The U.S. Supreme Court ruled last week that the Defense of Marriage Act’s (DOMA) definition of marriage is unconstitutional. The Court's decision and the decisions allowing same-sex marriage to resume in California will have a significant impact on the benefits provided by employers to the same-sex spouses of employees.
For purposes of over 1,000 federal laws, DOMA defined the term “marriage” as “only a legal union between one man and one woman as husband and wife, and the word ‘spouse’ refers only to a person of the opposite sex who is a husband or wife.” The nation’s highest court, however, determined that the definition of marriage in the 1996 federal law violated the Fifth Amendment of the U.S. Constitution. Justice Kennedy, writing for the majority, asserted that “DOMA writes inequality into the entire United States Code. . . . DOMA’s principal effect is to identify a subset of state-sanctioned marriages and make them unequal.” The Court’s decision, however, only applies to “lawful” marriages.
The same day that the Court released its decision regarding the constitutionality of DOMA’s definition of marriage, the justices also dismissed the case filed in the dispute over California’s controversial Prop. 8. Two days later, the Ninth Circuit Court of Appeals lifted the stay in the Prop. 8 case, allowing same-sex marriages to resume in California.
As a result of these decisions, same-sex partners may now marry in California, and must be treated as spouses for purposes of federal law. This means that same-sex spouses will be able to file joint federal income tax returns, and will be on equal footing for purposes of federal estate and gift taxes. Further, employers will be required to treat same-sex spouses in the same way that they treat spouses of the opposite sex for purposes of employee benefits. For example, an employee’s spouse must be named as his or her beneficiary under a qualified retirement plan unless the spouse provides a waiver. The tax treatment of health benefits is also affected by these decisions. Now, an employee will not be required to pay tax on employer and employee contributions to a health plan providing coverage for his or her same-sex spouse.
At this point it is unknown whether the decisions will impact how employers report health benefits provided to same-sex, non-dependent registered domestic partners. Until further guidance is received, the fair market value of coverage provided to an employee’s non-dependent registered domestic partner should continue to be considered taxable wages.