After a year-long battle, Section 3 of the so-called Defense of Marriage Act ("DOMA"), which denied federal recognition of all state-sanctioned same-sex marriages, and California's Proposition 8 banning gay marriage are both dead. But still alive is the ability for a state to make illegal the issuance of a marriage license to a same-sex couple, as well as the ability of a state not to recognize a legal same-sex marriage from another state (Section 2 of DOMA). So, what exactly does all of this mean?
If you're a California employer, the answer is easy. Your California same-sex married employees are just that – married – and you should treat them just like every other married couple on your employee roster. 1
It gets more complicated if you have an employee who was legally married in California but has since moved to one of your offices in a state that does not recognize same-sex marriage. What happens then? If your company is headquartered in California, the safe bet would be to continue to treat those employees as married no matter where they are living. If you are headquartered in California it is likely that your primary operations are here, including your accounting department where payroll taxes are withheld, so you should treat those out-of-state married employees the same for tax and benefits purposes as married employees living in California.
But what if your company is based in a state where same-sex marriage is not recognized and you have employees working in California (where same-sex marriage is recognized)? For starters, regardless of where your same-sex married employees are living, they are now entitled to most of the same federal benefits that you provide to your other married employees as a result of the Supreme Court having stricken Section 3 of DOMA. Moreover, any employee living in California is entitled to the protection of California laws. The Domestic Partnership Rights and Responsibilities Act, together with the Unruh Civil Rights Act, prohibits businesses from discriminating in any way against registered domestic partners, whose relationship must be afforded the same rights as those afforded to married spouses. With the defeat of Prop 8, gay and lesbian couples are now permitted to be legally married in California. In conjunction with the defeat of DOMA (Sec. 3), all same-sex married couples in California are now entitled to all of the same rights and privileges of marriage under both California and federal law.
So if your non-California-based business offers health benefits to employees' legal spouses and children, then you must give the same benefits to your California employees' domestic partners, spouses, and children. Maintaining business headquarters beyond California's borders will not exempt an employer from compliance with California law. And as an aside, you should go ahead and treat your same-sex married employees as married for all purposes, regardless of where they live, unless you relish the idea of being a named defendant in the next ground-breaking civil rights lawsuit (which is sure to come, and quickly).
Perhaps the most significant immediate tax benefit – to you, and your same-sex married employees – is that you no longer treat employee's health insurance benefits for his/her same-sex spouse as taxable income for federal purposes. (California always treated such benefits as non-taxable for state purposes.) So if you paid your employer-share of Social Security and Medicare taxes on these benefits for past years, then you may be entitled to a refund. Such a claim must be filed within 3 years after the April 15 following the calendar year in which you paid the taxes (therefore, for example, claims for Social Security and Medicare taxes paid in 2010 must be filed by April 15, 2014). Consider also alerting your same-sex married employees of the opportunity for seeking a similar refund.
Unfortunately, until same-sex married couples are treated equally across the nation, employers with interstate operations will continue to grapple with these issues. But stay tuned – we expect this issue will be a dead one within the next five years. Just do everything you can to avoid being part of the litigation that brings these complicated issues to closure!