In United States v. Windsor, the Supreme Court ruled that Section 3 of the Defense of Marriage Act (DOMA)  is unconstitutional as a violation of the Equal Protection Clause of the Constitution. This ruling will  affect a vast number of federal laws.

While the full implications of this ruling will take time and regulatory guidance to understand, what is  clear at a minimum is that differential treatment of opposite-gender and same-gender married couples  is not permissible in the states that allow or recognize same-gender marriages. At present, there are 17  states, plus the District of Columbia, that do. 

One of the many issues left unresolved following the court’s ruling is the impact on same-gender spouses  residing in states that do not recognize or directly ban same-gender marriage. Regardless, unless and  until a federal court interprets the Windsor decision otherwise, one presumption worth considering is  that federal regulatory guidance (when issued) will uniformly recognize all marriages of same-gender  couples throughout the United States, provided the marriage is valid in the state where the marriage  occurred. There are pros and cons to relying on this presumption, which further underscores the need  to seek advice from your legal counsel as to your particular circumstances.

The list below is not exhaustive of all issues that may be impacted by the Supreme Court’s decision, but  is intended to identify some of the more commonly occurring issues. Employers and employees are urged  to consult with counsel for specific advice on how to assess the Windsor.

Tax Treatment of Employer and Employee Contributions for Coverage of Same-Gender Spouses 

Prior to the Supreme Court’s ruling, employees could not pay for health care coverage for their same-  gender spouses on a pre-tax basis, and employers were required to impute income to the employees when  the cost of coverage was subsidized by the employer for the employees’ same-gender spouses (unless  they separately qualified as the employee’s tax dependent). Under the ruling, the federal tax treatment  of same-gender spouses (at least those married and residing in one of the 17 above-referenced states or  D.C.) may have to be the same as for opposite-gender spouses, allowing for pre-tax premiums and no  requirement to impute income for employer-paid coverage.  

Flexible Spending Accounts, Health Savings Accounts and Health Reimbursement Accounts

Federal tax laws generally prohibited the reimbursement of expenses of a same-gender spouse or the  spouse’s children under any of these plans. In light of the Court’s ruling, employees can certainly claim  a right to have their same-gender spouses and the spouse’s children covered by the employer’s cafeteria  plan, Flexible Spending Account (FSA), Health Spending Account (HSA) and Health Reimbursement  Arrangement (HRA).

Family and Medical Leave Act 

Under the Family Medical Leave Act (FMLA), covered employers must allow employees to take up to  12 weeks of unpaid leave in order to take care of certain relatives, such as spouses. While DOMA was  in effect, “spouse” was limited to opposite-gender spouses. Under the Supreme Court’s ruling, the FMLA  leave protections may extend to care for same-gender spouses. 

Estate and Gift Tax Planning Opportunities for Same-Gender Spouses

Questions remain concerning how federal laws will apply to same-gender couples who were validly  married in one state, but are filing as residents of another state that does not recognize same-gender  marriage. Regardless of and subject to the earlier comments, one presumption is that federal law will  uniformly recognize all valid marriages of same-gender couples throughout the United States, unless  and until a federal court holds otherwise. 

Accordingly, same-gender spouses may now benefit from many federal estate and gift tax advantages,  including: (a) portability, which allows a surviving spouse to benefit from the unused estate tax exemption  of a deceased spouse under certain circumstances; (b) tax-free transfers between spouses during life  and at death; and (c) gift-splitting, which allows one spouse to make a tax-free gift to someone else on  behalf of both spouses equal to twice the annual gift tax exclusion amount, provided the appropriate  election is made. These examples represent just a few of the federal tax planning privileges now available  to same-gender spouses.

State Income Tax Issues

Most states imposing an individual income tax use a taxpayer’s federal income tax return as the starting point for the state income tax return. In the past, this has placed a burden on same-gender couples who are married under their state’s law, because states that allow or recognize same-gender marriages generally require all married couples to file their individual income tax returns as either “married filing jointly” or “married filing separately.”

Before the court’s decision, same-gender married couples were required to file their federal income tax returns as “single” or “head of household,” so states recognizing their marriage would generally require that they recalculate their federal income tax as if they filed their federal income tax returns as “married filing jointly” or “married filing separately.” The recomputed federal income taxes were then used as the basis for determining state income taxes.

It is not yet clear what requirements states that do not allow or recognize same-gender marriage will impose on same-gender couples who file federal income tax returns as “married filing jointly” or “married filing separately.” It is likely, however, that at least some states will require same-gender couples to recalculate their federal income tax as if they filed their federal income tax returns as “single” or “head of household,” and will use the recomputed federal income taxes as the basis for determining state income taxes.

There are very few unequivocally clear take-aways from the Windsor decision. Based upon the facts of that case, those clear mandates are grounded in facts where the marriage of the same-gender couple is recognized under state law but yet federal law dictates an unequal treatment in comparison to samegender couples. Outside that set of facts, legitimate presumptions are the only real guidance available to employers, employees, spouses in same-gender marriages and children of such marriages, among others.

As stated numerous times, we sincerely encourage employers to be proactive in seeking legal counsel regarding the impact of the Windsor decision upon their particular facts and circumstances. Please visit our website for more information.