Employers operating in states that recognize same-sex marriages must apply various federal tax treatment and employment laws that apply to married couples to those individuals in same-sex marriages and their spouses.
When the U.S. Supreme Court struck down part of the federal Defense of Marriage Act (DOMA) last month, it opened the door to a range of changes on the employment front for employees in same-sex marriages. However, because the ruling in Windsor v. United States left intact individual states’ ability to decide whether to recognize same-sex marriages from other states, some employer responsibilities in the wake of the decision remain unclear.
For example, the U.S. Department of Labor and the IRS may issue guidance on how to handle issues related to same-sex married couples if the couple is married in a state that allows and recognizes same-sex marriage, such as Massachusetts, then moves to a state, like Texas, that does not recognize that marriage. It is also unclear whether employers have the right to voluntarily extend these rights under benefit plans and employment policies even when the company operates in states that do not recognize same-sex marriage.
What is clear is that employers operating in states that allow and/or recognize same-sex marriages must apply various federal tax treatment and employment laws that apply to married couples to those individuals in same-sex marriages and their spouses. Here is a rundown of what will change, although several questions remain about a number of issues.
• Taxes.Perhaps the most important change will be in payroll systems to modify tax withholding for employees and their same-sex spouses now that they are subject to tax rates for married couples. Employers may at some point need to issue modified Forms W2 for these employees if the federal government makes the tax status of these couples retroactive to the beginning of this year or some earlier date.
• Health benefits.When it comes to employee benefits, in states that recognize same-sex marriage, employers that provide spousal coverage through self-insured health benefit plans must extend that option to employees with same-sex spouses. Fully insured plans will be governed by state law requirements. The value of these spousal health benefits will no longer be subject to federal income tax and these spouses will also be able to take COBRA continuation health coverage in the event of a divorce. A same-sex marriage or divorce will also be considered a qualifying event in section 125 cafeteria plans so that employees can make mid-year changes to their benefits.
• Retirement plans.On the retirement front, same-sex spouses of employees will be eligible for both death benefits and survivor annuities from retirement plans. When an employee with a same-sex spouse changes beneficiaries of his or her retirement plans, those changes will now require spousal consent.
• Family leave.Under the Family and Medical Leave Act (FMLA), an employee in a same-sex marriage will be able to take up to 12 weeks of unpaid leave under the FMLA to care for his or her spouse.
PricewaterhouseCoopers has issued a document that provides a bit more detail in what is required by employers following the Windsor decision. Employers should be aware that further guidance on these issues is likely to be forthcoming at some point so they may need to make additional changes in the future.