Over the past several months, there have been significant changes to the legal landscape for same-sex married couples. First, on June 26, 2013, in United States v. Windsor, the U.S. Supreme Court ruled that Section 3 of the Defense of Marriage Act ("DOMA"), which prohibited the recognition of same-sex marriages under federal law, was unconstitutional. Following the Windsor decision, the Department of Treasury ("Treasury"), Internal Revenue Service ("IRS"), and Department of Labor ("DOL") issued notices, guidance and rulings on whether and when a same-sex married couple constitutes a "spouse" for purposes of federal laws. Finally, on November 13, 2013, Governor Neil Abercrombie signed the Marriage Equality Act of 2013, which extends Hawaii's marriage laws to same-sex couples and takes effect on December 2, 2013.
This article discusses the impact each of these changes has on employment-related matters.
A Brief Review of Windsor[1]
Under Section 3 of DOMA, a same-sex domestic partner recognized under a state law (i.e. same-sex marriage, civil union or domestic partnership) could not be considered a "spouse" for purposes of any federal law.
In Windsor, however, the Supreme Court ruled that such a law was a violation of due process and equal protection under the U.S. Constitution. Accordingly, individuals in a same-sex marriage may now be recognized as a "spouse" for purposes of approximately 1,100 federal laws which address marital or spousal status. Such laws include the FMLA, COBRA, ERISA, federal income tax provisions, and several other laws outside the employment context.
In the aftermath of the Windsor decision, employers were left with some uncertainty about when they needed to recognize a same-sex married couple for purposes of federal employment laws. For instance, employers in states that did not recognize same-sex marriage were unclear whether the IRS and DOL would recognize same-sex marriages based on the law of the state where the couple currently resided ("state of residence") or the state where the couple got married ("state of celebration").
Administrative Agencies Provide Some Guidance
Fortunately, in light of the confusion faced by employers, several federal agencies have issued guidance on when a same-sex married couple must be recognized as legally married for purposes of federal employments laws.
Updated FMLA Guidance
First, on August 9, 2013, the U.S. Department of Labor updated existing FMLA guidance to remove references to DOMA and clarify that a spouse for purposes of FMLA is defined by the laws of the state where the couple resides. Such documents include FMLA Fact 28F and Chapter 39 of the DOL's Field Operations Handbook, which now state that a "[s]pouse means a husband or wife as defined or recognized under state law for purposes of marriage in the state where the employee resides, including ?common law' marriage and same-sex marriage."
ERISA and Tax Guidance
On August 29, 2013, the Treasury and IRS issued Revenue Ruling 2013-17, which set forth the following federal tax principles:
? Same-Sex Marriages Recognized. The terms "spouse," "husband" and "wife" include an individual married to a person of the same sex if the individuals are lawfully married under state law.
? State of Celebration Controls. The IRS will recognize a marriage of same-sex individuals that was validly entered into in a state whose laws authorize same-sex marriage, even if the married couple is domiciled in a state that does not recognize same-sex marriage.
? Domestic Partnerships Not Included. The terms "spouse," "husband" and "wife" do not include individuals who have entered into a registered civil union, domestic partnership, or other similar formal relationship recognized under state law that is not denominated as a marriage under the laws of that state.
In a press release accompanying Rev. Rul. 2013-17, the IRS stated that 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, employee benefits, contributing to an IRA, and claiming the earned income tax credit or child tax credit." The holdings of Rev. Rul. 2013-17 took effect on September 16, 2013.
On September 18, 2013, the DOL issued Technical Release 2013-04, which adopted a similar ruling for purposes of ERISA and any section of the Internal Revenue Code that the DOL interprets. Specifically, the DOL noted that the term "marriage" shall include a same-sex marriage that is legally recognized as a marriage under any state law. In addition, the DOL also stated that the term "spouse" also includes any individual married to a person of the same sex who was legally married in a state that recognizes such marriages, but who is domiciled in a state that does not recognize such marriages. Finally, the DOL noted that the terms "spouse" and "marriage" do not include individuals or couples in a domestic partnership or civil union as recognized by state law, regardless of whether the individuals in those relationships have the same rights and responsibilities as those individuals who are married.
Although the DOL adopted a "state of celebration" approach for purposes of ERISA and other tax issues, they did not change their "state of residence" stance for purposes of the FMLA.[2]
Finally, on September 23, 2013, the Treasury and IRS issued Notice 2013-61, which provided guidance for employers who wish to file refund claims for payroll taxes paid on previously-taxed health insurance and fringe benefits provided to same-sex spouses. The notice outlines special administrative procedures that can be utilized to correct overpayments of employment taxes paid in 2013 (as well as any prior calendar years open under the statute of limitations period) that are/were excludable due to the employee's marital status. This article discusses such procedures in further detail below.
Same-Sex Marriage in Hawaii
On November 13, 2013, at the conclusion of a special legislative session, Governor Abercrombie signed the Marriage Equality Act of 2013 into law.[3]
This new law takes effect on December 2, 2013, and provides same-sex couples with the right to enter into a marriage that would be recognized by the State of Hawaii. Under this Act, the term "spouse" will be construed in a gender-neutral manner and a marriage will be permitted between two individuals without regard to gender. In addition, a marriage conducted in another state between two same-sex individuals will also be recognized as a legal marriage in Hawaii.
What Does All this Mean for Hawaii Employers?
FMLA Leave Rights
For the time being, the definitive answer on when a same-sex married couple must be recognized for purposes of the FMLA stems from the DOL's own fact sheet and Field Operations Handbook. Both documents provide that a "spouse" for purposes of the FMLA is defined by the laws of the state in which the employee resides. Therefore, beginning December 2, 2013, an employee in a same-sex marriage who lives in a state that recognizes same-sex marriages will have the right under the FMLA to take leave for any of the following reasons:
? Care for a same-sex spouse with a serious health condition;
? Care for a new child born to, adopted with, or fostered with a same-sex spouse;
? Leave due to qualifying exigencies related to the deployment of a same-sex spouse to active duty; and
? Care for a same-sex spouse with a serious injury or illness under the FMLA's military caregiver leave provisions.
This right will apply regardless of whether the employee got married in Hawaii or another state that recognizes same-sex marriage, as long as the employee is domiciled in Hawaii.
Employers and employees should also be aware, however, that employees in a same-sex marriage could potentially see a reduction in leave rights under these new changes. For instance, same-sex spouses who work for the same employer will now be restricted to a total of 12 weeks of combined leave for the purpose of either (1) the birth, adoption or foster care placement of a child or (2) to care for the employee's parent with a serious health condition. In addition, employees who take leave to care for a same-sex spouse under the Hawaii Family Leave Law will also concurrently exhaust their leave rights under the FMLA.
Because the DOL has adopted a "state of residence" approach to the FMLA, Hawaii employers who have employees in states outside of Hawaii should also be aware of whether those states have laws that recognize same-sex marriage.[4]
COBRA
COBRA coverage must now be made available to a same-sex spouse on the same terms and conditions as an opposite-sex spouse. Specifically, as a "qualifying beneficiary," a same-sex spouse must be provided formal COBRA notices and an opportunity to continue health coverage after a COBRA qualifying event.
Health Insurance and Tax Issues
Under the Internal Revenue Code, employer-provided health insurance, including coverage for a "spouse," is not considered part of the employee's gross income.
Previously, under Section 3 of DOMA, an individual in a same-sex marriage was not considered a spouse for purposes of federal tax laws. Therefore, employers who provided health insurance to an employee's same-sex spouse were required to impute the value of the insurance to the employee's gross income, and the employee was not permitted to pay for the insurance with pre-tax dollars. Following Windsor, however, same-sex married couples are entitled to the same tax benefits as opposite-sex married couples with regards to health insurance and other fringe benefits.
Accordingly, employers should stop imputing income for health benefits provided to same-sex spouses of employees. In addition, some employers may want to correct overpayment of taxes for employees who have been paying taxes on health benefits they received for a same-sex spouse. For Hawaii employers, these procedures would apply for employees who entered into a same-sex marriage in another state, but were domiciled in Hawaii prior to September 16, 2013. The statute of limitations on such a claim is three years from the date the return is filed; therefore, adjustments can be made for as far back as 2010.
As noted above, IRS Notice 2013-61 provides employers and employees with guidance on how to file for a refund on overpayment of income and FICA taxes related to those benefits.[5] Specifically, for 2013, the IRS provides two alternative procedures for employers that treated same-sex spousal benefits as wages for the first three quarters of 2013 and seek to correct overpayments of employment taxes attributable to the benefits:
? First, an employer must repay or reimburse its employees for the amount of the overcollected FICA tax and the overcollected income tax withholding with respect to the same-sex spouse benefits for the first three quarters of 2013 on or before December 31, 2013.
? Second, if an employer does not repay or reimburse employees for the amount of withheld FICA and income taxes with respect to same-sex spouse benefits provided in 2013 on or before December 2013 and files the 2013 fourth quarter Form 941 without making the adjustment, the employer may correct overpayments by using Form 941-X.
For 2010-2012, an employer may file a single Form 941-X for the fourth quarter of an applicable year to correct and adjust for any overpayments made in any or all quarters for that year.
The IRS has also noted that these alternatives are optional, and employers who prefer to use the regular procedures for correcting employment tax overpayments may do so (i.e. leave the amounts paid prior to September 16, 2013 "as is" and let the employee request an income tax and payroll tax refund at the time the employee files a tax return).
For same-sex couples who are married in Hawaii on or after December 2, 2013, employers can treat the employee the same as any other employee who is newly married for purposes of health insurance and tax consequences.
Qualified Retirement Plans
As of September 16, 2013, employers should treat same-sex spouses as a "spouse" for purposes of all ERISA qualified retirement plans.[6] Examples of such plans that may be affected are 401(k) plans, 403(b) plans, money purchase pension plans and defined benefit ("DB") plans. This change in the definition of spouse will provide the following rights to husbands/wives in a same-sex marriage:
? Spousal status as default beneficiary, unless the spouse consents to payments to non-spouse beneficiary;
? Spousal right to lump-sum death benefits under a defined contribution plan (unless the spouse consented to the designation of a different beneficiary);
? Annuity benefits under a DB plan must be paid in the form of a 50% (or higher) joint and survivor annuity, unless the same-sex spouse consents to a different form of payment;
? Spousal consent to early payment of plan benefits;
? Spousal consent to plan loans;
? More favorable rules for tax-free rollovers of plan distributions (i.e. rollover to the same-sex spouse's own IRA or employer-sponsored plan);
? Division of participant retirement benefits in a divorce or legal separation.
At this point, employers should inform their employees about the rights of spouses in same-sex marriages and request updated beneficiary designations from their employees. In addition, while the IRS has not yet provided guidance on how these rules apply to same-sex marriages under qualified plans prior to September 16, 2013, they have indicated an intention to do so. Such future guidance will address (1) plan amendment requirements, including the timing of any required amendments and (2) any necessary corrections relating to plan operations for periods before the issue date of further guidance.
HIPAA Enrollment Issues
Neither the Windsor decision nor any guidance from the DOL, IRS or Treasury have addressed whether the invalidation of Section 3 of DOMA triggered the right of an employee who was already in a same-sex marriage to enroll their spouse in a health plan. Arguably, the invalidation of Section 3 may have "changed" an employee's marital status ? at least for federal tax purposes ? which would create a mid-year enrollment right under HIPAA.
In any event, same-sex marriages within the State of Hawaii on December 2, 2013 and beyond will constitute a qualifying event that entitles employees to add a dependent to their health plans.
What's Next for Hawaii Employers
Employers should conduct a thorough review of all their employment policies, health and welfare plans, and retirement plans to determine what changes must be implemented in order to become compliant with the Windsor decision and Hawaii's new law legalizing same sex marriages. In addition, employers should also await future guidance from various government agencies concerning the federal rights of individuals in same-sex marriages.
[1] For further discussion on the Windsor decision and its impact on employers, please see a previous HEC article dated July 9, 2013 and entitled DOMA Defeated: What Does the Windsor Decision Mean for Hawaii Employers?
[2] The FMLA's regulations currently define a spouse as a "husband or wife as defined or recognized under State law for purposes of marriage in the State where the employee resides[.]" See 29 CFR ยง 825.102. Therefore, for the time being, the DOL's definition of "spouse" for FMLA purposes will be inconsistent with the treatment of same-sex spouses for purposes of employee benefit plans. In a press release issued with Technical Release 2013-04, however, the Secretary of Labor stated that he has "directed the department's agency heads to ensure that they are implementing the [Windsor] decision in a way that provides maximum protection for workers and their families." This statement by Perez could be indicative of possible changes to the definition of a "spouse" under the FMLA regulations. Indeed, the U.S. Office of Personnel Management, which has jurisdiction over FMLA rights of federal employees, recently extended FMLA leave rights to same-sex spouses of federal employees regardless of state of residence.
[3] The bill number was SB1HD1. You can view the information page for this bill on the legislature's website here: SB1 HD1 status.
[4] States that currently recognize same-sex marriage include: California, Connecticut, Delaware, Iowa, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New Jersey, New York, Rhode Island, Vermont, and Washington, as well as the District of Columbia.
[5] This article provides a brief summary of how employers can correct overpayment of taxes for health insurance benefits provided to a same sex spouse. For a more detailed discuss on such procedures, please refer to IRS Notice 2013-61 or consult a tax specialist.
[6] This requirement applies only to same-sex marriages. It does not apply to domestic partnerships such as a civil union or reciprocal beneficiary.
Attachment: Update on Same Sex Marriage