Many business owners may need to adjust their employee benefits packages and tax liabilities now that legally married gay couples will be eligible for federal benefits.
The U.S. Supreme Court's landmark decision to overturn the 1996 Defense of Marriage Act this week has been celebrated by many as a social-justice victory. DOMA defines marriage as only existing between a man and a woman. By striking it down in a 5-4 decision, the Court cleared the way for same-sex couples, in the 12 states and Washington, D.C., where those marriages are recognized, to receive federal marriage benefits.
The ruling will require that many business owners make changes to their office administration. "Anytime the Supreme Court or Congress makes major changes to a law, there is a lot of work that happens behind the scenes to ensure the changes are understood and implemented correctly," says Martin Mucci, president and chief executive of payroll and human-resource outsourcing company Paychex, in a statement.
While necessary changes will depend on the state your business is in, here are a few areas that may require updates, according to Rochester, N.Y.-based Paychex.
- Health insurance plans: The cost of an employee's health-insurance coverage can be deducted from their income before taxes. With the DOMA ruling, employees will now be able to deduct the cost of their same-sex spouse's health-insurance costs, just like opposite-sex spouses can.
- Flexible spending: Flexible spending accounts allow employees to set money aside for certain costs, such as commuting, qualifying prescriptions and childcare expenses. Same-sex spouses will now be eligible to set aside pre-tax money into these accounts, which helps reduce the employee's tax bills, says Mike Trabold, the director of compliance for Paychex.
- Tax liability: As a business owner, many of your tax liabilities are calculated based on the taxable income of your employees. If the total taxable income of your employees decreases because they are able to deduct the cost of their same-sex partner's health insurance and flexible spending plans, the business's tax bill will also decrease.
- Employee time off: The Family Medical Leave Act protects an employee's job for up to 12 weeks of unpaid leave to take care of immediate family, such as a spouse. The DOMA ruling could increase the amount of time off taken by employees.
The specifics of how the Internal Revenue Service plans to handle same-sex tax benefits remain uncertain, says Trabold. For example, how will same-sex couples who live in a state that does not recognize same-sex marriage be treated come tax time? Will same-sex couples and businesses that employ them be able to go back and file amended tax returns? What about someone who works in a state that recognizes same-sex marriage but lives in a state that does not?
"We are expecting a tremendous amount of clarifying regulation and other types of guidance coming out from both the federal agencies, like the IRS, and the states," says Trabold. "There is likely going to be a lot of questions, probably a lot of lawsuits."