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News Flash: June 26, 2013 – U.S. Supreme Court Rules DOMA Unconstitutional
 

News Flash: June 26, 2013 – U.S. Supreme Court Rules DOMA Unconstitutional

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    News Flash: June 26, 2013 – U.S. Supreme Court Rules DOMA Unconstitutional News Flash: June 26, 2013 – U.S. Supreme Court Rules DOMA Unconstitutional Document Transcript

    • News Flash: June 26, 2013 – U.S. Supreme Court Rules DOMA Unconstitutional Today, the United States Supreme Court ruled that the 1996 federal Defense of Marriage Act (DOMA), specifically §3, is unconstitutional under the Equal Protection Clause of the Fifth Amendment. Willis’ National Legal & Research Group is reviewing the Court’s decision and will provide detailed analysis in a future publication. Background In 1996, President Clinton (D) signed into law DOMA. Section 3 of DOMA defined marriage as a union between one man and one woman for all federal purposes. Under the law, the federal government did not recognize same-sex marriages for any legal purpose. This meant that individuals who are in same-sex marriages were barred from enjoying those federal marital benefits afforded to individuals in opposite-sex marriages. These benefits include, for example, receiving employer-sponsored benefits on a tax-free basis and the right to continue benefits under COBRA. DOMA, specifically §2, also grants states the authority to refuse to recognize same-sex marriages, including those that have been performed in, and recognized by, other states. This section of DOMA was not challenged. Supreme Court’s Decision Windsor v. United States involved a same-sex couple married in Canada and residing in New York, a state that recognized same-sex marriage. When one of them died, she left her entire estate to her spouse who was barred from claiming the federal estate tax exemption for surviving spouses due to §3 of DOMA. The spouse paid the tax bill and sought a refund, which the Internal Revenue Service (IRS) denied. She then brought suit challenging the constitutionality of §3 of DOMA. Both the United States District Court and the Second Circuit Court of Appeals held that this section of DOMA is unconstitutional and ordered the United States to pay a refund. Given that §3 of DOMA affects more than 1,000 federal laws, including those related to estate and gift taxes, Social Security benefits and tax return filings, the Court’s ruling will have a significant effect on employer-sponsored plans. For example, same-sex spouses will now meet the COBRA definition of a qualified beneficiary and have an independent right to elect and maintain COBRA (a right opposite-sex spouses already enjoy). The Court’s ruling also affects the taxation of employer-sponsored benefits provided to same-sex spouses. It allows employers to provide benefits to same-sex spouses without having to worry about imputed income issues, employees could pay for same-sex benefits on a pre-tax basis through the employer’s cafeteria plan, and a same-sex spouse’s qualified medical expenses could be reimbursed through a health flexible spending account (FSA) on a tax-preferred basis.
    • Conclusion The full implications of this decision and its effect on employers and employer-sponsored plans are unclear at this time. Additional guidance from the IRS is needed to address the many issues the Court’s ruling raises. Employers should consult with their tax advisors before making changes to their benefit plans in response to the ruling. The information in this publication is not intended as legal or tax advice and has been prepared solely for informational purposes. You may wish to consult your attorney or tax adviser regarding issues raised in this publication.