The Effect of DOMA on Employers

The Defense of Marriage Act (“DOMA”) is the federal law that defined marriage as being solely between a man and woman. On June 26, 2013, the U.S. Supreme Court decided the fate of DOMA in United States v. Windsor. In that case, the Supreme Court held that the provision of DOMA prohibiting the federal government from recognizing same-sex marriages was unconstitutional. Although it is still unknown how the ruling will affect the workplace long-term or how it will affect same-sex couples in states that do not recognize same-sex marriages, the decision has currently resulted in many changes particularly in the way benefits are provided for employees by employers.

Prior to the Supreme Court’s ruling, DOMA only recognized marriage between heterosexual couples, so employees in same-sex domestic partnerships were not afforded the same rights and benefits as heterosexual couples. Same-sex couples were prevented from sharing their significant other’s medical coverage, federal tax benefits, retirement, Family Medical Leave Act benefits and social security benefits that opposite-sex couples typically receive. Additionally, for same-sex couples working for companies that already provided spousal benefits, same-sex couples were taxed for the benefits provided to their partners, while heterosexual couples did not generally pay taxes on such benefits.

In June 2013, the ruling in Windsor got the ball rolling for many changes. On August 29, 2013, the IRS issued change: employees paying for health insurance through their employers may treat these costs as excludable from federal income taxes, even if they live in a state that doesn’t recognize their marriage. On or about September 2013, the IRS provided specialized administrative procedures for employers to correct overpayments of employment taxes for 2013 and prior years with respect to same-sex spouse benefits, such as overpayments resulting from a taxpayer’s retroactive application of holdings. Sometime in December 2013, IRS revised their FAQs and provided a list of questions and answers that further clarify how employers administer their plans with respect to same-sex spouse benefits.

In the sixteen states that currently recognize same-sex marriage, there are even more rights: federal laws governing employee benefit plans will require companies to treat all couples equally in regards to spousal benefits; employees will no longer have to pay federal income taxes on income deducted for the employer’s contribution for health insurance; businesses will be required to offer COBRA to same-sex spouses; employers with pension plans and 401(k) plans will be required to recognize same-sex spouses; employees must be permitted to take family and medical leave for same-sex spouses that requires care.

While this is not a change for some companies such as Apple, Nike, Pfizer, Starbucks and Xerox who already began extending benefits where possible to same-sex couples prior to the ruling on DOMA, these companies stood as few companies that provided this unique perspective on same-sex marriages. One company, in their amicus brief to the Supreme Court challenging the constitutionality of DOMA, wrote that companies who want to promote an inviting and inclusive atmosphere for their employees and grant benefits to same-sex couples are hindered by doing so because of DOMA. These companies argued that the restrictions DOMA places on benefits hinders business because it adds administrative burdens, financial burdens, and prevents companies from recruiting more employees, therefore DOMA is detrimental to their business and business models. Their brief focused on the effect of DOMA on businesses and read in relevant part:

As employers, we must administer employment-related health-care plans, retirement plans, family leave, and COBRA. We must impute the value of spousal health-care benefits to our employees’ detriment. We must treat one employee less favorably, or at minimum differently, when each is as lawfully married as the other. We must do all of this in states, counties, and cities that prohibit workplace discrimination on the basis of sexual orientation and demand equal treatment of all married individuals. This conscription has harmful consequences.

Although the viewpoint above has been adopted by the ruling in Windsor, many large corporations encourage the changes in benefits and strides have been made for same-sex couples in the employment context since then, it is still important to note DOMA’s limitations. Questions as to what happens for same-sex couples in states where their marriage is not recognized remain unanswered and will continue to be unclear without further instruction.