What the Supreme Court’s Defense of Marriage Act Ruling Means for Employers

The U.S. Supreme Court’s decision in U.S. vs. Windsor to strike down DOMA (the Defense of Marriage Act) frees employers from a number of financial and administrative burdens, but it raises other issues for employers on how to navigate the patchwork of state laws regarding same-sex couples.

The high court struck down Section 3 of DOMA, which had barred federal recognition of same-sex marriages. The majority ruled that DOMA violated the U.S. Constitution’s equal protection clause by singling out a class of persons entitled to marry under state law. Same-sex couples legally wed under state law now must be treated as spouses under the U.S. tax code, ERISA (Employment Retirement Income Security Act) and more than 1,000 other federal laws.

In the aftermath of the high court’s decision, employers will need to amend their benefit plan documents and practices to provide equal treatment of same-sex and opposite-sex spouses, at least with respect to those employees who live in states that allow for or recognize same-sex marriage. (Employers had sometimes provided tax-equalization or “gross-ups” to reimburse the covered employee for taxes on health benefits provided to same-sex couples. Such agreements shouldn’t be necessary going forward.)

Wednesday’s ruling now applies only to workers in the 12 states, plus the District of Columbia, that recognize gay marriage. Companies in those states will have to review their employee-benefit packages to make sure they don’t discriminate against gay spouses and comply with the law, lawyers and benefits consultants said.

Here’s a rundown of some of the changes that are expected (at least in the states that allow gay marriage)

• Employers will no longer be required to impute as additional income to an employee the value of employer-paid health care provided to an employee’s same-sex spouse, and employers will no longer be subject to the corresponding payroll tax costs associated with that income.
• Employers will have to reprogram payroll systems that currently withhold income tax and withhold and pay FICA tax, with respect to the health coverage provided to same-sex spouses. Other steps may involve filing refund claims for taxes paid on the value of same-sex spouses’ health care coverage.
• An employee will be entitled to take FMLA (Family and Medical Leave Act) leave in order to care for a same-sex spouse, assuming all other requirements to take FMLA leave are satisfied.
• Retirement, pension plan and survivor benefits will be required to be provided to same-sex spouses. In addition, a same-sex spouse will have a right to receive various notices of spouses’ rights, and an employee will have to get the spouse’s written consent to name a nonspouse beneficiary.
• Employees will be able to get reimbursement from health flexible spending accounts and health reimbursement accounts for medical expenses of same-sex spouses.
  Same-sex spouses will be eligible for tax-free employer health benefits.
• Same-sex spouses will generally be eligible for federal COBRA coverage.