The Fate of DOMA and What's at Stake With Employee Benefits

What changes are possible for employees with same-sex partners?

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Section 3 of the Defense of Marriage Act (DOMA) states, "In determining the meaning of any Act of Congress, or of any ruling, regulation, or interpretation of the various administrative bureaus and agencies of the United States, the word 'marriage' means only a legal union between one man and one woman as husband and wife, and the word 'spouse' refers only to a person of the opposite sex who is a husband or a wife."

This 65-word paragraph is the eye of deliberation in Washington, D.C., where the Supreme Court is expected to rule on its constitutionality. The court's ruling could impact lesbian, gay, bisexual and transgender (LGBT) couples in the United States in ways heterosexuals may not have realized, such as changing how married same-sex couples receive employee benefits. Currently, nine states and the District of Columbia legally recognize same-sex marriage, plus there are other states that recognize what Todd Solomon, an employment benefits lawyer with the Chicago-based law firm McDermott Will & Emery LLP calls a "spousal equivalent:" a domestic partner or civil union. Couples in those states are still not recognized as married in some other jurisdictions, nor are they recognized as legally married by the federal government, which means they are currently only eligible for state rights that relate to married couples.

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In addition to weighing in on the constitutionality of DOMA, the court is also expected to rule on the legality of Proposition 8, a state constitutional amendment that bans gay marriage in California. It's the outcome of the DOMA case, however, that will create the most ripples: By overturning sections 2 and 3 of the act, the Supreme Court could spawn a floodgate of possibilities for same-sex married couples and make them eligible for more than 1,000 federal rights and benefits related to marriage.

Right now it's guesswork to determine the full weight of the impending ruling on workplace benefits. Here are just three things at stake:

1. Muddled employee-provided health benefits. Companies that offer health benefits pay a portion, and sometimes all, of the premium. According to the federal tax code, the employer's contribution to a health insurance premium for an employee's spouse is excluded from that employee's taxable income. That doesn't apply, however, to same-sex couples who are legally recognized as married. Solomon, who is also the author of "Domestic Partner Benefits: An Employer's Guide," explains: "If a man were to cover his wife, that man would not be taxed on the employer coverage. But if, in the same state, a man were to cover his same-sex partner, in most cases that contribution would be a taxable benefit and the man would have to pay taxes on it." In plain language: Employees who carry their same-sex partner on their insurance are taxed more by the federal government. Overturning DOMA would change that disparity.

It would also affect employers. A company's payroll tax liability is determined by its employees' taxable incomes. So when an employer provides domestic-partner or same-sex spouse benefits, those taxable benefits subsequently bump up what the employer is taxed on. According to the Human Rights Campaign (HRC) website: "This provision also places an administrative burden on employers by requiring them to identify those employees utilizing their benefits for a partner rather than a spouse. Employers must then calculate the portion of their contribution that is attributable to the partner, and create and maintain a separate payroll function for these employees' income tax withholding and payroll tax."

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2. Eliminating the gross up. American Express, Deloitte, Facebook, Kimpton Hotels & Restaurants and Microsoft are a few companies that reimburse employees who are taxed extra to insure their partner, in what's known as "grossing up." The HRC reports that it knows of 40 for-profit companies, including those mentioned above, that currently institute grossing up policies. If the Supreme Court were to rule against sections 2 and 3 of DOMA, the practice of grossing up would be eliminated and these companies would ultimately save money.