Quirky Question #208, Defense of Marriage Act (DOMA)
I’ve heard a lot about the recent Defense of Marriage Act (“DOMA”) decisions lately. Are there any practical implications on employers or employees of the DOMA cases?
Answer: By Judy Sha
Don’t be fooled into thinking the DOMA decisions are only about the constitutionality of same sex marriage. To the contrary, the DOMA decisions have and will continue to have practical implications for many employers and employees across the country. But before we move on, a brief summary of the DOMA cases that are bringing on these changes, is in order:
This past June, the United States Supreme Court issued two important decisions on same-sex marriage rights. In the first case, United States v. Windsor, the U.S. Supreme Court struck down a key provision of the Defense of Marriage Act (DOMA) that defined marriage as only between a man and a woman. The Court found that defining marriage to exclude same sex unions is unconstitutional and violated the equal protections afforded by the Fifth Amendment of the Constitution.
In the second case, Hollingsworth v. Perry, the U.S. Supreme Court left in place a federal court’s decision that Proposition 8 is unconstitutional and cannot be enforced. Proposition 8, which was approved by California voters, amended the state’s Family Code to state that “only marriage between a man and a woman is valid or recognized in California;” the proposition would have banned same-sex marriage in California.
But What Does This All Mean To Employers On A Practical Level?
While the Court in Windsor did not address the practical effects of implementing its decision, the IRS and the DOL have issued some guidance on the issue. Granted this guidance is limited, it is but only the first of many to come and it has been a surprise to many.
Recently, on August 29, 2013, the IRS and the U.S. Department of the Treasury issued guidance that answers the question as to under what circumstances a legally married same-sex couple is recognized as a married couple for federal tax purposes. In IRS Revenue Ruling 2013-17, the Treasury Department and the IRS ruled that all legally married same-sex couples will be treated as married couples for federal tax purposes; it does not, however, apply to civil unions or registered domestic partnerships. In other words, the Treasury Department and IRS have adopted a “state of celebration” rule rather than a “state of residence” rule. Notably, the ruling applies regardless of whether the legally married same-sex couple lives in a jurisdiction that does not recognize same-sex marriage.
This new position by the IRS and the Treasury Department will require employers in all states—not just the 13 states (and the District of Columbia) that currently permit same-sex marriage—to prepare for same-sex couples to request spousal benefits under the employer’s various benefit programs, particularly those programs where preferential spousal treatment is required by federal law (e.g., spousal protection under qualified retirement plans, special enrollment and COBRA rights under health and welfare plans, etc.).
On Sept. 23, 2013, the IRS issued Notice 2013-61, providing special administrative procedures for employers to correct overpayments of employment taxes for 2013 and prior years with respect to certain same-sex spouse benefits, including overpayments that result from a taxpayer’s retroactive application of the holdings of Revenue Ruling 2013-17.
Department of Labor Follows IRS’ Approach on DOMA
Following the IRS’ announcement of its “state of celebration” rule, the U.S. Department of Labor (“DOL”) issued Technical Release 2013-04 on September 18, 2013, in which the DOL followed the IRS’ approach to same-sex marriage by adopting the state of celebration rule.
Technical Release 2013-04 provides that for the rules and regulations where the DOL has authority (e.g., Title I of ERISA, and certain provisions of the Internal Revenue Code, COBRA, and HIPAA, among others), the term “spouse” will refer to any individuals who are lawfully married under any state law and the term “marriage” will include a same-sex marriage that is legally recognized as a marriage under any state law.
The DOL reasoned that the state of celebration rule provides a uniform rule of recognition that can be applied with certainty by employers, plan administrators, participants and beneficiaries. The DOL poignantly explained that a rule for employee benefit plans based on state of domicile would raise significant challenges for employers that operate or have employees (or former employees) in more than one state or whose employees move to another state while entitled to benefits, resulting in substantial financial and administrative burdens on employers, as well as the administrators of employee benefit plans.
Future Guidelines Are Coming Down the Pipeline: Check Back Regularly for Updates
U.S. Treasury Department and the IRS also intend to issue further guidance on cafeteria plans and on how qualified retirement plans and other tax-favored arrangements should treat same-sex spouses for periods before the effective date of their Revenue Ruling. Other agencies may provide guidance on other federal programs that they administer that are affected by the Code.
As you can see, further guidelines and procedures can be expected to be issued in the near future, and we will be sharing this information on this blog. We encourage you to check back with us regularly for updated information on how the DOMA decisions will continue to impact employers and employees.
For Now, Employers Should Consider, Among Other Things:
- Review the enrollment process so that same sex spouses are properly identified and accorded the proper tax treatment.
- Review the health and retirement plans’ definitions of spouse. Employers whose plans cite DOMA explicitly will need to change their documents.
- Permit employees to take family and medical leave to care for an ill same-sex spouse.
- · Treat employees’ same-sex and opposite-sex spouses equally for purposes of the benefits extended to spouses.
- Update 401(k) plans for purposes of determining death benefits, and same-sex spouses must consent to beneficiary designations.
- Review Flexible Benefit Plan and Life Insurance definitions.
- Provide COBRA continuation coverage to same-sex spouses.
- Employers with pension plans must recognize same-sex spouses for purposes of determining surviving spouse annuities.
- Consider how to handle employees’ requests for claiming refunds or making adjustments of overpayments of employment taxes that have been paid with respect to same-sex spouse benefits for 2013.
Disclaimer: Treasury Department Circular 230
To comply with certain Internal Revenue Service (“IRS”) rules, we must inform you that any U.S. federal tax advice contained in this presentation, including handouts, is not intended or written to be used, and cannot be used, by any person for the purpose of avoiding any penalties that may be imposed by the IRS. Under IRS rules governing tax advice, a taxpayer may rely on professional advice to avoid federal tax penalties only if that advice is provided in a tax opinion that conforms with extensive federal requirements. We understand that you do not intend to use or refer to anything contained in this presentation to promote, market, or recommend any particular entity, investment plan, or arrangement.