New Marriage Equality Laws and Employer Provided Benefits
Posted Dec 09 2012 10:06am
Image from Getty Images via nbcwashington.com.
On December 6, county clerks began issuing marriage licenses in Maryland to same-sex couples. Marriages in Maryland can begin January 1. I haven't yet seen any guidance to HR professionals on how these changes should be reflected in our benefit practices. So, I started looking to other states for insights. There are currently nine states where marriage licenses are issued to same sex partners -- Connecticut, Iowa, Maine, Maryland, Massachusetts, New Hampshire, New York, Vermont, Washington and the District of Columbia. Five additional states allow civil unions, providing state-level spousal rights to same-sex couples -- Delaware, Hawaii, Illinois, New Jersey, Rhode Island.
Although the impact on employer-sponsored health and welfare benefit plans is not yet clearly defined, here are some of the questions I am asking and what I think the answers might be. How will state taxes be handled for same-sex married couples that reside in Maryland?
States that legally recognize same-sex relationships typically exempt health benefits from state income tax. Therefore, same-sex married couples in Maryland should be able to pay for their eligible benefits with pre-tax state dollars like their opposite-sex married counterparts.
How will federal taxes be handled for same-sex married couples that reside in Maryland?
We should expect to continue to add to the employee's wages the value of employer-provided health coverage for the same-sex spouse. Passed in 1996, the Defense of Marriage Act (DOMA) codified the non-recognition of same-sex marriages for all federal purposes, including insurance benefits for government employees, Social Security survivors' benefits, immigration, and the filing of joint tax returns. Because of the federal DOMA, the fair market value of the coverage provided to an employee's same-sex spouse must be imputed into the employee's income as wages for federal tax purposes. Fair market value is determined based on facts and circumstances, but the IRS has stated informally that the single rate charged to an individual under the plan for COBRA continuation coverage could be used.
Will same-sex marriage be considered a qualifying event?
Yes, employees who marry a same-sex spouse should be eligible for plan enrollment outside of the open enrollment period under the same terms and conditions as opposite-sex spouses. Also, when a state begins to recognize marriages from another state, it generally creates a qualifying event for employees that have already married in another state. (I have to admit to finding this a bit confusing since COBRA is a federal law.)
How will we define domestic partners in the future?
We require staff to complete a domestic partner certification to add their partner to our benefits programs. At some point in the future, it will probably make sense to require that same-sex couples that reside in Maryland or the District of Columbia be married to be covered under our benefit programs. However, I would expect to continue to offer benefits through the certification process to same-sex couples that live in Virginia. Such a change would require a reasonable grace-period to allow adequate time for same-sex couples to marry within the state. Equal documentation requirements are part of some state laws. Employers should require the same documentation for married same-sex spouses as for opposite-sex spouses.
On December 7, the Supreme Court decided to hear challenges to both California's Proposition 8 and the federal Defense of Marriage Act. This could lead to a series of historic rulings, but I've also read that the Court is likely to rule in a way that avoids sweeping change . Once clear guidance has been provided, employers with employees in a state that recently passed a marriage equality act should carefully review their health and welfare plan documents, summary plan descriptions, participant communication materials and forms to make sure the rights of same-sex spouses are clear. Staff in your payroll department should be engaged to address the related tax issues. Ensure that your communications and forms make clear that same-sex spouses are eligible for spousal benefits by using inclusive language when referring to spouses. I'll continue to post links to information here that might be helpful as I come across it. Please share any useful information you come across.