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Entries in Domestic Partner Benefits (5)


State Exemptions for Religious Organizations After the DOMA Decision and Revenue Ruling 2013-17

The “place of celebration” rule adopted by the IRS in Revenue Ruling 2013-17 means that legally married same-sex couples are now recognized as married for federal tax purposes regardless of the state in which they reside.  This ruling clearly affects the design and operation of employer-sponsored benefit plans in all states, whether the state recognizes same-sex marriage or some other form of legal relationship between same-sex couples or continues to define marriage as a union between one man and one woman.  Somewhat less clear is how the place of celebration rule will affect the legal obligations of religious organizations in states that recognize same-sex marriage. 

Most states that recognize same-sex marriage exempt religious organizations from the application of statutes that prohibit discrimination based on sexual orientation.  As a result, religious organizations in these states may generally continue to treat an employee in a same-sex union differently than an employee who is married to someone of the opposite sex.  Thus, these state exemptions appear to give religious organizations the right to refuse equal employment benefits to employees in same-sex marriages despite the Service’s guidance.  Questions remain, however, regarding the scope of these exemptions and whether they would survive constitutional scrutiny.

First, many of the state exemptions do not define with specificity what constitutes a “religious” organization. 

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IRS Releases Guidance on DOMA Decision

Yesterday Treasury and the IRS released much needed guidance regarding the U.S. Supreme Court’s decision on the Defense of Marriage Act.  Specifically, Treasury and the IRS ruled that they will adopt a “place of celebration rule” under which legally married same-sex couples will be recognized for federal tax purposes regardless of the state in which they reside.  Importantly, the ruling does not extend this treatment to domestic partnerships (whether registered or not), civil unions, or similar relationships.  Treasury and the IRS will begin to apply this rule on September 16, 2013.

Treasury and the IRS intend to issue additional guidance pertaining to cafeteria plans, qualified retirement plans, and other employee benefit plans and arrangements, and to provide a streamlined process by which employers may obtain refunds on payroll taxes paid on imputed income.  For now, however, we offer the following observations based on the new guidance:

  • Employers should stop imputing the value of welfare benefits provided for the spouse of a same-sex married employee as income for federal tax purposes if the employee and his or her spouse were legally married in any state.  This means that differences between state and federal tax treatment will continue in many states.  Specifically, employers operating in states that do not recognize same-sex marriage may need to continue to impute income at the state level, but not at the federal level.  Similarly, employers operating in states that treat civil unions as marriages for tax purposes may not need to impute income at the state level for benefits provided to the civil union partner of an employee, but would need to impute income at the federal level.
  • Since the ruling expressly allows employees to file refund claims for benefits-related imputed income, employers may want to prepare to answer questions from employees about the amount that was included in their gross income in past years.  (Refund claims will only be allowed for open years, which for most employees would include 2012, 2011, and 2010.)
  • While the guidance may provide some flexibility with respect to the cessation of imputed income for federal income tax purposes, FAQs issued with the ruling make clear that qualified retirement plans must comply with the ruling as of September 16, 2013.  As of that date, for example, a plan that provides for the payment of a spousal death benefit must pay that benefit to the same-sex surviving spouse of a deceased participant.

We will have more to say about these issues soon.  Suffice it to say, this guidance will significantly impact the design and operation of employer-sponsored benefit plans and should be carefully reviewed by plan sponsors.


The Verdict on DOMA and Proposition 8: Impact on Employee Benefit Plans

Today the United States Supreme Court overturned Section 3 of the Defense of Marriage Act (“DOMA”) and reinstated a California judge’s order that Proposition 8 (the California ballot initiative defining marriage as between a man and a woman) is unconstitutional.  Although it will take time to sort through the implications of these rulings (which depend somewhat on how they are interpreted by the federal government and individual states), they undoubtedly will have a substantial impact on employer-sponsored benefit plans.  

What the Rulings Do

Section 3 of DOMA defines the words “marriage” and “spouse,” for federal purposes, as referring only to marriages between opposite-sex couples.  As a result of DOMA, the legal marriages of same-sex couples were not recognized under any federal law, including the Internal Revenue Code and ERISA.  This treatment of same-sex spouses as unmarried individuals had far reaching implications in the context of employee benefits and federal income taxation.

As a result of today’s ruling in United States v. Windsor, any federal statute that refers to a “marriage” or a “spouse” must be interpreted as applying with equal force to same-sex married couples, and same-sex couples who are legally married must now be treated the same under federal law as opposite-sex married couples.  It is certain these changes apply to same-sex married couples who live in states that recognize same-sex marriage; it remains to be seen how they will apply to same-sex married couples who come to live in states that do not recognize such marriages.

There will be significant ramifications for employer-sponsored benefit plans in states where same-sex marriages are affected by the ruling:

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Same-Sex Marriage and Your Employee Benefit Plans

Maine has now officially joined nine other states in allowing same-sex marriage.  The new Maine law (“An Act to Allow Marriage Licenses for Same-sex Couples and Protect Religious Freedom”) was approved by a referendum election on November 6, 2012, and it became effective December 29, 2012.  Some municipal offices around the state have already issued marriage licenses to same-sex couples, and many of those couples will have been wed by January 1, 2013.  That leaves many of our clients asking: what does this mean for our employee benefit plans?

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The First Circuit’s DOMA Decision: What It Means for Employers

On May 31, 2012 the U.S. Court of Appeals for the First Circuit, in Massachusetts v. United States Department of Health and Human Services, declared Section 3 of the Defense of Marriage Act (DOMA) unconstitutional.  Section 3 defines marriage for purposes of applying all federal statutes as “a legal union between one man and one woman as husband and wife.”  The First Circuit held that this definition of marriage violates the Equal Protection Clause by denying federal benefits to same-sex couples lawfully married under state law.  The Court, however, stayed enforcement of its decision pending appeal. 

As a reminder, DOMA does not formally invalidate same-sex marriages in the states that legally recognize them, but it does have several consequences for same-sex married couples under federal law.  For example, same-sex married couples may not file joint federal income tax returns, enjoy the preferential tax treatment afforded employer-sponsored spousal health insurance benefits, or receive health insurance as the spouse of a federal employee.  So what does this decision mean to employers and sponsors of employee benefit plans? 

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