DOMA’s defeat in the United States v. Windsor continues to have a ripple effect when it comes to other federal regulations. On June 20, 2014, the Department of Labor (DOL) issued a proposed rule that would extend the protections of the Family and Medical Leave Act (FMLA) to all eligible employees in legally-recognized same-sex marriages, regardless of where the employees live.  The proposal is in light of the Supreme Court’s decision in United States v. Windsor, which struck down the Defense of Marriage Act’s provision that limited “marriage” to opposite-sex unions and “spouse” to individuals of the opposite-sex who are married for purposes of federal law.  DOL’s proposed change would expand the FMLA’s definition of “spouse” so that it applies to an employee legally married in any state (the so-called “state of celebration” rule), as opposed to the state in which the employee resides (“state of residence” rule). Continue Reading DOL Proposes Rule Aimed At Expanding FMLA Coverage for Same-Sex Couples

On September 23, 2013, the IRS released Notice 2013-61 which provides special rules for employers making claims for refunds or adjustments of Federal Insurance Contributions Act (FICA) and federal employment taxes resulting from the United States Supreme Court’s decision in Windsor.  In Windsor, the Court found that Section 3 of the Defense of Marriage Act (DOMA), which defined marriage as only between a man and a woman, was unconstitutional.

In the wake of Windsor, the IRS first released Revenue Ruling 2013-17 and adopted a “place of celebration” test for determining whether same-sex couples are considered legally married for federal tax purposes (which is more fully discussed here).  Under the “place of celebration” test, once a couple is married in a state that recognizes same-sex marriage, the IRS considers them married for all purposes going forward, even if they move to a state where same-sex marriage is not recognized.

Prior to Windsor and Revenue Ruling 2013-17, an employer who made benefits available to a same-sex partner of an employee was required to impute the value of those benefit as income to the employee, and then withhold and pay FICA and employment taxes based on that imputed income amount.  As a result of Windsor and Revenue Ruling 2013-17, however, employers no longer need to impute income to employees with same-sex partners who are validly married.

Revenue Ruling 2013-17, which took effect on September 16, 2013, is retroactive to all open tax years (2010, 2011, 2012).  Individual taxpayers may amend their previously filed tax returns back to 2010 to change their filing status and recalculate their federal income tax to exclude imputed income based on benefits provided to a same-sex spouse.  Like individual taxpayers, employers may also claim a refund or make an adjustment for any excess FICA and employment taxes paid.  With Notice 2013-61, the IRS eased the process for employers seeking such an adjustment.  Rather than filing a Form 941-X for each calendar quarter for which a refund or adjustment is needed (including 2013), an employer may file a single Form 941-X for each calendar year for which a refund or adjustment is desired.  Notice 2013-61 also provides employers with two optional methods for correcting 2013 overpayments.  The first correction method allows an employer to use its 2013 fourth quarter quarterly tax return (IRS Form 941) to correct any overpayments made during the first three quarters of 2013. The second correction method allows an employer to file one amended employer’s quarterly tax return (IRS Form 941-X) for the fourth quarter of 2013 to correct overpayments of FICA taxes for all four quarters of 2013.

Employers should be aware that these special rules are optional.  If an employer desires to use regular procedures for correcting employment tax payments instead of the special administrative procedures (e.g., submitting amended returns for each quarter), it may still do so.

A number of federal agencies recently issued guidance in response to the United States Supreme Court’s ruling in Windsor, which held that Section 3 of DOMA is unconstitutional.  On September 18, 2013, the Department of Labor (“DOL”) Employee Benefits Security Administration (“EBSA”) issued Technical Release 2013-04, and adopted the same rule previously outlined in IRS Revenue Ruling 2013-17 (and discussed more fully here) to apply to same-sex marriages for purposes of ERISA.

Same-sex couples will be treated as married for all purposes under ERISA if they were legally married in a state that recognizes same-sex marriage, regardless of where they live now.  The term “marriage” now includes same-sex marriages that are legally recognized as a marriage under the law of any state, territory or possession of the United States or any foreign jurisdiction that has the legal authority to sanction marriages.  This is the case regardless of where the couple resides, even if they reside in a state that does not recognize same-sex marriage.  It is important to be aware, however, that like the IRS position, the EBSA definition of “spouse” and “marriage” do not include individuals (of the same or opposite sex) who are in recognized formal relationships under state law, such as domestic partnerships or civil unions, even if, under state law, those individuals would be afforded the same rights and responsibilities as married persons.

In August 2013, the DOL issued less clear revisions to its definition of “spouse” for purposes of FMLA.  In an internal memorandum, the DOL Secretary instructed agencies within the Department “to look for every opportunity to ensure that we are implementing [the Windsor] decision in a way that provides the maximum level of protection for workers and their families.” Publicly, however, the DOL revised a fact sheet (Fact Sheet #28F: Qualifying Reasons for Leave Under the Family and Medical Leave Act) that redefined the term “spouse” to include some same-sex spouses.  This revision, however, created something of a caveat in the law.  At least for current FMLA purposes, it seems that an employee is only entitled to take FMLA leave to care for a same-sex spouse with a serious health condition if the employee resides in a state that recognizes same-sex marriage.  This leaves open questions of whether FMLA leave is available to care for a same-sex spouse if the employee works in a state that recognizes same-sex marriage, but lives in a state that does not; or if the employer is located in a state that does not recognize same-sex marriages, but has an office in a state that does.  These questions will likely be addressed in later DOL guidance.

For FMLA purposes, employers should be aware that providing leave to an employee who does not reside in a state that recognizes same-sex marriage in order to care for a same-sex spouse may lead to the employee receiving more than 12 weeks of leave.  Leave is only properly designated as FMLA leave if it is taken for a qualifying reasons.  It is unclear under the guidance offered if caring for a same-sex spouse when the employee does not reside in a state recognizing same sex marriage is a “qualifying” purpose.  Therefore, providing leave to an employee who is not a resident of a state that recognizes same-sex marriage to take care of a same-sex spouse technically may not exhaust his or her 12 week FMLA allotment.

In light of these changes, employers should take steps to ensure they are complying with the law and following the guidance offered to date.  This includes informing managers and human resources professionals of the changes in the law, updating relevant policies and documents, and monitoring future guidance on this topic.

While uncertainty still lingers in some areas of federal law regarding how the recent overturning of DOMA will affect same-sex couples’ abilities to obtain federal benefits, on August 29, 2013, the IRS clarified this ambiguity with regard to federal tax law.  The IRS published Revenue Ruling 2013-17 and a news release, IR-2013-72, announcing that it will recognize “all legal same-sex marriages … for federal tax purposes.”  This means that all same-sex couples legally married in any state are married, so far as the IRS is concerned, no matter where they now live.

The IRS ruling marks the first big first step toward a general federal recognition of same-sex marriages.  The IRS could have decided that married same-sex couples file their taxes on a “place of residence” basis, that is, if their state recognizes same-sex marriage, they can file as a married couple; if not, they must file individual returns.  Instead, the IRS opted for a “place of celebration” rule, which means that once a couple is married in one of the 13 states that recognize same-sex marriage (14, including Washington D.C.), the IRS considers them married for all purposes going forward, even if they move to a state where same-sex marriage is not recognized.

In doing so, the IRS concluded that gender-specific terms in the tax code such as “husband” and “wife” must be construed in a gender-neutral way.  The IRS also concluded, however, that other types of formal relationships, such as civil unions and registered domestic partnerships, are not equivalent to marriage, and persons in such relationships are not married for federal tax purposes.

The IRS ruling takes effect on September 16, 2013, though taxpayers may rely upon the ruling retroactively.  Taxpayers may amend their previously filed tax returns back to 2010 to change their filing status and recalculate their federal income tax.  Employers too are permitted to rely upon the ruling retroactively claim a refund of, or make an adjustment for, any excess Social Security and Medicare taxes paid.  The IRS will issue a special administrative procedure for employers on this point in the future.  Employers, however, cannot make claims for refunds of overwithheld income tax for prior years, but may make adjustments for income tax withholdings that were overwithheld in the current year, provided the employer has repaid and reimbursed the employee for the overwithheld income tax before the end of the calendar year.

 

 

 

 

This post was originally published on April 12, 2013.  In light of the recent Supreme Court Decision on DOMA, McLane wanted to share this post again.

For at least the next few months, DOMA is the law of the land, and the United States government will continue to define “marriage” as a “legal union between one man and one woman as husband and wife,” and “spouse” as a “person of the opposite sex who is a husband or a wife.” DOMA, however, appears to be on its last leg. The demise of DOMA will likely trigger significant policy and benefit changes for employers. Here is a list of four potential issues to keep in mind in the coming months as DOMA’s fate continues to unfold.

  1. Health Insurance – Many employers provide health insurance benefits to their employees, and their employees’ federally-recognized spouses and children. These benefits are considered a non-taxable fringe benefit under the Internal Revenue Code and exempt from income tax liability. Health insurance benefits for an employee’s domestic partner or same-sex spouse, however, while still a fringe benefit, is not exempt from income tax liability, and instead imputed to the employee as income. If DOMA is overturned, insurance benefits provided to same-sex spouses will no longer be imputed as income, and will instead be exempt from income tax liability.
  2. Title VII of the Civil Rights Act – While New Hampshire and Massachusetts recognize sexual orientation as a protected class and therefore afford some protections to employees against discrimination based on sexual orientation, the Civil Rights Act does not. It does, however, prohibit discrimination based on gender. If the DOMA-definitions of “marriage” and “spouse” are overturned, some experts argue that employers could potentially be held liable for gender discrimination if they deny benefits to an employee simply because he or she is in a same-sex marriage. Employers should therefore take active steps to ensure that all existing policies and procedures provide equal treatment, benefits, and opportunities to employees regardless of the gender of their spouse.
  3. FMLA – Employers are not presently required to provide employees twelve weeks of unpaid leave in order to care for a sick same-sex spouse. In fact, should employers elect to provide employees with such leave, it does not count toward that employee’s twelve weeks. If DOMA is struck down, all employees will be allowed to take leave under FMLA to care for a same-sex spouse.
  4. 401(k) and 403(b) Plans – Employees with same-sex spouses participating in 401(k) and 403(b) plans that require spousal consent to name a non-spousal beneficiary are currently free to name anyone other than their spouse as the beneficiary. If DOMA is overturned, employees with same-sex spouses will gain the same spousal protects provided to all other employees. This raises questions regarding the status of non-spousal beneficiaries designated before DOMA was overturned. Will these designations stand? Will the newly-recognized same-sex-spouse automatically undo the prior designation and become the new beneficiary? Employers should therefore encourage employees with same-sex spouses to revisit their beneficiary designations to ensure their beneficiary designations are as they intended.

 

For at least the next few months, DOMA is the law of the land, and the United States government will continue to define  “marriage” as a “legal union between one man and one woman as husband and wife,” and “spouse” as a “person of the opposite sex who is a husband or a wife.”  DOMA, however, appears to be on its last leg.  The demise of DOMA will likely trigger significant policy and benefit changes for employers.  Here is a list of four potential issues to keep in mind in the coming months as DOMA’s fate continues to unfold.

 

  1. Health Insurance – Many employers provide health insurance benefits to their employees, and their employees’ federally-recognized spouses and children.  These benefits are considered a non-taxable fringe benefit under the Internal Revenue Code and exempt from income tax liability.  Health insurance benefits for an employee’s domestic partner or same-sex spouse, however, while still a fringe benefit, is not exempt from income tax liability, and instead imputed to the employee as income.  If DOMA is overturned, insurance benefits provided to same-sex spouses will no longer be imputed as income, and will instead be exempt from income tax liability.
  2. Title VII of the Civil Rights Act – While New Hampshire and Massachusetts recognize sexual orientation as a protected class and therefore afford some protections to employees against discrimination based on sexual orientation, the Civil Rights Act does not.  It does, however, prohibit discrimination based on gender.  If the DOMA-definitions of “marriage” and “spouse” are overturned, some experts argue that employers could potentially be held liable for gender discrimination if they deny benefits to an employee simply because he or she is in a same-sex marriage.  Employers should therefore take active steps to ensure that all existing policies and procedures provide equal treatment, benefits, and opportunities to employees regardless of the gender of their spouse.
  3. FMLA – Employers are not presently required to provide employees twelve weeks of unpaid leave in order to care for a sick same-sex spouse.  In fact, should employers elect to provide employees with such leave, it does not count toward that employee’s twelve weeks.  If DOMA is struck down, all employees will be allowed to take leave under FMLA to care for a same-sex spouse.
  4. 401(k) and 403(b) Plans – Employees with same-sex spouses participating in 401(k) and 403(b) plans that require spousal consent to name a non-spousal beneficiary are currently free to name anyone other than their spouse as the beneficiary.  If DOMA is overturned,  employees with same-sex spouses will gain the same spousal protects provided to all other employees. This raises questions regarding the status of non-spousal beneficiaries designated before DOMA was overturned.  Will these designations stand?  Will the newly-recognized same-sex-spouse automatically undo the prior designation and become the new beneficiary?  Employers should therefore encourage employees with same-sex spouses to revisit their beneficiary designations to ensure their beneficiary designations are as they intended.