On June 26, the U.S. Supreme Court essentially pronounced the federal Defense of Marriage Act (DOMA) dead because it is unconstitutional. This means that for federal tax purposes, same-sex married couples are entitled to the same rights and benefits as their heterosexual counterparts. What does this mean for your business?
Who are considered "married?"
The IRS has yet to provide guidance on how to make this determination for employees. As of yet, the IRS has not indicated whether it will determine marital status on celebration (where the marriage took place) or residence (where the couple lives currently). (The Department of Homeland Security has already announced it is using a place-of-celebration approach.) The reason why this matters is because only 13 states and the District of Columbia recognize same sex marriage, while 37 states do not.
Once you can determine the appropriate definition of marriage, revise your employee handbook to reflect the change.
Formerly "single" employees who now qualify as married will likely have to submit new W-4s for wage withholding purposes; your payroll will have to reflect this change.
Any employee benefit programs that include spousal benefits will have to be revised to accept same-sex spouses if you are in a state that recognizes same-sex marriages. Some benefit plans to check:
- Health coverage. This includes not only regular coverage, but also COBRA.
- Qualified retirement plans. Spouses, who are automatically entitled to share in benefits, must consent to loans, rollovers, and plan distributions.
- Cafeteria plans. Employees may be permitted to make mid-year changes in their elections if the plans allow this to be done.
What is unknown at this time is whether there will be any mandated retroactive effect with respect to employee benefits.
The Court's decision has no impact on state laws. Thus, you must follow the rules in your state for determining whether an employee is married. This will affect withholding for state income taxes.
There's much more guidance from various federal departments and agencies yet to come. Stay tuned!