While the holding in Windsor will have an immediate impact on benefits, as well as the tax treatment of those benefits, the federal government has yet to provide guidance as to whether and when the ruling may be applied retroactively by the government. It is certainly likely that the ruling will be applied retroactively, at least in some circumstances, such as allowing couples in valid same-sex marriages and their employers the opportunity to amend prior-year tax returns to seek refunds of taxes paid on imputed income resulting from health plan coverage for same-sex spouses.
It is likely that the Windsor decision will impact the design and operation of private employer benefit plans, including 401(k) plans and other retirement plans, governed by ERISA, health benefit plans, and leave policies. At this immediate time, the specific impact on benefit plans remains unclear. It is likely that the IRS will issue some guidance regarding the impact of this decision. However, the Windsor decision raises questions that will need to be considered by employers as the federal government and employers adjust to the various definitions of marriage in state and federal law. Employers must consider these emerging issues in light of their own specific benefit plans and business needs. Employers should be in consultation with their benefits counsel to determine what approach may be best suited to their specific needs.What Same-Sex Marriages Will The Federal Government Recognize After Windsor?
Under Windsor, the federal government is to look to state law to determine whether or not a same-sex couple is validly married. One question that Windsor left open is which state law the federal government is to follow: the law of the state in which the marriage occurred (state of celebration) or the law of the state in which the couple currently resides (state of residence). This question is critical for same-sex couples and for employers, given that the majority of states currently do not recognize same-sex marriages. For federal purposes, it appears likely that under Windsor, the federal government will recognize the same-sex marriages of couples residing in states that allow same-sex marriages. However, it is less clear at the moment how the federal government may treat married same-sex couples residing in other states.What States Currently Allow Same-Sex Couples To Be Married?
California, Connecticut, Delaware, Iowa, Maryland, Massachusetts, Maine, Minnesota, New Hampshire, New York, Rhode Island, Vermont, Washington, and the District of Columbia allow same-sex couples to be married. In most cases, states that allow same-sex couples to marry recognize valid same-sex marriages from other states and foreign countries, such as Canada.Does Windsor Impact Health Plans Already Providing Benefits To Same-Sex Spouses Of Employees Residing In A State That Recognizes Same-Sex Marriages?
Prior to Windsor, the IRS treated the value of employer-provided health coverage to an employee’s same-sex spouse as wages or imputed income to the employee, thus subject to federal income and employment taxes. After Windsor, where an employer provides health care coverage to a non-employee same-sex spouse in a state that recognizes same-sex marriage, that coverage will be tax-free to employees, without any showing of tax dependency. Also, after Windsor, other federal rights historically provided to spouses in health plans, such as independent rights to COBRA continuation coverage and certain HIPAA special enrollment rights, will now also be available to same-sex spouses in states that recognize same-sex marriage.Does Windsor Impact Health Plans In States That Do Not Recognize Same-Sex Marriage?
Windsor only requires that the federal government recognize same-sex marriages for the purpose of federal benefits, not that state governments recognize them. Therefore, it is unclear what impact the decision may have on employer health plans in states that do not recognize same-sex marriages. Where an employer in a state that does not recognize same-sex marriages elects not to provide health coverage to same-sex spouses under its health plan, Windsor will likely have no effect on the employer’s health plan. Where an employer in a state that does not recognize same-sex marriages elects to provide coverage to same-sex spouses, it is likely that the IRS will issue guidance on whether the rules and rights for those same-sex spouses residing in states that recognize same-sex marriages, such as tax-free coverage and COBRA continuation coverage, will extend to same-sex spouses who entered into valid marriages in another state, but now reside in a state that does not recognize such marriages. It is likely that the IRS will extend these rules in this manner.What Impact Does The Ruling In Windsor Have On Employees And Their Same-Sex Partners Who Are In A Domestic Partner Or Civil Union Relationship, But Not In A Valid Marriage?
While Windsor specifically states that the “opinion and holding are confined to those lawful marriages,” it is possible that the decision will have an impact on domestic partner treatment. For example, the IRS previously determined that an opposite-sex couple in a civil union in Illinois could file a joint income tax return as a married couple, even though they were not married under Illinois state law. This determination by the IRS was predicated on the fact that, under Illinois law, individuals who were in valid civil unions were granted the same rights and responsibilities as married couples in Illinois. Several states (Illinois, Colorado, New Jersey, Oregon, Hawaii and Nevada) have domestic partnership or civil union laws similar to the Illinois civil union law, granting registered domestic partners or those in civil unions all of the rights and privileges of married couples, while not allowing “married” nomenclature.Is There Any Federal Law Requiring An Employer To Provide Health Plan Coverage To Spouses, Whether Or Not The Married Couple Is Opposite-Sex Or Same-Sex?
No federal law requires employers to provide health coverage to the spouses (opposite-sex or same-sex) of employees. Currently, federal law allows an employer to have a health plan that provides coverage only to employees or only to employees and their children. Under the Affordable Care Act, it seems likely that penalties will not be imposed on employers if they elect not to provide coverage to spouses. However, a penalty could, in fact, be imposed under the Affordable Care Act on the employee’s spouse if he or she does not have health coverage from some source.While Waiting For The Federal Agencies To Give Guidance On Windsor, Are There Any Steps Employers Should Immediately Take Regarding Their Benefits And Benefit Plans?
In the immediate aftermath of the Windsor decision, prudent employers and other plan sponsors should take the following steps:
- Send appropriate communications to employees about how the Windsor decision potentially impacts their benefits, describing what changes are being made to the benefit plans or policies in light of the decision;
- Review benefit plans and employee policies to determine the impact of Windsor, if any, on their plans and policies;
- Determine whether current plan eligibility rules, definitions and policies, specifically as related to the definition of spouse, need to be revised in light of Windsor and then revise applicable documents and forms, as necessary;
- Where the employer provides domestic partner/civil union partner health benefits, consider whether those benefits should be continued or revised, given that same-sex spouses will be recognized as spouses for purposes of federal law, considering carefully applicable state law requirements and risks; and
- Ensure that outside administrators, insurers and service providers are administering plans in a manner consistent with the employer's intent and the applicable legal requirements, including with respect to payroll and tax issues, in light of the decision in Windsor.