One way the U.S. Supreme Court’s decision in United States v. Windsor, which invalidated the Defense of Marriage Act (DOMA) (which excluded same-sex couples from the definition of spouse), impacts employers relates to taxes. The Treasury Department and Internal Revenue Service (IRS) have issued a ruling that same-sex couples legally married in states that recognize their marriages will be treated as married for federal tax purposes, even if the couple resides in a state that does not recognize their marriage. This ruling applies prospectively, as of September 16, 2013.
Under this ruling, same-sex couples will be treated as married for all federal tax purposes, including income and gift and estate taxes. The IRS ruling applies to all federal tax provisions where marriage is a factor, such as filing status, claiming personal and dependency exemptions, taking the standard deduction, providing employee benefits, contributing to an IRA, and claiming the earned income tax credit or child tax credit. The ruling does not apply to registered domestic partnerships, civil unions, or similar formal relationships recognized under state law.
This ruling has important implications for employers providing benefits that cover spouses under group health plans, cafeteria plans, and qualified retirement plans. Many employers offer group health plans and cafeteria plans to their employees that allow employees to pay for benefits on a pre-tax basis. Under this ruling, employees will be able to pay for their same-sex spouses’ health coverage on a pre-tax basis. And employees may claim a refund of federal income taxes paid on the value of health coverage, which was included in the employee’s gross income, and on premiums that the employee paid on an after-tax basis for health coverage of the employee’s same–sex spouse. Employers may also claim a refund of, or make an adjustment for, any excess social security taxes and Medicare taxes paid. A special administrative procedure for employers to file claims for refunds or make adjustments for excess social security taxes and Medicare taxes paid on same-sex spouse benefits will be provided in forthcoming guidance to be issued by the IRS in the near future. Also, qualified retirement plans must now treat same-sex couples as spouses for purposes of federal tax law related to such plans. Employers need to ensure they are in compliance with these new rules as of September 16, 2013.
If you have any questions about this ruling or the other ways the Windsor decision impacts employers, please contact any of the attorneys at Royal LLP at (413) 586-2288.