U.S. v. Windsor
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Supreme Court to Review Same-Sex Marriage Cases

The Supreme Court of the United States announced on January 16, 2015, that it would review four cases challenging the constitutionality of state laws banning same-sex marriage in Kentucky, Michigan, Ohio and Tennessee.  The U.S. Court of Appeals for the Sixth Circuit ruled in November 2014 that the same-sex marriage bans in these states were constitutional, thereby creating a split of opinion among the federal circuit courts.

As of January 30, 2015, same-sex marriage is legal in 36 states and the District of Columbia.  In addition, Michigan is expected to soon begin recognizing 323 marriages that were performed there in March 2014 (during the one-day period after a district court found the state’s ban on same-sex marriage unconstitutional and before an appellate court issued a stay of the district court ruling).

A ruling by the Supreme Court is expected in June 2015.  If the Supreme Court rules that state laws banning same-sex marriage are unconstitutional, the ruling will create precedent that will lead to the legalization of same-sex marriage in all 50 states.  Same-sex couples would then be able to marry in any state and would be entitled to all of the rights, benefits and obligations that are extended to opposite-sex spouses under both federal and state laws.

Federal Law

In 2013, the Supreme Court ruled in U.S. v. Windsor that Section 3 of the Defense of Marriage Act (DOMA) is unconstitutional (for more information, see McDermott’s On the Subject “Supreme Court Rules on DOMA and California’s Proposition 8”).  Section 3 of DOMA had provided that, for purposes of all federal laws, the word “marriage” means “only a legal union between one man and one woman as husband and wife,” and the word “spouse” refers “only to a person of the opposite-sex who is a husband or wife.”  Subsequent Internal Revenue Service (IRS) and U.S. Department of Labor guidance clarified that, as a result of Windsor, favorable federal tax treatment of spousal benefit coverage would extend to all same-sex couples legally married in any jurisdiction with laws authorizing same-sex marriage, regardless of whether the couple currently resides in a state where same-sex marriage is recognized (see McDermott’s On the SubjectIRS Guidance Clarifies Retroactive Retirement Plan Impact of Supreme Court’s Windsor Ruling” for more information).  The most recent IRS guidance clarifies that, effective as of June 26, 2013, retirement plans must be administered in a manner that reflects the Windsorruling.

Next Steps for Employers

All employers should continue to monitor developments in this case and in state same-sex marriage laws.  The Supreme Court’s ruling could have significant consequences for employers in states where same-sex marriage has not been legalized or that have not otherwise extended spousal benefit coverage to same-sex spouses.  An employer that currently extends benefit coverage to unmarried same-sex partners would need to consider whether to continue offering such benefits if all employees can marry and thereby receive spousal coverage under the employer’s benefit plans.




Developments Impacting Benefits for Same-Sex Spouses

As federal and state agencies and courts further examine the implications of the Supreme Court of the United States’ ruling on same-sex marriage in U.S. v. Windsor, the laws and regulations governing employee benefits for employees’ same-sex spouses continue to be clarified.  As a result, employers should monitor additional guidance as it is issued and continue to reevaluate the same-sex spousal benefits offered under their employee benefit plans.

Read the full article.




IRS Guidance Clarifies Retroactive Retirement Plan Impact of Supreme Court’s Windsor Ruling

The Internal Revenue Service issued Notice 2014-19 and a set of Frequently Asked Questions on April 4, 2014, clarifying certain retroactive retirement plan implications of the Supreme Court’s Windsor ruling.  The guidance requires plans to be administered to reflect the Windsorruling effective as of June 26, 2013, but does not require plans to retroactively recognize same-sex spouses prior to that date.  In addition, the IRS clarified the requirements for any Windsor-related plan amendments.

Read the full article.




New California Law Affects State Taxation of Employer Tax Gross-Ups for Domestic Partners

The California state legislature recently enacted a law that may affect the taxation of benefits an employer provides to same-sex domestic partners in the state. California AB 362 excludes from gross income for California state income tax purposes the amount of any tax gross-ups paid by an employer to an employee for benefits for that employee’s same-sex spouse or domestic partner. The law was approved by California’s governor on October 1, 2013, and is effective immediately through January 1, 2019.

Earlier this year the Supreme Court of the United States ruled in U.S. v. Windsor that Section 3 of the Defense of Marriage Act (DOMA) is unconstitutional (see “Supreme Court Rules on DOMA and California’s Proposition 8” for more). Section 3 of DOMA had provided that, for purposes of all federal laws, the word “marriage” means “only a legal union between one man and one woman as husband and wife,” and the word “spouse” refers “only to a person of the opposite-sex who is a husband or wife.” Subsequent Internal Revenue Service (IRS) and U.S. Department of Labor guidance clarified that, as a result of Windsor, favorable federal tax treatment of spousal benefit coverage would extend to all same-sex couples legally married in any jurisdiction with laws authorizing same-sex marriage, regardless of whether the couple currently resides in a state where same-sex marriage is recognized (see “IRS and DOL Guidance Clarifies Employee Benefits Impact of Supreme Court’s DOMA Ruling” for more information).

As a result of Windsor and the subsequent IRS guidance, the impact of California AB 362 appears fairly limited. Pre-Windsor, some employers provided a federal tax gross-up on the imputed value of coverage provided to an employee’s same-sex spouse or domestic partner. Post-Windsor, same-sex married couples in California no longer need a tax gross-up for either state or federal tax purposes because they no longer have to be taxed on the value of the coverage provided to their spouse. Because of this treatment, application of California AB 362 would be limited to a situation where an employer provides a federal tax gross-up to an employee who is in a California-registered domestic partnership. Such a gross-up, which would have been taxable under prior state law, is now no longer taxable in California. Employers in California will need to update their payroll and tax procedures accordingly. Employers both inside and outside of California that previously provided tax gross-ups may find it desirable to revisit their gross-up policies in light of the Windsor decision and the IRS guidance.




IRS Guidance on Employment and Income Tax Refunds on Same-Sex Spouse Benefits

Employers extending benefit coverage to employees’ same-sex spouses and partners should review their payroll procedures to ensure that such coverages are properly taxed for federal income and FICA tax purposes. Employers also should review the options in Notice 2013-61 and consider filing claims for refunds or adjustments of FICA overpayments.

To read the full article, click here.




View From McDermott: Dollars and Cents, the Cost of Benefit Coverage

Many employers have begun the process of evaluating their options and obligations with respect to extending benefit coverage under employer-sponsored benefit plans to same-sex spouses in light of the U.S. Supreme Court’s recent ruling on Section 3 of the Defense of Marriage Act.  Section 3 of DOMA provided that for all purposes of federal law the word “marriage” meant “only a legal union between one man and one woman as husband and wife,” and the word “spouse” referred “only to a person of the opposite-sex who is a husband or wife.” In June 2013, the Supreme Court ruled in United States v. Windsor that Section 3 of DOMA was an unconstitutional “deprivation of the liberty of the person protected by the Fifth Amendment.”  The effect of this ruling is that federal law now generally will defer to state law definitions of marriage, including same-sex marriage, which has been legalized in 13 states and the District of Columbia.

As part of evaluating options for extending benefit coverage to same-sex spouses, employers need to consider the financial implications of such benefits. These implications include costs the employer will incur in extending such benefits, as well as the financial impact on employees who opt to utilize such benefits. Many of these costs are dependent upon the spousal benefits the employer currently offers, although the relevant considerations and cost estimates outlined below may be helpful resources.

To read the full article, click here.




IRS and DOL Guidance Clarifies Employee Benefits Impact of Supreme Court’s DOMA Ruling

Recent guidance issued by the U.S. Department of the Treasury, the Internal Revenue Service (IRS) and the Employee Benefits Security Administration (EBSA) division of the U.S. Department of Labor (DOL) provides some initial clarifications on how U.S. v. Windsor will affect benefits for same-sex spouses.  The guidance provides that same-sex couples legally married in a jurisdiction with laws authorizing same-sex marriage will be treated as married for federal tax purposes, regardless of whether the couple resides in a state where same-sex marriage is recognized.

To read the full article, click here.




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