Same-Sex Marriage and Employee Benefits
The recognition of legal same-sex marriage is spreading quickly across the country through legislation and judicial action at the state and federal level. However, these changes have not been implemented uniformly throughout the country. This piece-meal approach has left employers scrambling to determine what their obligations are under the law to recognize same-sex marriages when administering employee benefits.
Here in Wisconsin, the legal status of same-sex marriage became much more complicated on Friday, June 6, 2014, when United States District Judge Barbara Crabb struck down Article XIII, Section 13, of the Wisconsin Constitution, which defines marriage as between one man and one woman. Following the decision, hundreds of same-sex couples applied for and obtained marriage licenses issued by Wisconsin counties until Judge Crabb stayed her decision on June 13, pending an appeal from Wisconsin Attorney General J.B. Van Hollen. Therefore, pending the outcome of that appeal, Wisconsin law does not recognize the legality of same-sex marriages.
How Wisconsin law defines marriage does not end the discussion in regard to employee benefits. At the federal level, prior to 2013, the Defense of Marriage Act (DOMA) defined “marriage” and “spouse” as excluding same-sex partners. While DOMA was in force, employee benefits regulated by the federal government did not extend to same-sex partners, regardless of whether a state recognized that relationship as a marriage.
However, on June 26, 2013, the U. S. Supreme Court found DOMA unconstitutional in the case U.S. v. Windsor. The Court held that if a state chooses to recognize same-sex marriages, the federal government cannot deprive those same-sex individuals the same federal benefits that would otherwise be provided to opposite-sex marriages. Even after the Windsor decision, however, government agencies at the federal level still had to decide exactly how to administer benefits in regard to same-sex spouses legally married in one state that then reside in a state that does not recognize same-sex marriages.
What has emerged are two basic rules: 1) the “state of celebration” rule; and, 2) the “state of residence” rule. The state of celebration rule says that a marriage will be recognized no matter where the same-sex partners reside, as long as the partners were legally married in a state that recognizes same-sex marriage. Conversely, the state of residence rule says that a marriage will be recognized only if same-sex partners have been legally married and reside in a state that recognizes same-sex marriage.
So, as it stands, Wisconsin is a state that does not recognize same-sex marriages, but Wisconsin employers must comply with federal law when it comes to employment benefits. The following is a brief summary of some of the major areas of law that have an affect on these benefits.
The Internal Revenue Service (IRS) decided to follow the state of celebration rule for federal tax purposes. So, for example, as long as a same-sex couple is legally married, that couple may file a joint tax return no matter where that couple chooses to live. This also means that Wisconsin employers that provide health coverage for an employee’s same-sex spouse do not have to include the value of the coverage as gross income for the employee, and employers may be able to claim a refund for overpayment of Social Security taxes and Medicare taxes if this benefit for same-sex spouses was included as gross income in previous tax years.
Wisconsin taxes rely on the Internal Revenue Code for many definitions in use with its own tax code, including the definition of a “married person” or “spouse.” However, the Wisconsin Department of Revenue has taken the position that individuals in same-sex marriages cannot file a joint Wisconsin tax return and must file income tax returns individually.
Health Insurance Benefits
Fully insured health plans are governed by the insurance regulations of the state where the owner of the plan is located. Therefore, an employer who owns a fully insured health plan is typically not required to offer the benefit to employees of same-sex partners, as long as the state does not recognize same-sex marriages. Note, however, that nothing prohibits an employer from offering benefits to same-sex spouses and the benefit provided would still be recognized for federal tax purposes.
Self-insured health plans are regulated by the U.S. Department of Labor (DOL) through the Employee Retirement Income Security Act of 1974 (ERISA). ERISA defines spouse as any legally executed marriage, which includes same-sex marriages. ERISA applies to self-funded health insurance plans and this federal law also trumps any state law to the contrary.
The assumption would be that self-insured health plans, therefore, have to cover same-sex spouses as well. However, recent federal litigation outside of Wisconsin held that no part of ERISA requires an employer to provide benefits to employees, same-sex or otherwise. Whether or not excluding same-sex spouses from a benefit covered by ERISA that is provided to opposite-sex spouses constitutes discrimination is a separate issue currently being litigated in various jurisdictions around the country.
Note that public sector employers that provide self-funded health insurance benefits are not subject to ERISA and would, therefore, be subject to the state of residence rule in offering self-insured health insurance benefits.
The federal Family and Medical Leave Act currently follows the state of residence rule, meaning a Wisconsin employer only has to recognize FMLA rights in regard to opposite-sex spouses. Federal FMLA regulations define “spouse” under 29 C.F.R. § 825.122(b) as the following:
Spouse means 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 in States where it is recognized.
Federal FMLA rights, therefore, only extend to same-sex spouses if the same-sex marriage is recognized by the spouses’ state of residence. However, the U.S. DOL recently announced proposed rule-making to change the agency’s position to conform with the state of celebration rule. These rules are still being crafted and will not be applicable until the public has had the opportunity to comment on the proposed rules and final rules are published.
Under the proposed rules in their current form, eligible employees will be able to take FMLA leave to care for a same-sex spouse even if they reside in a state that does not recognize same-sex marriages. The rules would also expand access for same-sex spouses to take FMLA leave to care for a step-child or step-parent.
Note that the Wisconsin Family and Medical Leave Act already recognizes leave for the care of a child, spouse, or domestic partner, which includes same-sex domestic partners as well as “unregistered domestic partners” as defined by either Wis. Stat. § 40.02(21c) or Wis. Stat. § 770.01(1).
Social Security Benefits
Unlike the IRS, the federal Social Security Administration follows the state of residence rule. This means that individuals will only be eligible for Social Security rights benefits afforded to spouses if that individual resides in a state that recognizes same-sex marriage. The SSA takes this position reluctantly, noting that the Department of Justice instructed the SSA that they are bound to follow the law of the state in which an individual resides. However, the official position of the SSA is that individuals should apply for benefits regardless of whether their state recognizes same-sex marriage in order to preserve a claim for future benefits.
The above is simply a sampling of the various kinds of issues caused by changes in the recognition of same-sex marriage. On top of these complex considerations, what could really cause employers headaches is the inevitable situation where an employee recently married to their same-sex partner during the week in which same-sex marriage was temporarily legal in Wisconsin requests employer-provided benefits that would otherwise be denied same-sex spouses in Wisconsin. The best course of action in this, or any other situation of first impression, may be to contact your legal counsel.
This article is intended for general informational purposes only, and should not be construed as legal advice. Always contact your legal counsel for advice or answers to your questions.