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U.S. Supreme Court Strikes DOMA Down - What Does It Mean?

July 12, 2013

By Louise Pongracz, Deborah Lerner and Susan Bahme Blumenfeld

On June 26, 2013, the U.S. Supreme Court struck down the Defense of Marriage Act (DOMA), the 1996 federal statute that denied federal recognition of same-sex marriages. In a 5-4 decision, the Court found that DOMA violated the Fifth and Fourteenth Amendments to the United States Constitution. The decision will have significant impacts for married same-sex couples regarding federal benefits and protections previously available only to opposite-sex married couples. Currently, 1138 federal laws confer benefits to married couples including Social Security, tax, and Veterans’ benefits, just to name a few.

At present, thirteen states* and the District of Columbia recognize same-sex marriage. It is not yet clear how the Supreme Court’s decision will affect federal benefits and protections in states that do not recognize same sex marriage, but instead provide for domestic partners and civil unions, such as New Jersey. Moreover, given that even federal laws often rely in their application on the state definition of marriage, it remains to be seen how this ruling will be applied to couples who were married in a state that recognizes same-sex marriage, but who currently live in a state that does not.

Why the confusion? Marriage law has historically been a matter of state law, falling under the broad umbrella of the states' police power authority. The states have determined which marriages could be recognized as lawful, and as a result, marriage laws differed greatly from state to state. The federal government has historically deferred to the states in determining whether to treat a couple as married or unmarried for the purposes of federal benefits. Moreover, even when the federal law looks to state law regarding marriage, there is still no uniformity. Some agencies look to the definition of the state in which the person resides. Others look to the state in which the marriage took place. Immediately after the ruling, President Barack Obama instructed all federal agencies to research their respective agency rules and regulations and to bring them into conformity with the decision. Obviously this will be a slow process. In the interim here are some implications to consider:

1. Income Tax: Current federal income tax laws provide advantages to married couples. In addition to the ability to elect to file a joint tax return in any year, these include:

  1. Generally lower income taxes if only one spouse earns income, or if earnings are disproportionate.
  2. The ability to combine exemptions for the couple, their children and dependents, and deduction limitations, such as charitable gifts.
  3. The opportunity to deduct medical and dental expenses paid by one spouse for the other.
  4. The ability to qualify for tax exclusions, such as the gain on sale of a personal residence.

There are, however, some drawbacks, including potentially higher income tax rates for married couples if both spouses earn at a high level.

2. Social Security: Married same-sex couples will now be able to enjoy the same benefits Social Security provides to opposite-sex married couples, including the spousal retirement benefit. If the legal requirements are met, this allows the spouse of a retired worker to receive the greater of his/her own benefit or 50 percent of the spouse’s benefit. They may also be entitled to the spousal disability benefit, which pays benefits to people who cannot work and provides that a spouse may be eligible for up to 50 percent of the disabled spouse’s benefit. Finally, a surviving spouse would be entitled to the survivor benefit, which provides a surviving spouse benefits equal to the greater of the surviving spouse’s own benefit or the deceased spouse’s benefit.

3. Employee Benefits: The law requires employer-sponsored pension plans to provide a survivor benefit to a surviving spouse on the death of a plan participant.  This protection will now be afforded to same-sex spouses. Married same-sex couples can now obtain health and other non-taxable employee benefits from their employers on a tax-free basis under plans that provide benefits for the employee, the spouse, and family members. Prior to this ruling, an employee had to pay income tax on the portion of income that was used to pay for the health benefits of a same-sex partner unless the partner was a tax dependent. Employees who paid federal income tax on “imputed income” because they were not recognized as married under federal law may claim a refund for taxes paid in the past 3 years. As stated above, refunds would be allowed for same-sex couples who reside in states which recognize their marriage and, pending further guidance from the Internal Revenue Service, may be able to do so if they reside in states that do not recognize their marriage.

4. Estate Tax: Prior to this ruling, estate tax planning for same-sex couples was difficult at best. Now, planning techniques previously only available to opposite-sex married couples will be extended to same-sex married couples. The current federal estate tax exemption amount is $5.25 million, and is pegged to inflation. For married couples, any amount in excess of $5.25 million can, in many instances, be structured to qualify for the unlimited marital deduction, effectively eliminating the estate tax at the death of the first spouse. Married same-sex couples can now utilize this marital deduction to eliminate or defer federal estate tax until the death of the survivor.

5. State Income and Transfer Taxes: While the Court decision dealt only with the federal tax law, states frequently follow federal law in applying tax filing status and exemptions. This DOMA decision may persuade some state legislatures to more favorably consider allowing same-sex marriage laws, thereby also extending the numerous tax advantages to married same-sex couples.

6. Immigration: Regardless of the law of the state in which a same-sex couple resides, if they were married in a state that recognizes same-sex marriage, this decision will have an effect on immigration. Once the repeal is effective, if one member of a same-sex couple is a foreign national and they get married in a state that permits same-sex marriage, the foreign national can apply for immigration benefits, e.g. residency and citizenship.

Ongoing Developments: While the June Supreme Court decision has an immediate effect only for individuals who are married under state law, it is likely that much of the action will now switch to the state legislatures and state courts to attempt to make federal benefits available to citizens married in other jurisdictions. Legislation has already been introduced in both the Pennsylvania House of Representatives and the Pennsylvania Senate to recognize same sex marriage. Additionally, on July 9, the ACLU filed a law suit in the United States District Court in Harrisburg, seeking to declare the Pennsylvania version of DOMA unconstitutional. Same sex couples should consult with their advisors about their legal rights. Employee benefit funds should consult with their attorneys to ensure their compliance with this latest decision.

*Connecticut, Delaware, District of Columbia, Iowa, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New York, Rhode Island, Vermont, Washington and California currently recognize same-sex marriage. Even more states recognize some form of domestic union or partnership including Colorado, Hawaii, Illinois, Nevada, New Jersey, Oregon and Wisconsin.

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