Same-sex Spouse

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Last week, the Internal Revenue Service (IRS) issued Notice 2015-86, providing guidance on the application of the U.S. Supreme Court’s decision in Obergefell v. Hodges to qualified retirement plans and health and welfare plans, including cafeteria plans.  Importantly, and as expected, the IRS comments in the Notice that it does not anticipate that Obergefell will have a significant impact on the application of federal tax law to employee benefit plans.

As was expected, the U.S. Department of Labor has issued a proposed regulation changing the definition of “spouse” for FMLA purposes in order to protect the FMLA rights of employees with same-sex spouses.

The proposed regulation adopts a “place of celebration” rule, consistent with the current DOL interpretation in the context of other federal laws.…

Following the U.S. Supreme Court’s decision in US v. Windsor, the requirement that an ERISA health plan provide health coverage for same-sex spouses has often hinged on whether an employee benefit plan was insured or self-insured and, in the case of insured plans, the requirements of state insurance law. In states where same-sex marriage…

Shortly after the U.S. Supreme Court ruled (in U.S. v. Windsor) that Section 3 of the federal Defense of Marriage Act (DOMA) was unconstitutional, the IRS announced that same-sex marriages will be recognized for federal tax purposes and provided guidance relating to the impact of Windsor on certain types of employee benefits.  At the same time, the IRS left a number of issues open for future guidance for qualified retirement plans.

Last week, the IRS issued Notice 2014-19, clarifying the application of Windsor to qualified retirement plans.  This guidance specifically addresses issues concerning the effective date and retroactive effect of the decision as well as the timing of relevant plan amendments.  The IRS also published six Frequently Asked Questions (FAQs) that address details such as beneficiary designations in profit-sharing plans, the applicability of choice of law provisions in qualified plans, the application of Windsor to Code Section 403(b) plans, and additional guidance relating to plan amendments.

The Ninth Circuit Judicial Council, an administrative body that reviews decisions of the court’s chief judge, recently weighed in on an issue involving same-sex domestic partner health benefits in the post-Windsor world.  The decision is interesting insofar as it relies at least partially on the Windsor decision in awarding “spousal” benefits to an unmarried…

Continuing its implementation of the United States Supreme Court decision in U.S. v. Windsor, the Internal Revenue Service (IRS) recently issued Notice 2013-61, which provides guidance for employers to make claims for refunds or adjustments of overpayments of Federal Insurance Contributions Act (FICA) and Federal income tax withholding (employment taxes) for 2013 and prior years with respect to certain fringe benefits and remuneration provided to same-sex spouses of employees.

In Revenue Ruling 2013-17 issued in August, the IRS announced that effective September 16, 2013, for Federal tax purposes, it would recognize same-sex marriages and was adopting a “place of celebration” rule pursuant to which all same-sex couples married in a state or foreign jurisdiction permitting such marriages would be recognized as spouses for federal tax purposes, regardless of their state of residence. It also announced that it intended to distribute streamlined procedures for employees who wish to claim refunds for federal income taxes paid on the value of health coverage to same-sex spouses and guidance for employers who wish to claim refunds for payroll taxes paid on such benefits.

Notice 2013-61 provides these special streamlined administrative procedures. Under these procedures, if an employer that withheld employment taxes for same-sex spouse benefits paid to or on behalf of an employee in the third quarter of 2013 ascertains the amount withheld on those benefits and repays or reimburses the employee for these amounts before filing the third quarter Form 941 (Employer’s Quarterly Federal Tax Return) due on October 31, 2013, an employer need not report these wages and withholding on the third quarter Form 941. If an employer does not repay or reimburse the employee for the overcollected amount before it files the third quarter 2013 Form 941, an employer must report the amount of the overcollection on that return and can use one of two special administrative procedures to make an adjustment or claim a refund.

If the U.S. Supreme Court rules that the federal Defense of Marriage Act (“DOMA”) is unconstitutional in Windsor v. U.S., which is expected to be decided this month, will employers that offer health benefits to employees’ same-sex domestic partners cease offering “domestic partner” benefits separately from benefits for employees and their spouses? Currently, one rationale for offering same-sex domestic partner health coverage is based on an equitable argument that, because an employee’s same-sex domestic partner typically cannot be treated as a spouse or dependent for federal tax purposes, a special coverage category is warranted. At the same time, this special status results in an economic hardship in that the employee must pay income tax on the value of coverage provided to the domestic partner. A repeal of DOMA would enable same-sex couples to avoid this economic hardship (at least with regard to federal income taxes). In other words, if DOMA is repealed, the definition of “spouse” for purposes of federal laws will no longer be limited to an opposite-sex spouse. Consequently, same-sex couples will have the opportunity to avoid federal taxation of their benefits by marrying. That could lead employers to conclude that the special category of domestic partner coverage is no longer needed.

The Defense of Marriage Act (DOMA) defines marriage at the federal level as a legal union between one man and one woman and excuses states from any obligation to recognize same-sex marriages recognized in any other state. As a result, many states have enacted so-called “mini-DOMA” laws providing that those states will not recognize for any purpose same-sex marriages recognized in other states.

As has been widely reported, DOMA’s constitutionality is currently under consideration by the U.S. Supreme Court in United States v. Windsor and a decision is expected in June. If DOMA is struck down, employers and other benefit plan sponsors should consider the potential effects not only on the definition of “spouse” for benefits purposes, but also the definition of “child.”