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 alert, the Supreme Court's decision in U.S. v. Windsor struck down a portion of the Defense of Marriage Act of 1996 ("DOMA"), which barred federal recognition of same-sex marriage.
The IRS issued a ruling, Revenue Ruling 2013-17, ("Revenue Ruling") on September 16, 2013 indicating that valid same-sex marriages will be recognized for federal tax purposes, regardless of where the couple actually resides. The Revenue Ruling does not affect civil unions, domestic partnerships, or other similar non-marital relationships. The ruling took effect on September 16, 2013 and affects employers that sponsor group health plans or provide qualified retirement plans.
The IRS also issued a FAQ [http://www.irs.gov/uac/Answers-to-Frequently-Asked-Questions-for-Same-Sex-Married-Couples], which provides several key items of guidance:
"[A] qualified retirement plan must treat a same-sex spouse as a spouse for purposes of satisfying the federal tax laws relating to qualified retirement plans."
Individuals in same-sex marriages are entitled to the same tax treatment as opposite sex spouses and may file amended returns for open taxable years (generally 2010, 2011 and 2012) to claim refunds of income tax and employment tax paid with respect to health or fringe benefits provided to a same-sex spouse that were previously not excludable from taxable income.
An employer may also claim refunds for its share of employment tax paid with respect to such health or fringe benefits for open tax years but may only adjust for income tax over-withholding for the current year. This is true even if the employer is unable to locate the employee who received the benefits after making reasonable efforts.
Note that federal law currently does not require an employer to provide coverage under its health and welfare benefit plans to same-sex spouses; rather how the plan document and summary plan description define spouse will determine whether same sex spouses are entitled to benefits. An employer with a self-insured group health plan could still limit spousal coverage to opposite-sex spouses. Federal law currently does not prohibit discrimination based on sexual orientation, and ERISA would preempt any state law prohibiting discrimination based on sexual orientation in a self-insured group health plan. However, employers with fully-insured welfare benefit plans will be subject to state insurance laws, which may prohibit discrimination based on sexual orientation or may prohibit spousal coverage for same-sex spouses.
Employers providing group health plan coverage should review their plan documentation and make adjustments as appropriate to ensure that same-sex spouses who are legally married received benefits in accordance with the plan terms.
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 a same-sex spouse unless the spouse consents to a different beneficiary. Qualified retirement plans must comply with this new 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 forthcoming. The IRS has also stated that it will issue additional guidance addressing plan amendment requirements, including the timing of required amendments.
The Employee Benefits Security Administration Technical Release
On September 18, 2013, the DOL issued Technical Release No. 2013-04, which states that for purposes of ERISA-covered plans, "the term 'spouse' will be read to refer to any individuals who are lawfully married under any state law, including individuals married to a person of the same sex who were legally married in a state that recognizes such marriages, but who are domiciled in a state that does not recognize such marriages." This definition of "spouse" is the same as the definition used in Revenue Ruling 2013-17. Like the IRS, the DOL 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
On August 9, the DOL updated Wage and Hour Division Fact Sheet 28F, which provides guidance on qualifying reasons for leave under the Family and Medical Leave Act ("FMLA"). 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.
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.
For More Information
If you have any questions on how the IRS and DOL's recent guidance applies to your benefit plans, please contact a member of the Employee Benefits and Executive Compensation Group at Polsinelli.