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What Employers of Same-Sex Married Employees Should Know

Months after the Supreme Court struck down the Defense of Marriage Act (DOMA), the tax rules concerning same-sex married couples were unclear. There were states that did not recognize same-sex marriage, making it difficult for same-sex married couples to determine their tax duties.

same-sex-marriage-benefitsOn Friday, the Supreme Court ruled that same-sex marriage must be recognized across the U.S. This ruling is expected to provide equal rights to all same-sex married couples regardless of the state in which they were married and reside.

Even though the focus of the changed law has been on same-sex married couples, employers are also affected by this change. The Wall Street Journal shares how:

“If an employer offers spousal health-insurance benefits, do they need to offer them to all married employees, gay or straight?

“In general, yes.

“Companies that offer spousal health benefits and use a separate insurance company to fund their benefits will now be required to cover both gay and straight spouses. ‘Based on the court’s ruling today, there is simply one type of spouse,’ says Todd Solomon, a law partner in the employee-benefits practice group at McDermott Will & Emery in Chicago, who has been tracking same-sex employee benefits for nearly two decades.

“But companies that are self-insured, which means they assume the insurance risks for their own employees, a common practice among large companies, aren’t under the same legal constraints. ‘There is technically no legal requirement that a self-insured company has to include a same-sex spouse,’ Mr. Solomon says. As a result, self insurance ‘is where we are going to see a lot of activity and a lot of litigation.’

“Companies should think twice about self-insuring but denying benefits to gay spouses, because they will be vulnerable to discrimination suits, he says.

“What if an employer has a religious objection to gay marriage?

“They have limited options.

“Companies could choose not to offer benefits to spouses altogether. Or they could self-insure and attempt to offer benefits to only straight spouses, but they run a high risk of discrimination suits, Mr. Solomon says.

“Now that same-sex marriage is legal, will it add a lot of people to employers’ benefits plans? Will this be expensive for employers?

“It could, but it depends on what type of plan a company already had.

“If a company already covered unmarried same-sex domestic partners, it could be cheaper, because covering spouses doesn’t have negative tax implications and is easier to administer than most domestic partnership benefits, Mr. Solomon says.

“But if a company only offered spousal benefits, the ruling will add new couples that previously were not allowed to marry.

“Will the Supreme Court ruling lead to fewer employers offering spousal benefits?

“Yes – that’s been the trend, and the ruling might exacerbate it.

“Employers have been cutting spousal benefits to save money, either dropping spousal coverage or imposing surcharges on spouses who can obtain health insurance elsewhere. A survey from consulting firm Mercer of over 1,100 large employers found that 17% either excluded spouses with other coverage available or imposed a surcharge in 2014, compared with 12% in 2012.

“The Supreme Court ruling might spur some employers who were already inclined to cut spousal benefits to do so, Mr. Solomon says.

“What are the tax implications?

“It equalizes the tax treatment of gay and straight married couples.

“Until today’s ruling, there were a patchwork of state and federal tax laws governing same-sex couples. Employers, depending on the state, sometimes faced additional payroll taxes for same-sex employees, and workers sometimes faced additional income taxes.

“Now, for both federal and state tax purposes, companies and employees will not face different tax treatment for gay and straight married couples. That will make benefits easier for companies to administer, Mr. Solomon says.

“What does this mean for domestic partnership benefits?

“This is a particularly complicated issue for employers.

“Over the past decade, a growing number of companies offered ’domestic partnership’ coverage for gay employees and their partners as a way to provide equal benefits for couples who couldn’t legally wed. Others companies offer coverage more broadly to unmarried domestic partners, regardless of sexual orientation, recognizing that some employees simply prefer not to marry.

“Companies that offer unmarried partnership benefits to both gay and straight couples will likely continue to do so.

“But companies that offer partnership benefits just to gay couples may begin to phase them out, because now all their employees can legally marry. Offering domestic partnership benefits just to gay couples but not straight ones might make firms vulnerable to reverse discrimination lawsuits, lawyers say.

“On the other hand, firms may choose to keep domestic partnership benefits to help protect gay employees from discrimination. The majority of U.S. states lack anti-discrimination protection for gay employees, so workers can be fired for their sexuality. Because marriage certificates are public, forcing employees to get married for spousal benefits may end up ‘outing’ an employee, while domestic partnerships are typically private matters, gay advocates say.”