Marriage Equality Nationwide Changes Benefits Landscape

Supreme Court ruling brings equal tax treatment for same-sex spouse benefits in all 50 states

June 30, 2015

LAS VEGAS—“Everything has changed regarding benefits for same-sex couples” in the last few years, culminating with the U.S. Supreme Court’s June 26, 2015, ruling in Obergefell v. Hodges, said benefits attorney Todd Solomon, a partner of law firm McDermott Will & Emery LLP. Speaking four days after the landmark ruling at the Society for Human Resource Management’s 2015 Annual Conference & Exposition, Solomon looked at the steps employers must now take to comply with the high court’s ruling that the U.S. Constitution requires same-sex marriage to be recognized throughout the United States.

Many of the changes requiring equal treatment of same-sex spouses in employee benefit plans have already been made by employers in states that had previously recognized same-sex marriage, especially following a June 2013 Supreme Court decision, U.S. v. Windsor, which found one provision of the President Bill Clinton-era Defense of Marriage Act unconstitutional (thereby extending federal recognition, and the application of federal laws, to same-sex marriages). But “in states that had not recognized same-sex marriage, many exclusions remained, and these have now been swept away” by Obergefell, Solomon noted.

Health Coverage

After the Windsor ruling and March 2014 guidance from the Department of Health and Human Services, same-sex spouses in fully insured plans were required to receive coverage equal to that of opposite-sex spouses. But in self-insured, self-funded plans, same-sex spouses were not required to be extended spousal benefit coverage. Obergefell does not technically change this situation, but “self-insured employers that continue to provide coverage only to opposite-sex spouses face significant risk of legal challenges,” Solomon warned. Lawsuits could be brought by same-sex couples under state law, and while there is no federal statute barring discrimination for lesbian, gay, bisexual or transgendered (LGBT) individuals, “the EEOC [Equal Employment Opportunity Commission] has taken the view that sexual-orientation discrimination is a form of sex discrimination. If courts adopt that position, there will be significant risk for employers that treat same-sex spouses unequally,” Solomon said.

State Taxes

The most significant changes after Obergefell involve taxation of health benefits to same-sex spouses in states that had not recognized same-sex marriages.

After the Windsor decision, federal taxes were no longer required to be paid on the imputed value of health coverage provided to an employee’s same-sex spouse, and the same was true of state taxes—but this was only in states that recognized same-sex marriages.

After Obergefell, health benefits provided to an employee’s same-sex spouse are not subject to state taxes in any state. “There is no more dual regime,” Solomon noted, as “the state tax obligations have been swept away.”

Employers in states that had previously not recognized same-sex marriages and that had been imputing state taxes to same-sex spouses’ health coverage should now treat these benefits as nontaxable, “and do so retroactively to the beginning of this year, with the change reflected in next January’s form W-2s,” Solomon advised.

Employers that had been “grossing-up” the income of employees covering their same-sex spouses by the amount that the employees must pay in state taxes for their spouses’ coverage no longer have any reason to do so.

But same-sex or opposite-sex unmarried partners, if provided coverage under an employer’s plan, are still subject to both federal and state taxes on that coverage. Solomon noted that nothing in the new ruling prevents an employer-provided health plan, whether fully insured or self-insured, from limiting or ending spousal coverage entirely, which is a development seen in a small but growing number of employer health plans.

Retirement Plans

Many changes to retirement plans regarding same-sex spouses are governed by federal law and were required to be made following the Windsor decision in 2013. Nevertheless, the new ruling is a reminder that “retirement plans must use nonexclusionary language for same-sex spouses.”

The focus on same-sex marriage is also “an opportunity to remind employees that a spouse must consent to a participant’s beneficiary designation, and that a beneficiary who was designated without the spouse’s consent is invalid,” Solomon said. Education on this point may be needed as more same-sex couples who already had a designated beneficiary now get married.

Also, employers should treat opposite- and same-sex spouses equally with regard to qualified domestic relations orders in divorces, he said, as “same-sex couples must now deal with the consequences of marriage breakups.”

New Child Benefits

Adoption benefits that receive tax-favored treatment can now be provided to same-sex couples on an equal basis. Another issue involves benefits language with regard to maternity and paternity leave. One change Solomon has seen is revising the language in these benefit plans to refer to a primary caretaker and a secondary caretaker.

Unmarried Partner Benefits

“Nothing in Obergefell creates rights for unmarried partnerships,” Solomon said. “It’s an open question whether employers will continue to provide tax gross-ups for unmarried partners, or if they will eliminate gross-ups now that state-tax inequality has been eliminated for same-sex spouses,” he noted.

But that raises the broader issue of whether partner benefits will survive in an era of marriage equality.

Solomon took the view that companies that had been offering benefits to unmarried same-sex couples but not to unmarried opposite-sex couples “as a matter of fairness to couples that could not get married” will now likely require marriage as a basis for spousal benefits, typically offering unmarried same-sex couples a grace period of several months to wed. Not doing so, in fact, “could raise the issue of whether opposite-sex unmarried partners are being treated unequally,” he said.

Another possibility he raised: freezing health benefits to unmarried same-sex couples who currently receive them, but not extending these benefits to new hires.

“If a company offered partner benefits to both unmarried same- and opposite-sex couples, “they’ll be more likely to maintain these benefits,” Solomon predicted.

A lingering and unresolved issue, however, is that “same-sex couples may not be comfortable making an outward expression of their relationship by getting married, especially in states that don’t have anti-discrimination laws covering LGBT individuals,” Solomon noted.

Health Care Coverage Offered to Employees
and Their Dependents

Percentage of polled SHRM members who said their organizations provided health coverage to the groups shown below.

Full-time employees


Part-time employees


Opposite-sex spouses


Same-sex spouses


Opposite-sex domestic partners


Same-sex domestic partners


Dependent children


Nondependent children


Foster children


Dependent grandchildren


Source: 2015 Employee Benefits, a SHRM research report released in June 2015. The findings are based on a survey of SHRM members conducted in March 2015, prior to the Supreme Court's ruling on same-sex marriage.

Stephen Miller, CEBS, is an online editor/manager for SHRM. Follow Me on Twitter.

Related Resource:

Employee Benefits Effects of Supreme Court Same-Sex Marriage Decision (includes chart of federal law mandates), Calhoun Law Group P.C., June 2015

Related SHRM Article:

Poll: Many Will Now Drop Domestic Partner Benefits, SHRM Online Benefits, July 2015

Related News Articles:

Fate of Domestic Partner Benefits in Question After Marriage Ruling, New York Times, June 2015

What Employers Need to Know About Supreme Court Gay Marriage Ruling, Wall Street Journal, June 2015

Gay-Marriage Ruling Puts Some Health Benefits at Risk, Bloomberg Business, June 2015



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