On June 26, 2013, the U.S. Supreme Court issued its opinion in the case of United States v. Windsor, striking down Section 3 of the Defense of Marriage Act ("DOMA"). That Section previously prohibited same-sex marriages from being recognized under federal law; now, the numerous references to "spouses" or "marriage" in federal tax law and ERISA rules governing retirement, health and welfare, and fringe benefit plans sponsored by employers will include the spouses and marriages of same-sex couples who were legally married under any state's law.

But, Section 2 of DOMA remains law (at least until it is specifically addressed by a court) because it was not at issue in the Windsor case. Section 2 allows each state to decide whether to refuse to recognize a same-sex marriage performed in another state. By summer's end, 12 states and the District of Columbia will be issuing licenses for same-sex marriages [1].

Now, employers will need to know some very specific facts about same-sex unions in order to address the parties' rights under benefit programs and to correctly apply Federal and State tax rules. The application of the law will likely depend on where their employee's reside [2] , whether their marriage was legally performed in one of the states that permit same–sex marriage, and on whether that employee's current state of residence is one that bans recognition of a same-sex marriage. The Supreme Court's decision has no impact on couples who have a domestic partnership or civil union recognized in some states, unless those states also recognize that union as a common law marriage.

We do not yet have any guidance on how to transition an employer's benefit plan practices or change tax reporting for those in recognized same-sex marriages, or as to what might need to be given retroactive effect. In the past, when a Supreme Court case invalidated a benefit plan rule, the Internal Revenue Service exercised its authority to apply the new standards prospectively, and issued guidance giving a transition period for plan amendments and administrative changes. Hopefully, guidance will soon be issued on this case as well.

Action Items: For now, employers should:

  • Review payroll practices for income and employment tax withholding related to same-sex partners' benefits, sorting data by state.
  • Review current benefit plans to determine how the relevant plan terms, such as "marriage" and "spouse," are defined. For instance, is the term "spouse" defined with reference to DOMA or defined so as to require the spouse to be the opposite sex of the participant regardless of a state's marriage law? Precisely how your plans are worded will impact how you address the issues that will arise, at least in the short term.
  • Begin getting the information from employees about the legal status of any same-sex union, focusing first on facilities in or adjacent to the states that now recognize same-sex marriage. A new W-4 (withholding certificate) might be required, in addition to documents to prove the marriage occurred and the current state of the employee's residence. In collecting this data, do not commit to any particular changes until more guidance is issued. Those that do not have current legal residence in a state that recognizes same-sex marriages, but were legally wed in a state that does, may still have claims under your plan's terms that their marriage should be observed.
  • Consider whether each plan's "choice of law" clause (the sentence indicating which state's law governs interpretative issues) is one that supports easy administration and the employer's goals.

If a participant who is a party to a same-sex marriage makes a claim before guidance is issued or plan amendments made, call FBT to assist with handling the request under the plan's claim procedures.

Click here to see a list of the plan provisions you should identify in your plans and administrative documents that are likely to be affected by this case—with respect to legally-married same-sex spouses who still reside in one of the states that recognize such marriages.