IRS, DOL and EBSA Issue Post-DOMA Guidance Regarding Treatment of Same-Sex Spouses

The Internal Revenue Service (“IRS”), the Employee Benefits Security Administration (“EBSA”) and the Department of Labor (“DOL”) have recently provided new guidance with respect to how lawfully married same-sex spouses will be treated under federal tax laws, the Employee Retirement Income Security Act (“ERISA”) and the Family and Medical Leave Act (“FMLA”).

As discussed in our earlier blog, the Supreme Court’s decision in U.S. v. Windsor struck down Section 3 of the Defense of Marriage Act of 1996 (“DOMA”), which had established the federal definition of marriage as a legal union between one man and one woman and the definition of “spouse” to refer only to a person of the opposite sex who is a husband or a wife.  The Windsor decision has many important implications for employers and this new guidance answers some—but not all—of the questions that have arisen in the decision’s wake.

The Internal Revenue Service Ruling

The IRS has issued a new ruling, Revenue Ruling 2013-17, indicating that same-sex marriages will be recognized for federal tax purposes if they were entered into in any jurisdiction that recognizes same-sex marriages as legal.  This means that even if a couple lives in a state that does not recognize their same-sex marriage, they will be viewed as married for federal tax purposes.[1]  The ruling took effect on September 16, 2013 and will have many consequences for employers that sponsor group medical plans or provide qualified retirement plans.

With respect to group medical plans, employers were not previously permitted to provide health coverage to same-sex spouses on a tax-free basis unless the partner qualified as the employee’s tax dependent.  In addition, employees could not pay premiums for coverage of their same-sex spouse on a pre-tax basis through a cafeteria plan, and instead were required to pay them on an after-tax basis.  The new ruling means that coverage provided to the same-sex spouses of employees should no longer be treated as taxable income.  Moreover, employees can now file amended tax returns for open tax years (generally the three previous tax years) seeking refunds of any taxes paid for benefits that were classified as taxable imputed income in those years.  In addition, employers wishing to claim a refund for Social Security and Medicare taxes paid on such benefits will be able to do so.  The IRS has indicated that more guidance with respect to the procedures for employers to file claims for such refunds is forthcoming in the near future.

Employers providing group medical plan coverage should review their plans and make adjustments so that they properly account for employees with same-sex spouses that are legally married.

With respect to qualified retirement plans, same-sex spouses must now be treated as spouses for the purposes of all federal tax laws related to qualified retirement plans.  This includes paying death benefits to the same-sex spouse unless the spouse consents to a different beneficiary.  Qualified retirement plans must comply with the IRS guidance beginning September 16, 2013.  However, the ruling does not address the applicability of the Supreme Court’s decision to qualified retirement plans before September 16 and the IRS has indicated that future guidance on this topic is also forthcoming.  The IRS has also indicated that it will issue additional guidance addressing plan amendment requirements, including the timing of any required amendments.

The Employee Benefits Security Administration Technical Release

The EBSA issued Technical Release No. 2013-04 regarding the availability of benefits to same-sex spouses under the Employee Retirement Income Security Act (“ERISA”).  Like the IRS, the EBSA has determined that same-sex spouses will be recognized as married under ERISA if they are lawfully married in any U.S. state or territory or a foreign country regardless of whether their marriage is recognized by the state in which they reside.  

The Department of Labor’s Updated Guidance

The DOL has issued updated guidance regarding compliance with the FMLA, which indicates that the FMLA now applies when an employee seeks leave to care for a qualifying same-sex spouse. [2] In contrast to the IRS, the DOL guidance indicates that for the purposes of the FMLA, an individual will only qualify as a same-sex spouse of an employee if the employee resides in a state that recognizes his or her marriage.  This is consistent with the definition of spouse provided by the DOL’s preexisting FMLA regulations, which look to the employee’s state of residence to determine who qualifies as a spouse.  The new guidance clarifies that in the wake of Windsor, employers must now provide FMLA leave for their employees to care for a same-sex spouse if the employee resides in a state where his or her same-sex marriage is recognized—even if the employer is located in a state that does not recognize the marriage.  Employers should review and, if necessary, revise their FMLA policies and procedures to ensure compliance with the DOL’s revised guidance.  The effective date of the DOL’s new FMLA is June 26, 2013, the date of the Windsor decision.

[1] Note that only people in legal same-sex marriages will be recognized as spouses.  Domestic partnerships, civil unions, or other similar arrangements recognized under state law will not be recognized as marriages for federal taxation purposes.

[2] The FMLA permits workers to take up to twelve weeks of protected (but unpaid) leave for their own serious medical needs or to care for a family member with a serious medical condition.