The Supreme Court ruled that federal law must recognize same-sex marriages by states that have legalized them. What does that mean for employers?
Any federal benefits and laws that apply to an employee’s spouse will now extend to same-sex spouses in legally recognized marriages. There are more than 1,000 things that apply. The big ones that employers need to think about are health and retirement benefits, taxes, and family leave.
I’m already offering health insurance to employees’ same-sex spouses. Do I need to do anything?
Yes. “Employers who offered same-sex couples health insurance benefits were required to treat those as income to the employee, because technically they were giving something of value to someone who wasn’t related to them,” says Boston attorney Scott Squillace, who advises same-sex couples. Going forward, federal tax law will treat those benefits the same as an employee’s own health insurance. That means they’re tax-free for the employee. It will also mean employers no longer have to pay payroll taxes on that compensation.
What are the tax implications for employees?
Not having a spouse’s benefits treated as income may change their tax rate, says Mona Smith, a Seattle attorney. “Your tax bracket could be lower,” she says. Employees may want to adjust their withholdings on their W-4 forms.
That sounds good. Any downside for workers?
High-income same-sex spouses may be subject to a higher tax rate when the federal government recognizes their marriages, says Joseph Milizio, a partner at the Long Island law firm Vishnick McGovern Milizio. “If both employees are high-wage earners, the marriage penalty comes into effect,” he says.
What about retirement plans?
Employers and workers may have to review retirement plans to make sure that the federal marriage recognition doesn’t change their beneficiaries. Spouses are the default beneficiaries for pension plans. Employees may have to make changes if they want to designate a child or someone else besides a spouse as a beneficiary. Companies should also make sure that their plans are compliant. “Employers need to look at their plans to make sure that they don’t say this will not be available to same-sex spouses,” Milizio says.
Any other benefits that I need to think about?
COBRA benefits that let former employees continue buying health insurance through the company plan will extend to same-sex couples. Likewise, employees will be entitled to take family and medical leave to care for a spouse who is seriously ill.
I have some employees in states that recognize same-sex marriage and others that don’t. Are their benefits the same?
Things get very tricky when you start crossing state lines. “There are certain federal benefits that derive from being married just based on having a marriage anywhere,” Squillace says. Others “derive from being married based on where you’re domiciled when you apply for the benefit.” For others, there’s no clear answer.
That sounds like a mess. When will things get clearer?
The vast federal bureaucracy will have to overhaul rules for a post-DOMA world. “All of the federal agencies now have to come up with policies to determine, ‘Well, how are we going to treat people who are married but don’t necessarily live in a recognition state?’” Milizio says. Expect things to get murkier as more legal challenges come up, Squillace says. “People move around these United States all the time, and don’t become unmarried when they’re in one state vs. another,” he says. “This whole patchwork thing between the states is going to be where the next set of thorny issues come up.”