In June 2013, the U.S. Supreme Court opined in United States v. Windsor that Section 3 of the Defense of Marriage Act was unconstitutional. That section defined marriage as being between a man and a woman for purposes of federal law. The impact of this decision is far-reaching, especially when combined with same-sex marriage law changes at the state level. For employers, these changes affect:
- Employee federal income tax withholding;
- Family Medical Leave Act ("FMLA") and Oregon Family Leave Act ("OFLA") administration;
- Employee benefit plans subject to the Employee Retirement Income Security Act ("ERISA"); and
- Availability of health care subsidies under the Patient Protection and Affordable Care Act ("PPACA").
Administration issues are particularly tricky for employers who operate in Oregon and Idaho, where same-sex marriage is prohibited by the state constitution. Complications arise because of the interplay between state and federal law and the fact that these states border Washington and California, where same-sex marriage is lawful.
Employee Federal Income Tax Effects
Before Windsor, employees in same-sex relationships were not permitted to file federal income tax returns jointly, regardless of whether they were married, domestically partnered, or in civil unions. After Windsor, the IRS published Revenue Ruling 2013-17, announcing a change in the agency's position. Specifically, "individuals of the same sex will be considered to be lawfully married under the code as long as they were married in a state whose laws authorize the marriage of two individuals of the same sex, even if they are domiciled in a state that does not recognize the validity of same-sex marriages." This is known as the "place of celebration" rule.
For example, an employee who lives and works in Portland, Oregon, travels to Vancouver, Washington, and enters into a lawful same-sex marriage on December 1, 2013. Under Revenue Ruling 2013-17, the employee and spouse may file their federal income tax returns jointly for the year 2013 even though same-sex marriage is banned under the Oregon Constitution. This only applies to same-sex couples who enter into lawful same-sex marriages. Couples in registered domestic partnerships, civil unions, or other similar relationships are not "married" under federal law.
Employers should be aware of these nuances when handling requests to update employee marital statuses and withholdings on Form W-4.
FMLA and OFLA Administration
Under FMLA, eligible employees may take unpaid, job-protected leave to care for a spouse, child, or parent suffering from a serious health condition. Post Windsor, the U.S. Department of Labor Wage and Hour Division ("DOL WHD") revised its FMLA Fact Sheet #28F, defining "spouse" as "a husband or wife as defined or recognized under state law for purposes of marriage in the state where the employee resides, including 'common law' marriage and same-sex marriage."
Unlike the IRS, the DOL WHD focuses its analysis on the employee's place of domicile. Continuing the previous example, the Oregon employee who lawfully marries in Washington may file joint federal income tax returns but may not be entitled to FMLA leave to care for the spouse's serious health condition because the employee lives in Oregon — a state that prohibits same-sex marriage.
However, on October 16, 2013, Michael Jordan, Chief Operating Officer and DAS Director for the State of Oregon, sent a memo to all Oregon agency directors advising them to recognize out-of-state same-sex marriages for purposes of administering Oregon state programs. This raises a question as to whether Oregon "recognizes" out-of-state same-sex marriages to the extent that FMLA coverage under the DOL's updated interpretation is triggered.
For Oregon employers, OFLA adds another layer of complexity. OFLA permits eligible employees to take unpaid, job-protected leave to care for spouses and same-gender domestic partners. Whether an Oregon employee lawfully wed in Washington may use OFLA leave to care for his or her same-sex spouse (but not registered domestic partner) is an open question.
ERISA is a federal law that sets the minimum standards for private industry benefit plans. On September 18, 2013, the U.S. Department of Labor Employee Benefits Security Administration issued Technical Release 2013-04 to provide guidance on the meaning of the terms "spouse" and "marriage" as applied to ERISA. Unlike FMLA, the DOL follows the "place of celebration" rule for purposes of ERISA. In other words, a same-sex marriage should be recognized for ERISA benefits purposes if the marriage was lawfully entered into in a state where same-sex marriage is legal.
Affordable Care Act Subsidies
Beginning January 1, 2014, eligible employees may use tax credits to pay for health insurance premiums on state Exchanges. Part of the tax credit eligibility formula is based on the employee's family size and annual household income. On September 27, 2013, the Department of Health & Human Services Center for Medicare & Medicaid Services released guidance on how the formula applies to employees in same-sex relationships. Specifically, a premium tax credit is available to an "otherwise eligible taxpayer with a same-sex spouse regardless of where the taxpayer resides, only if the taxpayer and his or her spouse file a joint return for the taxable year." Employers should take this into account when strategizing plans to implement PPACA.
The examples above provide an outline of what is known, but there are still many unanswered questions such as whether an employer may concurrently deduct an employee's OFLA and FMLA leave banks for time used to care for a same-sex spouse. Another unknown is how the new Portland sick leave rules will apply to same-sex spouses who are not registered as domestic partners in Oregon.
In sum, the changes to same-sex marriage laws affect employers in a variety of areas. These laws continue to evolve, making compliance challenging at best. For these reasons, you should consult competent employment law counsel to assist you when making changes to employee policies or benefits programs that are implicated by a person's marital status. Any member of our employment law group would be happy to assist you.