Barran Liebman
Oregon Law Firm
BENEFITS NOTEBOOK: TAXES, BENEFITS & SAME-SEX MARRIAGE:KEY IRS GUIDANCE
Readers of our June 28, 2013 Alert may remember from our discussion of the United States Supreme Court’s holding in U.S. v. Windsor that a portion of the federal Defense of Marriage Act (DOMA) violates the Fifth Amendment of the United States Constitution. We advised human-resource professionals to stay tuned for further guidance. On August 29, 2013, the Internal Revenue Service provided some key guidance regarding same-sex marriages, taxes and benefits. IRS Revenue Ruling 2013 -17 and FAQs The IRS answered one of the major questions left unanswered by the Windsor decision, concluding that whether a couple is married for federal tax and benefits purposes is to be determined by the state in which the couple was married. So, for example, a same-sex couple validly married in Washington but living in Oregon will be considered to be married for federal tax and benefits purposes. This obviously provides a simpler rule than relying on the state of residence to determine whether the couple is married. The IRS did not address when employee benefit plans must be amended in light of this new guidance, or whether any such amendment must be given retroactive effect. The IRS promised additional guidance for benefit plan sponsors and administrators. The IRS made clear that domestic partners and civil union partners (whether same-sex or opposite-sex) who are not married to each other are not treated as spouses for federal tax purposes.
Implications for Health and Welfare Benefit Plans
A. Starting now, for 2013, employers should treat health coverage of employees’ same-sex spouses as a non-taxable benefit, just as they would for opposite-sex spouses.
B. Employees who were taxed in prior years on same-sex spouse benefits may apply for a refund for all open tax years.
C. Employers may claim refunds for Social Security and Medicare taxes on same-sex spouse benefits for all open tax years.
D. Employers should permit employees to pay with pre-tax dollars under a cafeteria plan for health-plan coverage of a same-sex spouse, and the spouse’s children, to the same extent they may do for opposite-sex spouses.
E. Cafeteria plan administrators should treat same-sex spouses like opposite-sex spouses for purposes of the midyear-election-change rules.
F. Health plan administrators should treat same-sex spouses like opposite-sex spouses for purposes of the COBRA continuation coverage and HIPAA special enrollment rules.
G. Health reimbursement arrangement and health flexible spending account administrators should reimburse eligible medical expenses of same-sex spouses and their children in the same way that they would reimburse opposite-sex spouses’ expenses.
H. Health savings account and dependent care assistance program administrators should take into account a same-sex spouse, just like an opposite-sex spouse, in determining the amount that may be contributed.
Implications for Tax -Qualified Retirement Plans
Effective September 16, 2013, same-sex spouses will have the same status and rights as opposite-sex spouses under tax-qualified retirement plans, including with respect to the following plan provisions:
1. In most pension plans, benefits must be paid in the form of a qualified preretirement survivor annuity or qualified joint and survivor annuity for the (same -sex or opposite-sex) spouse, absent a valid contrary election, with the spouse’s consent.
2. An employee’s designation of a non-spouse beneficiary under a § 401(k) or profit-sharing plan, or an employee taking a loan from a money purchase pension plan, requires the (same-sex or opposite-sex) spouse’s consent.
3. Surviving (same-sex or opposite-sex) spouses have broader rights to roll over eligible rollover distributions to an IRA or an eligible retirement plan than other beneficiaries.
4. Surviving (same-sex or opposite-sex) spouses also have more liberal required-minimum-distribution rules than other death beneficiaries.
5. Whether a “hardship” withdrawal is permissible from a profit sharing plan generally must take a (same-sex or opposite-sex) spouse into account.
6. In the event of a divorce, a (same-sex or opposite-sex) spouse may have rights to the participant’s retirement benefits pursuant to a qualified domestic relations order.
7. The limits on benefits may be higher when benefits are paid in a survivor annuity form with the (same-sex or opposite-sex) spouse than with some other joint annuitant.
8. The family attribution rules, which may determine whether two or more employers are members of a “controlled group,” must take into account (same-sex or opposite-sex) spouses.
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