Issues in Same Sex Marriage and Domestic Partners
Health Care Coverage
SHRM 2012
Tri-State
Conference
April 25-27, 2012
Rebounding:
HR’s Pivotal Role in the New
Business Playbook
Sheraton Springfield Hotel &
MassMutual Convention Center,
Springfield, MA
Presented by:
Barry M. Newman
The Wagner Law Group
© 2012 The Wagner Law Group

Introduction
•
Health care coverage major concern, spousal life, AD&D insignificant
•
Defense of Marriage Act (DOMA)
– Federal law does not recognize same sex spouses for benefit rights or income tax purposes
– Some states recognize same sex marriage and civil unions but none recognize domestic partners
•
One major exception for same-sex tax dependents
Presented by:
Barry M. Newman, The Wagner Law Group
617-357-5200, bnewman@wagnerlawgroup.com, www.wagnerlawgroup.com
SHRM 2012 CT, MA, RI
Tri-State Conference
2

Legal Requirements for Coverage
•
Laws
– No federal requirements for coverage
– Only states that may possibly require: California and Washington
•
Court Cases
– Claims of state sexual orientation discrimination laws dismissed – ERISA preempts state laws
– Claims of violation of U.S. Equal Protection
Clause (non-ERISA plans) – proof of rational basis for limits
Presented by:
Barry M. Newman, The Wagner Law Group
617-357-5200, bnewman@wagnerlawgroup.com, www.wagnerlawgroup.com
SHRM 2012 CT, MA, RI
Tri-State Conference
3

Cafeteria Plans
•
Choice of cash or pre-tax qualified benefits
– Health coverage “qualified” only if excludable under Code
– Exclusion does not apply to some who is not a spouse or tax dependent-DOMA!!
•
Cafeteria plan may still have coverage for same sex spouse or domestic partner
– Coverage included in federal taxable compensation; employee contribution treated as post-tax
– But coverage may be exempt from state income tax
Presented by:
Barry M. Newman, The Wagner Law Group
617-357-5200, bnewman@wagnerlawgroup.com, www.wagnerlawgroup.com
SHRM 2012 CT, MA, RI
Tri-State Conference
4

Cafeteria Plans (cont.)
•
Status change rules
– Allows change in pre-tax contribution election upon occurrence of certain events
– Event must related to “employee,” “spouse” or
“dependent”
– Partner not considered spouse under DOMA, may be dependent
•
Federal vs. State Law
– State law may recognize while federal law does not
– But allowing change in election due to event of samesex partner could result in federal taxation or
“disqualification” of cafeteria plan
Presented by:
Barry M. Newman, The Wagner Law Group
617-357-5200, bnewman@wagnerlawgroup.com, www.wagnerlawgroup.com
SHRM 2012 CT, MA, RI
Tri-State Conference
5

COBRA
•
Federal COBRA allows individuals who lose health care coverage to pay for continuation if a “qualifying event” occurs
• “Qualifying event” only applies to “employee,”
“spouse” or “dependent child”
•
Same sex spouse would not meet any of these definitions, even if dependent
•
Child of same sex spouse would also not be covered unless also a child of employee
Presented by:
Barry M. Newman, The Wagner Law Group
617-357-5200, bnewman@wagnerlawgroup.com, www.wagnerlawgroup.com
SHRM 2012 CT, MA, RI
Tri-State Conference
6

State Continuation Laws
•
State insurance laws specifically not pre-empted by ERISA
– State can impose continuation coverage through insurers’ requirements
– New York and Massachusetts say same sex spouses are to be treated the same as other spouses
– New Hampshire applies continuation to same sex spouses and civil unions
•
Responsibility for interpretation and implementation of state insurance continuation laws is with the insurer not the employer.
• Doesn’t apply to self funded plans
Presented by:
Barry M. Newman, The Wagner Law Group
617-357-5200, bnewman@wagnerlawgroup.com, www.wagnerlawgroup.com
SHRM 2012 CT, MA, RI
Tri-State Conference
7

Employer Tax Considerations
•
Under Internal Revenue Code, employer may deduct all “ordinary and necessary” business expenses
•
IRS accepts same-sex, civil union and domestic partner benefit expenses as
“ordinary and necessary”
•
States generally follows IRS lead
Presented by:
Barry M. Newman, The Wagner Law Group
617-357-5200, bnewman@wagnerlawgroup.com, www.wagnerlawgroup.com
SHRM 2012 CT, MA, RI
Tri-State Conference
8

Employees’ State Tax Considerations
•
Many states have no established policy regarding taxation of coverage of same sex spouses, civil union partners and domestic partners. And existing rules are subject to change. But currently it appears that:
– Connecticut: Does not tax value of coverage paid to same sex spouse, or civil union partner
– Maine: Taxes value of benefits paid to same sex spouse and civil union partner
– Massachusetts: Does not tax the value of coverage for same sex spouse
– New Hampshire: No income tax
– New York: Does not tax the value of coverage for same sex spouse
– Rhode Island: Does not tax the value of coverage paid to same sex spouse, or civil union partner
– Vermont: Does not tax value of coverage paid to same sex spouse, or civil union partner
Presented by:
Barry M. Newman, The Wagner Law Group
617-357-5200, bnewman@wagnerlawgroup.com, www.wagnerlawgroup.com
SHRM 2012 CT, MA, RI
Tri-State Conference
9

Employees’ Tax Considerations
•
DOMA (AGAIN!!) Feds won’t recognize marriage, so
– Value of coverage for same sex spouse, civil union, domestic partner is taxable to employee
•
Exception as dependent for Internal Revenue
Code §152(a)(9) individual who:
– Has principal place of abode in the home of taxpayer
– Is member of taxpayer’s household
– Receives over one half of his or her support from the employee
Presented by:
Barry M. Newman, The Wagner Law Group
617-357-5200, bnewman@wagnerlawgroup.com, www.wagnerlawgroup.com
SHRM 2012 CT, MA, RI
Tri-State Conference
10

Employees’ Tax Considerations (cont.)
WARNING!! Section 152(a)(9) can cause trouble for employers:
• Plan defines coverage to include “spouse and dependents”
•
Plan refers to Internal Revenue Code for definition of dependent
•
Definition results in unintended coverage of certain same-sex spouses, civil union members or domestic partners
Presented by:
Barry M. Newman, The Wagner Law Group
617-357-5200, bnewman@wagnerlawgroup.com, www.wagnerlawgroup.com
SHRM 2012 CT, MA, RI
Tri-State Conference
11

Employees’ Tax Considerations (cont.)
•
If not exempt as spouse or dependent, federal laws say the value of the individual coverage is “imputed income” to the employee
• “Imputed income” is compensation to the employee subject to:
– Income tax withholding
– FICA
– FETA
– State taxes (unless there is an exception in state law)
Presented by:
Barry M. Newman, The Wagner Law Group
617-357-5200, bnewman@wagnerlawgroup.com, www.wagnerlawgroup.com
SHRM 2012 CT, MA, RI
Tri-State Conference
12

Calculating Imputed Income
• IRS says use “fair market value” of the group health coverage for a single individual to determine imputed income.
• IRS has not defined rules to determine “fair market value”
•
Methods to determine value:
– May be able to get this information from insurer or actuary
– COBRA premium for one – sometimes too expensive
– Difference between:
•
Total premium for employee plus one
•
Less: total premium for employee only
•
Less: after tax employee payments
– Any other “reasonable method”
Presented by:
Barry M. Newman, The Wagner Law Group
617-357-5200, bnewman@wagnerlawgroup.com, www.wagnerlawgroup.com
SHRM 2012 CT, MA, RI
Tri-State Conference
13