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October 2013 CBA REPORT
feature article
it provides for uniform application of
the myriad of rules and requirements
that apply to married couples under the
Internal Revenue Code and the Em-
ployee Retirement Income Security Act
(ERISA).
In fact, the IRS specifically cited
the difficulty for employers that would
result if marital status were determined
based on a same-sex married couple’s
state of domicile. The IRS noted that “a
rule of recognition based on the state of
a taxpayer’s current domicile would also
raise significant challenges for employers
that operate in more than one state, or
that have employees (or former employ-
ees) who live in more than one state,
or move between states with different
marriage recognition rules.” The IRS
also specifically noted the difficulties
in administering qualified benefit plan
spousal elections, consents and notices if
it were to call for a rule based on state of
domicile.
The IRS ruling also means that
the federal income tax exclusion for
health coverage provided to opposite-
sex spouses will now be available to all
legally married same-sex spouses, even
those residing in states that do not recog-
nize same-sex marriage. However, note
that in states such as Ohio that do not
recognize same-sex marriage, the cost of
health coverage provided to a same-sex
spouse will still be taxable income to the
employee for state income tax purposes.
All employers will need to take the
necessary administrative steps to imple-
ment this IRS ruling.
All employers that sponsor qualified
retirement plans should check the defini-
tion of “spouse” in their plan documents,
summary plan descriptions and any
other plan communication materials to
see whether that definition will need to
be changed in order to comply with the
IRS ruling. Furthermore, employers may
need to take steps to update employee
records and enrollment forms to iden-
tify the same-sex spouses of employees,
who are now entitled to certain feder-
ally protected benefits provided to all
opposite-sex spouses, such as certain
consent and notice requirements, and
pre-retirement death benefits.
In addition, those employers who
provide health coverage to same-sex
spouses will need to adjust their payroll
systems. These employers who provide
such coverage must stop imputing
income equal to the cost of the coverage
for the same-sex spouses for federal tax
purposes, and allow those employees to
pay for such coverage on a pre-tax basis.
At the same time, employers should still
be aware that their payroll systems must
continue imputing income equal to the
cost of the coverage for the same-sex
spouse in order to withhold state income
tax in those states that do not recognize
same-sex marriage.
Finally, the IRS ruling gives employ-
ers that have previously provided health
coverage to the same-sex spouses of
employees the option to claim a refund,
or make an adjustment for, any excess
Social Security or Medicare taxes paid
on the income that was imputed to the
employee, so long as the period of limita-
tions for filing a claim for refund is still
open.
Implications for States
Before DOMA was struck down,
married same-sex couples in states that
recognize same-sex marriage had to file
as unmarried at the federal level because
they were treated as married for state
tax purposes but single for federal tax
purposes. Now, the difficulties will be re-
versed. Same-sex married couples living
in states that do not recognize same-sex
marriage will be treated as married for
federal tax purposes, but single for state
tax purposes.
This creates complications for more
than half of the U.S. states that ban
same-sex couples’ marriages by their
state’s constitution, but at the same
time base their own tax filing system on
federal filings. For example, it is expected
that Ohio will require same-sex couples
to file their state income taxes as “single,”
based on its own constitutional amend-
ment. However, Ohio’s 2012 instructions
for filing state income tax-returns explic-
itly state that “[y]our filing status must
be the same as your federal income tax
filing status for 2012.” As a result, Ohio
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