Today the U.S. Supreme Court declared unconstitutional the Defense of Marriage of Act of 1996 in the Windsor v. United States case, which blocked federal benefits to same-sex couples. EquallyWed.com spoke with Bill Rohrer, a tax lawyer and CPA at the law firm Carlton Fields, to get answers to our most pressing questions.
Q What are the tax implications of this decision for employers and employees? For example: currently, benefits coverage of employees’ same-sex spouses are treated differently for federal tax purposes than opposite-sex spouses. Will this decision result in tax refunds for those previously withheld taxes? If so, what actions do employers need to take? Other tax implications?
A The tax implications are various. There are more than 1,000 federal benefits of marriage that same-sex couples will now be entitled to. Several of these benefits are tax benefits and are elaborated on more fully in the answers below.
From a federal perspective, the tax benefits are now identical for both opposite-sex and same-sex couples.
The Supreme Court’s opinions will result in refunds of previously withheld taxes in certain instances. Employers can effectively file for a refund (or an adjustment) on their portion of payroll taxes withheld with respect to for same-sex couples, provided such couples were married as of 2010 or later (i.e., the “open” tax years). For those same-sex couples who were married prior to 2010, the three-year statute of limitations prohibits the filing for a refund unless the employers filed a protective claim for a refund before the statute expired. Like employers, employees may also file for a refund of previously withheld taxes provided they file within the statute of limitations or they filed a protective claim for a refund before the statute expired.
There are other taxes such as estate and gift taxes for transfer between same-sex spouses that are also potentially refundable
So just to clarify, same-sex couples who are legally married can file together federally but if they are living in a state without full marriage equality, they have to file their state taxes separately?
Federally, same sex couples may file (e.g., tax returns, health benefit statements) the same as opposite sex couples (include refunds with respect to “open” years). However, for state purposes, states such as Georgia and Florida, that do not recognize same sex marriages from other states, same sex couples are still precluded from obtaining identical state tax and other state benefits as opposite sex couples.”
What are the implications of this decision for healthcare benefits for employers and employees? (Example: implications for health coverage for employees' same-sex spouses and children of employees' same-sex spouses, i.e. "step children"). Other implications?
Under prior law, employees who received health insurance from their employers and who wanted to cover their same-sex spouse under such insurance plan could only make contributions to the plan on a post-tax basis unless they could establish that their spouse was their dependent. Employees married to an opposite-sex spouse could make such contributions on a pre-tax basis. Under United States v. Windsor, employees married to same-sex spouses now may make contributions to health insurance plans on a pre-tax basis like their opposite sex counterparts. Additionally, same-sex spouses with children will now be covered under the plans of the non-biological, adoptive parent of such children.
What are the implications of this decision for retirement benefit plans for employers and employees? Does it have any implications under ERISA?
Employers who are currently providing benefits to former employees under 401(k) or other tax-deferred plans now must adjust such policies to allow same-sex spouses to receive such benefits upon the death of the former employee unless the same sex spouse waives such benefits. Also, the survivor of a same sex couple is entitled to social security benefits.
Are there implications for employers stemming from other federal laws such as FMLA or employee visas/immigration laws?
Yes, employees who are married to a same-sex spouse will now be able to sponsor such spouse on visas and be able to obtain a leave of absence under the FMLA for same reasons as opposite sex couples.
What other issues should employers be considering in relation to this decision? Any additional comments welcome.
It is important to note that United States v. Windsor only overturned Section 3 of DOMA, which defines marriage as between a man and a woman. Section 2 of DOMA, which allows states that do not recognize same-sex marriages to refuse to recognize same-sex marriages performed outside of said state, is still valid law. Therefore, employers may have to make different determinations for federal laws/benefits vs. state laws/benefits in states, such as Florida, which do not recognize same-sex marriages performed outside of the state.