Nonprofit HR’s Blog

By Julie Gallion, PHR, Benefits Practice Leader

Earlier today, the Supreme Court struck down the Defense of Marriage Act (DOMA) as unconstitutional. This decision is a huge win for same sex couples.  Also, it is a huge win for organizations that offer health insurance to same sex couples.

Currently, most companies provide health insurance to employees and their families on a tax free basis which is allowed under certain sections of the federal law including IRS Section 125.  However, those benefits are only allowed to be tax free to employees and their legal dependents.  Currently,  a same sex marriage is not recognized under federal law, which means a same sex spouse is not recognized as a legal dependent and not eligible for tax free health insurance benefits. Employers are currently required to add the value of health insurance provided to same sex spouses to the employee’s taxable income resulting in thousands of dollars in taxes owed by same sex married couples that are not owed by opposite sex married couples. Not only does this current law place an undue financial hardship on same-sex married couples, it also places a burden on employers who are required to calculate the value of insurance provided to same sex spouses and find a way to add the calculated amount to the employee’s taxable income.  Though some employers “gross-up” the premiums they contribute for same sex spouses so that essentially, the employer is paying the tax, many employers are not able to  afford the extra tax.

Today’s ruling should result in the federal government treating all legally married spouses’ legal dependents, regardless of sexual orientation, equally. This all will probably get a little more confusing in the near future since some states do not allow same sex marriage. Employers for now, will need to understand which states allow same sex marriage and verify that the employee is legally married in one of those states in order to change how employee benefits are taxed. Employers will want to confirm that the same sex couple is actually legally married in a state that allows same sex marriage before determining whether to stop deducting the taxes.

The details of this ruling are still being sorted through. We recommend speaking with a tax professional before making any changes to your current policies.