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Employers required to recognize same-sex marriages

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Clifton B. Clark Clifton B. Clark
Robert G. Tweel Robert G. Tweel
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This article was co-authored by Clifton B. Clark and Robert G. Tweel, Jackson Kelly PLLC. For additional information or if you have any questions regarding how this decision impacts you, please contact one of your legal advisors at Jackson Kelly PLLC. 

On June 26, 2013 the U.S. Supreme Court issued a 5-4 opinion in United States v. Windsor declaring that Section 3 of the Defense of Marriage Act, which defined the terms "marriage" and "spouse" to exclude same-sex couples for purposes of certain federal laws and regulations, violated principals of equal protection under the U.S. Constitution. 

As a result of this decision, employers must now reexamine how they apply a multitude of federal laws and regulations that relate to same-sex couples. In 1996, Congress enacted the Defense of Marriage Act, or DOMA, which, for purposes of more than 1,000 federal laws and the associated regulations, defined the term "marriage" to mean "a legal union between one man and one woman as husband and wife" and the term "spouse" to mean "a person of the opposite sex who is a husband or wife."  Since that time, 13 states, along with the District of Columbia, have passed laws specifically recognizing same-sex marriages and several others, while specifically prohibiting a same-sex "marriage," have adopted laws recognizing civil unions and domestic partnerships. 

At issue in the Windsor case, was the right of Edith Windsor (who was recognized by the State of New York to be legally married to Thea Spyer) to claim the federal estate tax marital deduction. Finding that matters of domestic relations were areas long regarded as within the exclusive province of the states, the Court held that it was up to the states to define the concept of marriage. Since Windsor was recognized as being legally married by the State of New York, she was entitled to claim the federal estate tax marital deduction. 

Look to the state law

In assessing the impact of the Court's decision in Windsor, it is important to note that the Court did not declare same-sex marriage the law of the land, nor did it even address the constitutionality of Section 2 of DOMA, which allows states to refuse to recognize same-sex marriages performed under the laws of other states. All the Court's decision means (at this point) is that for purposes of determining whether an individual is legally married, one must look to applicable state law rather than rely on the definitions set forth in Section 3 of DOMA. 

The following are just a few examples of some of the issues employers must now address as a result of this decision:

 

  • Joint Returns: Same-sex couples that are legally married under applicable state law will now be entitled to file joint income tax returns. As a result, employers may need to make new W-4 Forms available to employees so that they can modify their personal exemptions and income tax withholding as appropriate. In some cases, employers may want to issue corrected Forms W-2 to employees who wish to claim refunds in instances where benefits paid on behalf of a same-sex spouse were previously treated as taxable income to the employee spouse.
  • Employee Benefit Plans: Employers will need to revisit the manner in which they classify employees under various employee benefit plans. These plans may need to be amended or modified to ensure compliance with the decision in Windsor and/or to implement new policies that employers may want to adopt as a result of that decision. In many cases, the law (or the terms of the plan itself) may require same-sex couples to be treated as married for purposes of the plan. In other situations, the employer may desire (for administrative consistency or other reasons) to amend the plan to provide similar benefits to same-sex couples (where the law allows them to do so) even if they are not recognized as legally married under the applicable state law.
  • Family and Medical Leave Act, or FMLA: Employers subject to the Family and Medical Leave Act, or FMLA, (i.e. employers with 50 or more employees) will now be required to extend the same type of benefits, such as unpaid leave to care for a spouse with a serious medical condition, to same-sex couples who are recognized as legally married under applicable state law.
  • Health Insurance Coverage: Prior to Windsor, employees who provided health coverage to same-sex spouses were required to include the value of health insurance benefits provided to a same-sex spouse in the employee's taxable income. Same-sex couples recognized as married under applicable state law will now benefit from the same income tax exclusion available to other married couples. Individuals who have been taxed on this income may want to file an amended return to now claim a refund if they were lawfully married at  orduring the tax year in question.
  • COBRA: Same-sex spouses that are recognized as legally married under applicable state law will now be entitled to the same COBRA benefits as other married individuals. This includes the right to elect continuing coverage after a qualifying event, such as employee's termination or a reduction in hours, even if the employee does not elect such coverage.
  • Qualified Profit Sharing, such as 401(k) and Defined Benefit Plans: Same-sex spouses recognized as legally married under applicable state law now have the right to be the default beneficiary under qualified profit sharing and defined benefit plans just like the spouses of other married couples. As a result, employees who have designated a non-spouse as the primary beneficiary may be required to obtain spousal consent to the alternative beneficiary designation.

 

But which state law?

Although the Court in Windsor held that employers must look to applicable state law to determine whether an employee is legally married, one significant question that was not answered by the Court was which state's law. For example, is an employee considered legally married for purposes of federal law if that employee was married in a state that recognizes marriages between same-sex couples (the "state of celebration") but then moves to another state (i.e. the "state of domicile") that does not recognize same-sex marriages? 

The various federal agencies responsible for administering these laws are currently in the process of issuing guidance on this issue. In Revenue Ruling 2013-17, the IRS announced that for federal tax purposes, the Service will recognize the marriage of a same-sex couple if the marriage was validly entered into in a state where the laws authorize such a marriage even if the couple is domiciled in a state that does not recognize the validity of the marriage. 

Other issues that further complicate matters include the following:

 

  • Effective Date: Since the Court in Windsor held that Section 3 of DOMA was unconstitutional, the impact of the decision is likely to be retroactive. As a result, employers will need to carefully review guidance currently being issued by the various federal agencies on this issue and may need to act quickly to modify benefit plans and adopt policies to ensure compliance.
  • Civil Unions and Domestic Partnerships: Some states that do not recognize same-sex marriages have adopted laws recognizing concepts of civil unions and domestic partnerships which are the substantial equivalent of marriage. While the decision in Windsor simply means that one must look to applicable state law to determine the meaning of the terms "marriage" and "spouse," such relationships are not defined as marriages under such state laws and, therefore, are not technically affected by the decision in Windsor. Consistent with this approach, the IRS recently announced (in Rev. Rul. 2013-17) that for federal tax purposes, registered domestic partnerships, civil unions and similar relationships not defined as "marriage" will not be recognized as "marriages" for federal tax purposes. While these relationships may not constitute "marriages" under the Windsor decision, the similarity between the concepts raises the prospect that a disparity in treatment among the two groups may give rise to further legal challenges in the courts.
  • Effect of Common Law Marriage: In determining an individual's marital status under state law, one must keep in mind that some states recognize the concept of common law marriage. Where a common law marriage is recognized for state law purposes, it should be recognized for federal law as well. However, just because a state recognizes common law marriage between a man and a woman, it does not necessarily follow that the same state will recognize a similar relationship between a same-sex couple as a common law marriage. 

 

While the Court's decision in Windsor may have raised more questions than it answered, the one thing for certain is that employers must now take a close look at how they determine the marital status of their employees for purposes of the multitude of federal laws and regulations that rely on the concept. This will be a particularly difficult and time-consuming task for employers with operations and employees in multiple states and will require employers to closely monitor and review the status of guidance that is currently being issued by the various federal agencies that administer these laws.