On June 26, the U.S. Supreme Court ruled that provisions of the federal Defense of Marriage Act (DOMA) that defined marriage as a legal union between one man and one woman were unconstitutional. In a 5-4 vote, the Court found that the provisions deprived “the equal liberty of persons that is protected by the Fifth Amendment.”
The Court’s ruling in United States v. Windsor caused quite a stir in the employee benefits world, with a lot of confusion over how benefits plans in various states would be affected. After the decision, it was clear that married same-sex couples in states where such marriages are legal are entitled to be recognized as spouses for purposes of federal law and therefore will become eligible for equal benefits under numerous federal programs. However, it wasn’t quite as clear how same-sex couples in states without legalized same-sex marriage would be affected.
Luckily, agencies have recently issued guidance to clarify some of the issues and questions that arose after the Supreme Court’s decision.
IRS treatment of same-sex marriage
At the end of August, the IRS and the U.S. Department of the Treasury issued IRS Revenue Ruling 2013-17, which makes clear that same-sex couples who were legally married in jurisdictions recognizing their marriages will be treated as married for federal tax purposes, regardless of whether they live in a jurisdiction that recognizes same-sex marriage. (This is generally known as the “state of celebration” approach.) Treasury Secretary Jacob Lew said in a statement that the ruling “assures legally married same-sex couples that they can move freely throughout the country knowing that their federal filing status will not change.”
According to the ruling, same-sex married couples will be treated as married for all federal tax purposes, including income, gift, and estate taxes. The ruling covers federal tax provisions such as filing status, dependency exemptions, employee benefits, IRA contributions, and claiming the earned income tax credit or child tax credit.
While the ruling applies to any legally recognized same-sex marriage, it doesn’t apply to other types of legal relationships, including registered domestic partnerships or civil unions.
Department of Labor and ERISA (Health Insurance) guidance
On September 18, the U.S. Department of Labor (DOL) provided guidance to plans, plan sponsors, fiduciaries, participants, and beneficiaries on the Windsor decision’s impact on ERISA. According to DOL Technical Release No. 2013-04, generally, the terms “spouse” and “marriage” in Title I of the Employee Retirement Income Security Act (ERISA) and in related regulations include same-sex couples who are legally married in any state or foreign jurisdiction that recognizes such marriages, regardless of where the couple currently resides. The DOL chose this “state of celebration” approach because it “provides a uniform rule of recognition that can be applied with certainty by stakeholders, including employers, plan administrators, participants, and beneficiaries.”
Similar to the IRS ruling discussed above, the DOL’s release also notes that the terms “spouse” and “marriage” do not include individuals in other legal relationships besides marriage, such as domestic partnerships or civil unions.
There’s no doubt that the Supreme Court’s DOMA ruling will bring significant changes to the area of employee benefits. And although guidance is slowly being released to address the decision’s impact, there are still a lot of unanswered questions. Thus, it’s important to be on the lookout for future guidance and make sure you’re reviewing and updating your benefits plans and payroll procedures to be in compliance with federal law.