income taxes. This provision may help taxpayers who purchased big-ticket items, such as automobiles, in 2014, as well as taxpayers in states with a sales tax but no state income tax.

Higher Education Expenses. Eligible individuals may continue to deduct qualified tuition and related expenses of the taxpayer, his/her spouse, or dependents as an “above-the-line” deduction. The maximum deduction is either $4,000 or $2,000, depending on income.

Nontaxable IRA Transfers to Charities. Favorable tax treatment continues to be available for those taxpayers age 70½ or older who make direct transfers (of up to $100,000) from their individual retirement accounts (IRAs) to qualifying charities. If requirements are met, these contributions will be excluded from income and still count toward the taxpayer’s required minimum distributions.

Premiums for mortgage insurance deductible as qualified residence interest. Taxpayers may continue to deduct premiums paid for qualified mortgage insurance as qualified residence interest, provided that their adjusted gross income does not exceed certain levels.

Discharge of indebtedness on principal residence. Qualifying taxpayers may continue to exclude from gross income a lender’s discharge of indebtedness on the taxpayer’s principal residence.

Businesses

First-year (“bonus”) depreciation for qualified property. For qualifying property acquired and placed in service before January 1, 2015, businesses may take advantage of 50% first-year “bonus” depreciation. This rule allows businesses to deduct up to half the cost of qualifying property first placed in service in 2014. Qualifying property includes most machinery, equipment, or other tangible personal property with a recovery period of 20 years or less, certain leasehold improvement property, and most computer software.

Increased Section 179 expensing. Congress has substantially increased the amount of the allowable expense deduction for Section 179 property. Previously, businesses were allowed to expense up to $25,000 of qualifying Section 179 property placed in service for the 2014 tax year, with that limit subject to further reduction once the amount placed in service exceeded $200,000. Under the new extender legislation, these limits are restored to their previous levels of $500,000 and $2,000,000, respectively.

Research Credit. This provision generally allows businesses to take a credit equal to 20% of qualifying research expenses over a base amount.

Call us if we can provide more information about these and other provisions of the extender package.

For 2014, two highly favorable federal income-tax provisions for business owners have been curtailed or eliminated.

First, special 50% first-year “bonus” depreciation available before 2014 for certain qualified property is no longer available for most types of property. Second, the elective Section 179 expense deduction has been reduced from $500,000 to $25,000 a year starting this year. With these new limitations, small business owners will need to plan carefully to take advantage of the remaining Section 179 deduction.

Operation of Section 179

For qualifying property purchased and placed in service during the year, the Section 179 deduction allows a business owner to deduct up to $25,000 of the property’s cost in the first year, rather than to gradually depreciate that cost over the property’s useful life. Moreover, if the cost of the new property exceeds the $25,000 limit, Section 179 allows a carryover of unused amounts to future years.

Where the amount of the new purchases is substantial, Section 179 may require a reduction of the allowable expense. The $25,000 deduction limit is reduced dollar-for-dollar to the extent that the cost of the qualifying property exceeds $200,000.

As a result, if a business owner were to buy and place $225,000 in qualifying property in service during 2014, then the expense deduction would be completely disallowed. The taxpayer would then need to depreciate the property over its cost recovery period, according to the usual depreciation rules.

Another limitation is the taxpayer’s taxable income. The amount of the Section 179 expense deduction may not exceed the taxpayer’s taxable income from his or her active trades or businesses, taken together. However, those who earn wages may include them in the calculation of taxable income. And, for these taxpayers who are married and file a joint return, the calculation of taxable income will include the income of the spouse.

Qualifying Property 

The Section 179 expense deduction may be applied, generally, to most depreciable property (other than buildings) that is acquired by purchase and placed in the service of an active trade or business. Property specifically excluded from Section 179 treatment includes air conditioning and heating units and computer software.

Additionally, qualifying property must be used more than 50% in the trade or business. In the event the property stops being used predominantly in the taxpayer’s business, the IRS may require that part or all of the Section 179 deduction be recaptured.

We Can Help

Our tax professionals are available to help businesses understand and take advantage of the tax deductions and credits available. Even where favorable tax provisions have expired or have been cut back, we can help your business find ways to save tax dollars. Contact us for further information.

The IRS has announced a one half cent decrease in the standard mileage rates that taxpayers will use for calculating business, medical, and moving expenses in 2014. Use of the standard mileage rate is a popular alternative to using the actual expense method, which requires taxpayers to keep track of specific costs for maintenance, repairs, tires, oil, insurance, etc.

Business Expense

According to the IRS, the standard mileage rate for use in calculating 2014 business travel expenses is 56¢, down from 56.5¢ in 2013. The new rate also applies where the employer maintains an “accountable” plan for reimbursing employees who use their own automobiles for business-related travel. Additionally, if an employee is provided with a company-owned vehicle for personal use, the employer may use the standard mileage rate to value the benefit.

Medical Travel

The IRS also announced that the .5¢ reduction applies to the mileage rate applicable to medical travel. The new rate is 23.5¢. Costs of medical travel are deductible on Schedule A of Form 1040 where the taxpayer has had to travel for medical treatment.

Moving Expenses

The .5¢ reduction also applies to mileage claimed as moving expenses, decreasing this rate to 23.5¢. Allowable moving expenses may be taken as an “above-the-line” adjustment where the taxpayer has to move for a job that is at least fifty miles farther from his or her prior residence than the prior employment.

Charitable Work

The new .5¢ reduction will not apply to the 14¢ per mile rate allowed for any travel related to charitable work. This rate is set by statute and is not inflation-adjusted.   Generally, the IRS adjusts the standard mileage rate annually, though it sometimes makes a mid-year adjustment when gasoline prices have changed significantly.

Summary

The new standard mileage rate is in effect for all business, medical, and moving expenses incurred in 2014. If you have any questions about how the standard mileage rates apply in particular (or deducting travel expenses in general), let us know.

New Capitalization Regulations

ACTION ITEM: Business taxpayers must have written accounting policies in place on the first day of the tax year (January 1, 2014 for calendar year taxpayers) to deduct the de minimis amounts provided under safe harbor provision.

Recently, the Internal Revenue Service issued final tangible property capitalization regulations. These regulations provide clarity to a complex area of tax law for business taxpayers who acquire tangible property or who own tangible property which they improve, maintain or repair. The final regulations address the proper characterization and tax treatment of expenditures related to these acquisitions, improvement, maintenance, and repair activities.

Background

Generally, under IRC Section 263(a), amounts paid to acquire, produce or improve tangible property must be capitalized. However, taxpayers are permitted to deduct ordinary and necessary business expenses, including the costs of certain supplies, repairs and maintenance under IRC § 162(a). It is often difficult to distinguish (1) between assets that must be capitalized and property that is a material or supply, and (2) between improvement costs and repair or maintenance costs. The finalized regulations attempt to clarify when such payments may be deducted and when they must be capitalized.

De Minimis Safe Harbor Election

A key provision in the final regulations is a revised safe harbor election that permits a deduction for de minimis amounts paid for tangible property. Under the safe harbor election, a taxpayer may elect to not capitalize (in other words, to currently deduct) specified amounts paid in the tax year to acquire or produce tangible property, provided the amounts don’t exceed applicable thresholds. The amount of the threshold depends on whether the taxpayer has written accounting procedures in place and, if so, whether the taxpayer has an applicable financial statement.[i]

Taxpayers with an Applicable Financial Statement and Written Accounting Procedures

A taxpayer with an applicable financial statement may rely on the final regulations’ safe harbor to expense an item in accordance with the taxpayer’s written accounting policies it utilized in preparing its financial statements, provided the amount paid for tangible property does not exceed $5,000 per item. In addition, the safe harbor also applies to a financial accounting policy that expenses amounts paid for property with an economic useful life of 12 months or less, provided the costs don’t exceed the $5,000 threshold.

Taxpayers without an Applicable Financial Statement

A taxpayer lacking an applicable financial statement, but with a written accounting policy in place calling for (1) expensing amounts paid for property less than a specified amount and/or (2) expensing payments for property with an economic life of 12 months or less, may rely on the de minimis safe harbor as long as the costs do not exceed $500 per item.

Taxpayers without either an Applicable Financial Statement or Written Accounting Procedures

The final regulations increase the ceiling for characterizing tangible property as materials or supplies to $200 (formerly $100). Thus, taxpayers who do not have an applicable financial statement or written accounting procedures in place as of the beginning of the tax year may still deduct expenditures for tangible property costing $200 or less.

Making the Election

In order to use the safe harbor, businesses must have accounting procedures in place on the first day of the tax year. The accounting procedures must treat as an expense amounts paid for property that cost less than a specified dollar amount or have an economic useful life of 12 months or less. Failure to timely establish written accounting procedures may result in having to capitalize amounts that might otherwise have been expensed. In addition, the taxpayer’s timely filed original tax return must include an annual election to expense items addressed by the safe harbor provision. The annual election is irrevocable and generally applies to all tangible property including materials and supplies purchased during the tax year.

The regulations apply to tax years beginning on or after January 1, 2014; however, taxpayers can choose to apply the final regulations to tax years beginning on or after January 1, 2012, or apply the 2011 temporary regulations to tax years beginning on or after January 1, 2012, and before January 1, 2014. The final regulations may be applied retroactively, but many taxpayers will only be able to use the safe harbor in future tax filings because the de minimis safe harbor provision requires written accounting policies in place on the first day of the applicable tax year.

Conclusion

Although the final regulations provide some clarity, transitioning to these new rules might prove challenging. Please let us know if you would like to discuss these regulations or take steps to obtain tax benefits available from these regulations. 

 SAMPLE CAPITALIZATION POLICY

1.  Purpose

This accounting policy establishes the minimum cost (capitalization amount) that shall be used to determine the capital assets to be recorded in <business entity>’s books and financial statements.

2.  Capital Asset Definition and Thresholds

A “Capital Asset” is a unit of property with a useful life exceeding one year and a per unit acquisition cost exceeding <specify amount>. Capital assets will be capitalized and depreciated over their useful lives. <Business entity> will expense the full acquisition cost of tangible personal property below these thresholds in the year purchased.

3.  Capitalization Method and Procedure

All Capital Assets are recorded at historical cost as of the date acquired.

Tangible assets costing below the aforementioned threshold amount are recorded as an expense for <business entity>’s annual financial statements (or books). In addition, assets with an economic useful life of 12 months or less must be expensed for both book and financial reporting purposes.

4.  Documentation

Invoices substantiating the acquisition cost of each unit of property are to be retained for a minimum of <number> (<#>) years.

Tax Capitalization Threshold: The permissible ceiling for deducting otherwise capitalizable expenditures is <specify amount> when our business has applicable financial statements. The threshold is limited to <specify amount> in the absence of applicable financial statements.

The Social Security Administration (SSA) announced that the taxable wage base is increasing from $113,700 to $117,000 in 2014. The new limit raises the level of income subject to the 6.2% Social Security tax. According to the SSA, about 10 million of the estimated 165 million workers who pay Social Security taxes will be affected by the change.

Background

Under the Federal Insurance Contributions Act (FICA), employers, employees, and self-employed workers pay two taxes on wage and self-employment income. One is the 6.2% tax for Old Age, Survivors and Disability Insurance (OASDI, otherwise known as the “Social Security tax”), and the other is the 1.45% Medicare tax. Taken together, the two taxes add up to 7.65% of wages or self-employment income.

For wage earners, the employer pays 7.65% of wages earned, and the employee pays an equal amount. Those who are self-employed pay both the employer and employee portions, though the rules allow for certain adjustments to be made.

 The Social Security Tax

The amount to which the Social Security portion of the FICA tax applies is capped at a certain specified level, or “wage base.” The wage base is adjusted annually to keep pace with overall wage increases. Under the new announcement, the Social Security tax will no longer apply once the taxpayer exceeds $117,000 in wages or self-employment income in 2014. As a result, even if the worker were to earn more than $117,000 in 2014, the amount of the obligation for the employer and the employee would be limited to $7,254 (each).

 The Medicare Tax

Unlike the Social Security tax, the 1.45% Medicare tax has no taxable maximum, so the $117,000 cap will not apply to that portion of the tax.

In fact, the 1.45% Medicare tax rate increases by 0.9% when wages exceed certain levels — $250,000 for joint returns and $200,000 for unmarried filers. However, this 0.9% increase is on the employee side only. The employer is only responsible for the 1.45% employer portion of the tax.

Callers claiming to be from the IRS tell intended victims they owe taxes and must pay using a pre-paid debit card or wire transfer.  The scammers threaten those who refuse to pay with arrest, deportation or loss of a business or driver’s license.

The callers who commit this fraud often:

• Use common names and fake IRS badge numbers.
• Know the last four digits of the victim’s Social Security number.
• Make caller ID appear as if the IRS is calling.
• Send bogus IRS emails to support their scam.
• Call a second time claiming to be the police or DMV, and caller ID again supports their claim.

The truth is the IRS usually first contacts people by mail – not by phone – about unpaid taxes.  The IRS will never ask for payment using a pre-paid debit card or wire transfer.  The agency also won’t ask for a credit card number over the phone.

If you get a call from someone claiming to be with the IRS asking for a payment, here’s what to do:

• You can report the incident by making a call to the Treasury Inspector General for Tax Administration at 800-366-4484.
• You can also file a complaint with the Federal Trade Commission at FTC.gov.  If you file a claim through the FTC.gov website, make sure to include “IRS Telephone Scam” in the comments of your complaint.
• You can forward scam emails to [email protected]. If you receive a suspicious email of this type, don’t open any attachments or click on any links in the email.

Be alert for phone and email scams that use the IRS name.  The IRS will never request personal or financial information by email, texting or any social media.

As 2013 draws to a close, individuals should talk to their tax advisors to see whether they are on track with their tax projections or need to make any adjustments. They should also be aware of a number of recent and upcoming tax law changes that might provide them with tax-saving opportunities.

Individual Tax Planning

Estimated Tax Payments. Those who are making estimated payments and who find that their income is higher or lower than previously projected should do a fourth quarter tax review to see if any adjustments need to be made.  Taxpayers who have underestimated their liabilities should consider increasing their withholding from their wages or IRA/retirement account distributions to avoid penalties for any insufficient estimated payments. Generally, taxpayers will not be subject to penalties if the difference between total payments during the year and the tax owed is less than $1,000.

RMD Withdrawals. Individuals 70½ or older should make sure they take any required minimum distributions (RMDs) from retirement accounts by year-end (or if it is the first RMD, by April 1 of the next year). Otherwise, the penalty will be 50% of any amounts that should have been withdrawn but weren’t.

Flexible Spending Accounts (FSAs). Money in FSAs is usually forfeited unless used by year-end, although cafeteria plans are permitted to provide limited grace periods following the end of each plan year.

Health Savings Accounts (HSAs). HSAs can be excellent tools for deferring income. For 2013, deductible contributions to self-only plans can be up to $3,250, and those to family plans can be up to $6,450. An additional “catch-up” contribution of $1,000 is available for those 55 and older and not enrolled in Medicare. Calendar-year taxpayers should be aware that they have until April 15, 2014, to make contributions for 2013.

Investment Losses. Taxpayers with taxable investment accounts should consider selling stocks with losses to offset anticipated capital gains. If the stock is believed to have long-term growth potential, the stock may be repurchased, but the tax-loss seller may not repurchase during a period starting 30 days before the sale and ending 30 days after the sale.

Nonbusiness Energy Property Credit. The 10% credit for qualified energy efficiency improvements expires at the end of 2013. Qualified improvements include certain specified components of the building envelope. Also eligible are expenses incurred during the tax year for qualifying circulating fans, furnaces, heat pumps, water boilers and heaters, and central air conditioners.

Sales Tax Deduction. After 2013, taxpayers who itemize will no longer be able to elect to deduct their state sales tax in lieu of state income tax. Therefore, those planning on purchasing large items may want to do so before year-end.

Higher Education Expenses. The above-the-line deduction for up to $4,000 of higher education costs will expire at the end of the year. However, both the American Opportunity Credit and the Lifetime Learning Credit remain in place for 2014.

Planning for High-income Individuals

Higher Income Tax Rates. For 2013, a new 39.6% rate applies once the following levels of taxable income are exceeded:  $450,000 (married filing jointly), $400,000 (single), $425,000 (head of household), and $225,000 (married filing separately).

Also, a new 0.9% Medicare tax applies when wages and/or self-employment income exceed $250,000 for joint filers and $200,000 for individuals. Taxpayers will want to review their withholding levels to avoid penalties for underpayment.

Higher Capital Gains Tax Rate. For those in the 39.6% bracket, the tax rate on net capital gains will increase to a maximum 20%.

Phaseout of Personal Exemptions and Deductions. For 2013, both the personal exemptions and certain itemized deductions will begin to phase out at higher levels of income. For those filing jointly, the phaseout starts at $300,000 of adjusted gross income (AGI) and, for single taxpayers, it starts at $250,000.

3.8% Medicare Surtax. This tax — also new in 2013 — applies to the lesser of (a) “net investment income” or (b) the excess of modified adjusted gross income (MAGI) over certain income levels. The MAGI threshold is $250,000 for joint filers and $200,000 for individuals. Taxpayers will want to consider strategies to reduce both prongs of the test. One possible short-term strategy is to increase contributions to IRAs and qualified retirement plans.

Charitable RMDs. Those 70½ and older who wish to make charitable contributions in 2013 may want to take advantage of the rule — set to expire at the end of 2013 — that allows them to transfer their RMD (or a portion thereof) directly to a charity or donor-advised fund. In addition to being income-tax free, qualifying charitable transfers count toward a donor’s RMD obligation for the year and may generate other tax benefits.

We Can Help

We can help with your personal (and business) tax planning. Call us to set up an appointment to discuss your specific tax situation.

As of January 1, 2014, the IRS will treat mandatory service charges — such as those frequently added to restaurant tabs for large groups — as “service charges” rather than “tips.”  As a result, employers charging automatic gratuities will want to review their existing policies to make sure they comply with the new rule.

Background

Common practice at many restaurants is to require large groups of customers to pay a percentage gratuity (“auto-gratuity”) on top of the regular bill. Typically, the restaurants then pass on some or all of these auto-gratuities to the waitstaff. For the employees, these automatic “tips” count as wage income.  For the employer, they create withholding obligations and FICA liability.

However, under the IRS rule currently in place, neither the employer’s withholding obligations nor its FICA liability arises before the employee reports the tip income to the employer by the 10^th day of the following month.

New Rule

Under the rule scheduled to go into effect on January 1, the IRS will no longer characterize these auto-gratuities as “tips,” but will begin treating them as “service charges.” One consequence: The employer’s withholding and FICA responsibilities will arise at the time the auto-gratuity is paid, rather than later, when the employee reports the tip income to the employer.

Additionally, implementation of the rule will limit an important income-tax credit for those in the food and beverage industries.  Under the tax law, sellers of food and beverages may claim a credit for any FICA taxes they pay on the difference between “tips” and the minimum wage as it existed on January 1, 2007. Under the new IRS rule, auto-gratuities will no longer count as “tips” and therefore will no longer count toward figuring the tax credit.

Implementation of the new rule has already been postponed once. The IRS originally announced that it would begin implementing the rule in 2013, but then later delayed its implementation to 2014.

Possible Alternative

The IRS provides an example that suggests an alternative for restaurants to consider. In the example, the restaurant prints some sample tip calculations on its receipt, but then lets the customer decide whether to enter any amount on the tip line or to leave it blank. The IRS states that because the customer in this situation has complete discretion as to what to add to the bill, any amount left on the tip line would qualify as a “tip.”

Implementation of the rule might also affect other automatic charges, including those for bottle service (restaurants and nightclubs), room service (hotels and resorts), luggage assistance (hotels and airports), and delivery (e.g., mandated pizza and retail delivery).

If you have questions about how the new rule might apply to your business, let us know.

The U.S. Department of Labor (“DOL”) reminds employers that they must notify their employees by October 1, 2013, of the new health care exchange coverage option to be provided under the Patient Protection and Affordable Care Act of 2010.

In general, covered employers are those that employ one or more employees, who are engaged in interstate commerce, and who have $500,000 in annual dollar volume of business. Certain other entities may also be subject to the notice requirement.

The notice must be given to all full- or part-time employees, regardless of whether they are currently enrolled in a health plan. All employees must receive the notice by October 1, 2013, and those hired on that date or thereafter must receive it within 14 days of their start date. Employers have no obligation to provide the notice to anyone other than their employees.

The notice must contain a description of the health care exchange (or “Marketplace”), the services it provides, and contact information where the employee may obtain additional assistance. Additionally, it must notify the employee that he or she may be eligible for 
a premium tax credit if the employer’s plan does not meet certain requirements and the employee has to purchase a qualified health plan through the Marketplace. Finally, it must notify the employee that if he or she does purchase a qualified health plan through the Marketplace, he or she may lose any employer contribution to any health benefit plan offered by the employer.

The notice must be written in a manner calculated to be understood by the average employee.  It must be transmitted either by first-class mail or electronic means. If the notice is sent electronically, the DOL’s electronic disclosure safe harbor rules must be complied with.

The DOL provides two model notices on its website:  www.dol.gov/ebsa/healthreform. One model is for those employers who do not offer a health plan to their employees and the other is for those employers who do offer a health plan to either some or all of their employees. For the latter, the applicable form allows the employer to supply certain information needed by employees to apply for insurance in the Marketplace.

On June 26, 2013, the U.S. Supreme Court, in United States v. Windsor, struck down Section 3 of the Defense of Marriage Act (DOMA), which had deemed all same-sex marriages invalid for purposes of federal law. The Windsor decision effectively changes the definition of “spouse” in over 1,000 federal statutes and at least as many regulations. Any individual in a same-sex marriage should carefully review his or her tax situation in light of the decision. In addition, employers should review the decision’s potential impact on their benefit plans.

The Ruling

The Windsor case involved a same-sex couple whose marriage had been legally recognized in their state of domicile. One of them died, leaving her entire estate to the other. On its federal estate-tax return, the estate claimed the unlimited marital deduction for property passing to a surviving spouse, but the IRS denied the deduction pursuant to Sec. 3 of DOMA and assessed over $350,000 in estate taxes. Windsor, the estate’s executor, paid the taxes but filed suit, challenging Sec. 3 of DOMA as unconstitutional. The federal district court ruled in Windsor’s favor, and both the federal appeals court and the U.S. Supreme Court affirmed.

Limited Reach of the Decision

Significantly, the Windsor decision did not address Sec. 2 of DOMA, which permits states to refuse to recognize same-sex marriages recognized in other states. As a result, at this time, any individual in a same-sex marriage who moves from a state where that marriage is legally recognized to one where it is not runs the risk of losing any rights newly acquired under Windsor.

Another outstanding issue concerns the federal legal status of arrangements such as “domestic partnerships” or “civil unions” — as opposed to state-sanctioned “marriages.” What status these designations will have after Windsor remains to be resolved on a state-by-state basis.

Income-tax Issues

As a general rule, an individual’s filing status is determined as of December 31 of the tax year. Same-sex couples whose marriages are sanctioned after the Windsor decision are presumably required to now file either as married filing jointly or married filing separately, and they will no longer be allowed to file as “single.”

Couples affected by the Windsor decision will want to consider carefully whether they may obtain refunds by amending any prior federal returns to show that they were legally married. Amended return(s) must be filed within the applicable statute of limitations.

Couples should be aware that the tax effects of the two filing statuses available to married persons — married filing jointly and married filing separately — can vary widely. Additionally, it’s important to know that where two individuals file as married filing jointly, each is jointly and severally liable for any taxes, interest, and penalties ultimately deemed owing.

Those whose marital status for federal tax purposes has recently changed (or is about to) should consider the potential effect on several areas of their tax returns, including:

•  Various deductions and credits (including deductions for individual retirement account (IRA) contributions and credits for higher education expenses)
• Capital gains and income-tax rates
• Medicare surtax on net investment income
• Itemized deduction and personal exemption limitations

Estate Planning

With the increase in the federal estate- and gift-tax exemption to $5.25 million in 2013, relatively few couples’ estates will be affected by the Windsor decision. However, those whose estates are sufficiently large will want to reconsider their estate plans in light of (1) the availability of the unlimited marital deduction for both gift- and estate-tax purposes and (2) the portability of the estate-tax exemption.

Also of interest to many married taxpayers are the favorable rules for the spousal beneficiaries of IRAs to delay and “stretch out” required minimum distributions (RMDs). Specifically, surviving spouses who are named as beneficiaries of their spouse’s IRAs may choose to either directly roll over those IRAs or else treat them as their own — thereby potentially enabling them to avoid taxable lump-sum payouts, to take advantage of a more friendly schedule for RMDs, and to choose their own beneficiaries in order to maximize their tax deferral.

Benefit Plans

The DOMA ruling will affect employee benefit plans in several areas. For example, any health care coverage provided by employers to their employees’ same-sex spouses should no longer be treated as taxable income. In addition, such spouses should be treated as qualified beneficiaries for purposes of the COBRA continuation rules.

Sponsors of qualified retirement plans should assess the impact on their plans, including the application of the tax law’s spousal consent, qualified joint and survivor annuity, and RMD rules to employees in same-sex marriages. The IRS and U.S. Department of Labor are expected to provide additional guidance to plan sponsors regarding plan amendments and other issues.

The DOMA decision presents a wide range of issues to consider. Contact us if we can be of assistance.