Originally Published in Daily Journal - July 17, 2013.
Section 3 of DOMA (the so-called "Defense of Marriage Act), which denied federal recognition of a state-sanctioned same-sex marriage, and California's Proposition 8 are dead. But still alive (at least for the time being) are other states' ability to deny the "marriage" sanction to their same-sex residents, and Section 2 of DOMA, which allows a state not to recognize a legal same-sex marriage from another state. Do we know what all this means exactly?
For California employers, the answer is easy: California same-sex married employees are just that - married, the same as every other married couple on the employee roster.
But what if an employee who was legally married in California has since moved to the Texas office, or to some other state that does not recognize same-sex marriage? Then what?
If the company is headquartered in California, the safe bet would be to continue to treat those employees as married. Because primary operations are likely out of California anyway, including the accounting department where payroll taxes are withheld, employers should treat out-of-state married employees the same for tax and benefits purposes as married employees living in California.
But what if a company is based in Texas (where same-sex marriage is not recognized) with employees working in California (where their same-sex marriage is recognized)?
For starters, regardless of where same-sex married employees are living, they are now entitled to the same federal benefits as other married employees. Moreover, any employee living in California is entitled to the protection of California's 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, 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 a Texas-based business offers health benefits to its employees' legal spouses and their children, then it must give the same benefits to its California employees' domestic partners, spouses and children. Maintaining a business headquarters outside California will not exempt an employer from compliance with California law.
In fact, employers should go ahead and treat same-sex married employees as married for all purposes, regardless of where they live, unless they relish the idea of being named a defendant in the next ground-breaking civil rights lawsuit (which is sure to come, and quickly).
Employers might also consider providing additional information to same-sex married employees for their individual use related to the change in their tax status. For example, issues such as federal income tax treatment, family wealth planning in terms of gift and estate taxes, the filing of joint tax returns, or amending returns to the extent that they were legally married under state law, but not previously permitted to take advantage of tax laws benefitting married couples.
Though employers should not be in the business of giving tax advice to employees, an internal outreach program raising these issues will not only bring them to the attention of the married couples so they can seek their own tax advice, but will also telegraph to the entire employee population that the employer is sensitive to these issues and interested in treating all employees with equanimity.
Perhaps the most significant immediate tax benefit - to employers and their same-sex married employees - is that employers no longer have to treat an employee's health insurance benefits for his or her same-sex spouse as taxable income for federal purposes. (California always treated such benefits as nontaxable for state purposes.) So if an employer paid its share of Social Security and Medicare taxes on these benefits for past years, then it may be entitled to a refund. Such a claim must be filed within three years of the April 15 following the calendar year in which the employer paid the taxes. For example, claims for Social Security and Medicare taxes paid in 2010 must be filed by April 15, 2014. Because the employer would have withheld its employees' share of Social Security and Medicare taxes on these same benefits, it should consider alerting same-sex married employees of the opportunity for filing a similar refund. An employer could even file a refund claim on an employee's behalf (although alerting employees or filing on their behalf is not a prerequisite to filing a refund claim for an employer's share of these taxes).
Unfortunately, until same-sex married couples are treated equally across the nation, employers with interstate operations will continue grappling with these issues. But stay tuned - we expect this issue will be a dead one within the next five years. Employers should just do everything they can to avoid being part of the litigation that brings these complicated issues to closure!
This article is not intended to address all key areas impacted; e.g, retirement, health and insurance benefits, leave laws, and citizenship.