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Taxes, Benefits and Same-Sex Marriage: Take a Breath

June 28, 2013

By Thomas I. Kramer


On June 26, 2013, in U.S. v. Windsor, a divided U.S. Supreme Court held that a portion of the federal Defense of Marriage Act (DOMA) violates the Fifth Amendment of the U.S. Constitution. That decision presents difficult issues for tax, benefits and human-resource professionals. This Alert will outline questions for which we’re still awaiting answers.


DOMA was enacted in 1996. It contains the following two substantive sections:
  • Section 2 provides that no state is required to give effect to a same-sex marriage even if validly entered into in another state.
  • Section 3 defines marriage for purposes of federal law as “only a legal union between one man and one woman” and defines “spouse” only as “a person of the opposite sex who is a husband or a wife.”

Oregon and Washington employers know that certain same-sex partners could be validly married in Washington or registered in either state, and that such partners might have to treated as if they were spouses for certain state-law purposes, even though they could not be treated as spouses for federal-law purposes, due to DOMA.

The Windsor Decision

In Windsor, Justice Kennedy, writing for himself and four other Justices, held that Section 3 of DOMA is unconstitutional. The Court did not rule on Section 2. In other words, the federal government may no longer automatically conclude that same-sex partners are never considered to be married to each other for purposes of federal law. From there, it gets murky. Take a deep breath.

What We Think We Know

For purposes of federal tax and benefits laws, whether a person is married is generally determined by reference to the law of the state in which the person resides, putting DOMA to one side. So if, for example, an employee (Abe) was validly married in Washington to a same-sex spouse (Ben) and Abe resides in Washington, Abe will generally be considered married to Ben for purposes of federal tax and benefits laws (with consequences noted below), even if Abe or Ben or both of them work in Oregon or elsewhere.

What We Don’t Know

The principles above would seem to suggest that as long as a couple resides in a state that does not recognize same-sex marriage, they will not be treated as married for purposes of tax and benefits laws, regardless of whether they were validly married in a state that does recognize same-sex marriage and whether they work in such a state as well. So, for example, if an employee (Ann) was validly married to a same-sex spouse (Bev) and they reside in Oregon, they would not be considered married to each other for purposes of federal tax and benefits laws, even if either or both of them work in Washington.

On June 27, the Oregon Attorney General issued a statement regarding the Windsor decision, which seemed to say that Ann and Bev, in the example above, would be considered married to each other for purposes of federal tax and benefits laws. We have requested clarification from the Attorney General’s Office, but haven’t yet received it.

So, we don’t know whether Oregon-resident same-sex spouses should be considered married for purposes of federal tax and benefits laws. And we don’t know when Washington-resident same-sex spouses should be considered married for purposes of federal tax and benefits laws. The logic of the Windsor decision would permit retroactive application of the decision, but we don’t know whether that is intended.

Why it Matters

Whether a couple is or isn’t married for purposes of federal tax and benefits laws can have widespread effects, including the following:
  1. Employer-subsidized health coverage for a spouse and a spouse’s children is generally nontaxable to the employee, while such coverage for a non-spouse partner and partner’s children is taxable unless the partner and children qualify is the employee’s dependents under federal tax law.
  2. Spouses and former spouses are generally “qualified beneficiaries” eligible for COBRA continuation coverage if they would lose their health coverage due to divorce, legal separation or death of the employee, while non-spouse partners generally are not COBRA qualified beneficiaries.
  3. The employee and spouse may each have HIPAA special enrollment rights under health plans in the event of a marriage or a change in the spouse’s employment-related health coverage, but there are not generally such rights where the employee’s partner is not a spouse.
  4. A spouse’s and spouse’s child’s medical expenses generally may be reimbursed by the employee’s health flexible spending account or health reimbursement arrangement but a non-spouse partner’s medical expenses and those of that partner’s child are eligible for reimbursement only if the partner and child are the employee’s dependent for tax purposes.
  5. The amount that may be contributed to a health savings account or dependent care assistance program may vary depending upon whether the employee is or isn’t considered married for purposes of federal benefits laws.
  6. The form in which pension benefits will be distributed generally varies depending upon whether the plan participant is married, because the consent of a spouse is generally required to an alternate benefit form, while the consent of a non-spouse partner is not.
  7. The default-beneficiary provisions of profit sharing (including §401(k)) plans generally vary based on the employee’s marital status, so that the spouse is the death beneficiary, absent the spouse’s consent to a different beneficiary, while no such rule requires a non-spouse partner’s consent.
  8. Whether a “hardship” withdrawal is permissible from a profit sharing plan generally takes the participant’s spouse into account, but may not take into account a non-spouse partner.
  9. Surviving spouses have certain distribution and rollover rights from retirement plans, which are generally more liberal than the rights granted to non-spouse partners.
  10. In the event of a divorce, a spouse may have rights to the participant’s retirement benefits pursuant to a qualified domestic relations order. A non-spouse partner may or may not have similar rights.

What to Do

Take another deep breath.

There is a 25-day period in which a petition for rehearing may be filed with the Supreme Court. We don’t expect any such petition to be granted, but it seems prudent to wait until Monday, July 22, before taking action based on the Windsor decision. Perhaps by then we will have guidance regarding at least some of the unknown items, including retroactivity of the decision, the effect of the decision on Oregon residents and how an employer may determine whether to treat a same-sex couple as married for federal tax and benefits purposes.

Bullard Law will continue to monitor developments in the law regarding tax, benefits and same-sex marriage. Please feel free to contact us at any time with any questions about the Windsor decision or any other labor, employment, or benefits issues.