In June of this year, the Supreme Court, in United States v. Windsor, held that Section 3 of the Defense of Marriage Act (“DOMA”) was unconstitutional, thereby recognizing same sex marriages for purposes of federal law.
On August 29, 2013, the IRS issued Revenue Ruling 2013-17 and a set of Frequently Asked Questions which provide guidance on how the IRS and Treasury will handle same sex marriages for tax related issues. Under the guidance, a same sex couple’s marital status is based on the laws of the state in which the ceremony was performed, not on the laws of the state where the couple resides. Therefore, if the couple was married in a state that recognizes same-sex marriage, they will be considered married for federal tax purposes, even if the state where they reside does not recognize the union. This guidance is to be applied prospectively, beginning on September 16, 2013.
Based on this guidance, effective September 16, 2013, same sex spouses must be treated the same as opposite sex spouses for purposes of the tax rules governing employee benefit plans. Here are some of the things you will need to consider:
- For defined benefit and defined contribution plans:
- The consent of the same sex spouse must be obtained for a participant’s choice of a non-spouse beneficiary for death benefits;
- If spousal consent is required for a loan from a defined contribution plan, the same sex spouse must consent;
- If the plan is subject to the spousal annuity rules (QJSAs and QPSAs), the same sex spouse will be eligible for the survivor annuity and will have to consent if the participant wants to elect another form of benefit;
- The same sex spouse will have the tax benefits of a spousal rollover;
- The same sex spouse will have favorable minimum required distribution calculations for surviving spouse benefits; and
- Same sex spouses will be entitled to benefits provided under a Qualified Domestic Relations Order (“QDRO”) in the event of divorce.
- For health and welfare plans:
- At this time, the plan is not required to offer benefits to same sex spouses, so if your plan document references the federal definition of “spouse” and you want to continue the plan as it is, you will need to amend the definition to specifically exclude same sex spouses;
- If your plan already provided eligibility for same sex spouses, you no longer have to impute the value of the coverage to the income of your employee – all benefits provided will be free of federal tax (state tax may apply, though);
- The employer may recoup any Social Security and Medicare tax over-payments resulting from imputing income of benefits provided to same sex spouses for any open tax years.
- If you have a cafeteria plan that provides for pre-tax premiums, then an employee may pay the cost of the same sex spousal coverage through the cafeteria plan;
- HRAs, HSAs and FSAs may be used to cover expenses of a same-sex spouse; and
- Expenses for the care of a disabled same-sex spouse may be reimbursed through a dependent care FSA or dependent care assistance program.
Further guidance is expected on this topic from both the IRS and other government agencies – stay tuned!