On June 26, 2013, the Supreme Court of the United States ruled, in United States v. Windsor, that Section 3 of the Defense of Marriage Act, which defines the term “marriage” as “a legal union between one man and one woman as husband and wife,” is unconstitutional. The ruling applies to all federal tax provisions where marriage is a factor, including filing status, claiming personal and dependency exemptions, taking the standard deduction and whether certain types of coverage for same-sex spouses under employee benefits plans would be imputed as income.
In response to questions regarding the federal tax implications of the Windsor decision, the Internal Revenue Service issued Revenue Ruling 2013-07, stating that:
(1) For federal tax purposes, a same-sex couple will be recognized as married if the couple was validly married in a state that authorizes same-sex marriages. Therefore, neither the state or jurisdiction of the couple’s residence nor the state or jurisdiction in which either spouse currently works is relevant in determining the couple’s tax treatment; and
(2) For federal tax purposes, the term “marriage” does not include domestic partnerships, civil unions, or other formal same-sex relationships recognized under state law that are not denominated as “marriage” under state law.
For further discussion of the IRS guidance, see our Special Alert “IRS Announces Recognition of Same-Sex Marriages for All Federal Tax Purposes Under ‘State of Celebration’ Approach.”
New DOL Guidance
On September 18th, the Department of Labor issued Technical Release 2013-04, stating that it too will interpret the term “spouse” to include a same-sex spouse legally married in any state or foreign jurisdiction that recognizes the marriage, even if the couple resides in a state that does not permit or recognize same-sex marriage. The DOL guidance applies only for purposes of ERISA, the Internal Revenue Code and governing DOL regulations. The DOL, like the IRS, ruled that the term “spouse” does not include individuals in domestic partnerships, civil unions or other same-sex relationships “regardless of whether the individuals who are in these relationships have the same rights and responsibilities as those individuals who are married under state law.”
Emphasizing that a core purpose of ERISA is to promote uniformity in employee benefits plan administration, the DOL found that a universal interpretation of marriage for employee benefits purposes would prevent a substantial burden from being placed on employers (and plan administrators) that have employees and participants in multiple states, who otherwise would constantly have to navigate through state law to determine whether to provide coverage for same-sex spouses. The DOL further said that the administrative burden would likely result in increased errors and delayed benefits for employees moving to or from a state that does not permit or recognize same-sex marriage. The DOL guidance also applies to provisions of the Internal Revenue Code subject to the DOL’s regulatory authority, such as the Internal Revenue Code Section 4975 prohibited transaction rules.
The DOL guidance provides considerable relief to plan administrators who are now able to treat same-sex marriage as identical to opposite-sex marriage for purposes of ERISA and the Internal Revenue Code.
The DOL guidance did not specifically address its effect on the way other laws, such as COBRA and HIPAA, are applied to employee benefits plans, nor did the guidance specify its effective date or address potential issues of retroactive application. The DOL plans to issue additional guidance in the near future.