Windsor was decided just over a month ago and we’re already starting to see how courts are interpreting the ruling. Windsor left unanswered the question of whether Part 2 of DOMA, which allows states to bypass the Full Faith and Credit Clause of the Constitution for same-sex marriages validly performed out-of-state, can stand now that Section 3 of DOMA has been deemed unconstitutional. [Click here or here for additional information.]
Last week, a federal district court in Ohio ignored an Ohio law that refuses to recognize same-sex marriages, even if validly performed in another state (sometimes referred to as a mini-DOMA). In Obergefell v. Kasich, the plaintiffs, both Ohio residents, briefly traveled to Maryland earlier this month to get married, not even getting off the plane before returning home to Ohio. One spouse was dying of ALS and the other wanted to be recorded as the surviving spouse on the death certificate so they were trying to get married as quickly as possible. Now, for purposes of federal and Maryland law (as well as a handful of other states), the couple is validly married. While this case did not overturn the Ohio law (since it only requested a preliminary injunction and not a judgment on the merits), in evaluating the likelihood of success on the merits, the judge granted the couple’s request. The judge stated that by treating lawful same-sex marriages differently than opposite-sex marriages, Ohio law likely violates the Equal Protection Clause of the Constitution. The judge noted that, as Scalia predicted in his dissent in Windsor, “the issue whether States can refuse to recognize out-of-state same sex marriage is now surely headed to the fore.”
Just yesterday, in the first post-Windsor ERISA case, a federal district court in Pennsylvania ruled that an employer must pay an employee’s death benefit to the employee’s same-sex spouse and not the employee’s parents, when both parties claimed a right to the benefit. In O’Conner v. Tobits, The employee was married in Canada in 2006 and resided in Illinois, which does not recognize same-sex marriage, until she passed away in 2010. The employer’s decision to whom to pay the benefits was complicated by the fact that Illinois does not recognize any same-sex marriage, but its Attorney General refuses to defend the law because she believes the law to be unconstitutional. The employer filed an interpleader action (where all interested parties are included in a case) to have a court decide which party should receive the benefits. The judge put the case on hold until after the Supreme Court announced the Windsor decision. The court held that ERISA preempted state law entirely and did not need to look to state law for the definition of the term “spouse,” which was not defined in the plan. Even though the employee passed away in 2010 (well before the Windsor decision), the court ruled that since the couple was legally married, the spouse (not the parents) was the proper beneficiary under federal law.
Regulations under ERISA Section 404(a) require plan administrators to disclose to plan participants and beneficiaries certain fee and investment performance information about each designated investment alternative made available under a participant-directed defined contribution plan. For calendar year plans, this information, which includes a comparative chart of all investment alternatives, was initially required to be provided to participants and beneficiaries no later than August 30, 2012. In addition, the regulations require that such information also be provided “annually” ( defined to mean at least once in any 12-month period, regardless of whether the plan operates on a calendar year or fiscal year basis).
Re-set Option Offered by Department of Labor
Many plans send required notifications closer to the end of the plan year. Acknowledging this practice and concerns raised over the cost of a separate distribution covering just this investment information, the Employee Benefits Security Administration (“EBSA”) issued Field Assistance Bulletin No. 2013-02, which grants a one-time “reset” option for the 12-month period.
This “reset” option permits an employer to provide the “2013 comparative chart” after the original 12-month period required by the 404(a) regulations. However, the chart may not be delayed later than 18 months after the initial comparative chart was provided.
Example 1 from EBSA Guidance:
If a plan administrator furnished the first comparative chart on August 25, 2012, the “2013 comparative chart” would be due no later than August 25, 2013. In accordance with this Bulletin, however, the Department will take no enforcement action based on timeliness if the plan administrator furnishes the “2013 comparative chart” by February 25, 2014.
What if you have already distributed the “2013 comparative chart” or incurred costs to compile it so that the 2013 reset option is not helpful? EBSA will allow you to use your reset option in 2014.
Example 2 from EBSA Guidance:
If a plan administrator furnished the first comparative chart on August 25, 2012, and intends to furnish the second administrative chart on August 25, 2013, the “2014 comparative chart” would be due under the terms of the final regulation no later than August 25, 2014. In accordance with this Bulletin, however, the Department will take no enforcement action based on timeliness if the plan administrator furnishes the “2014 comparative chart” by February 25, 2015.
Reset Option Limited to Certain Disclosures
The reset option is limited to information required to be disclosed under specific provisions of the regulation, which includes the following:
- How to give investment allocation instructions
- Any restrictions on investment elections
- Voting, tender and similar rights that apply to the investment alternatives
- Identification of the designated investment alternatives
- Identification of any designated investment managers
- Description of brokerage windows available under the plan
- Comparative chart which lists, for each designated investment alternative, the following: fund name, type of investment option, 1-year, 5-year and 10-year performance on a calendar year basis, fixed rate of return for fixed rate investment options, benchmark data, shareholder fees, transfer/purchase restrictions, expense ratio, total expenses as a dollar amount
- Certain standard statements regarding investment risks
- Plan administrator name, address, phone number and website
- Internet address where additional information regarding the investments may be found, including a glossary of investment terms and a description of any annuity options
Is the Reset Option Helpful to You?
Where are you in your steps towards issuing the “2013 comparative chart”? If you haven’t yet incurred costs to comply or taken serious steps towards compliance, using the reset option this year to reset the annual compliance date may be best. If you are already pretty far along the compliance path or have actually already distributed the “2013 comparative chart,” you can keep the reset option in your back pocket in case it’s helpful next year.
HHS published final regulations defining essential health benefits (EHB) earlier this year. The final regulations are little changed from the proposed regulations issued in 2012, mainly for clarification. EHB must be available from State exchanges and small group and individual insurance products effective January 1, 2014.
Even though self-funded and large group insured plans are not required to provide EHB, the definition of EHB may affect their plan design. While the employer “play or pay” shared responsibility penalty has been delayed until to 2015 as noted in our prior post, the plan design requirements have not been extended, so the following information applies to self-funded and large group insured employer plan design in 2014. Separate penalties apply to violations of these rules beginning in 2014.
The definition of EHB affects self-funded and large group insured plans as follows:
- A self-funded or large group insured employer plan cannot impose annual or lifetime dollar limits on EHB, but it can impose dollar limits on other benefits and it can also apply non-dollar limits on EHB. These plans must use an authorized definition of EHB to determine which benefits they provide can be made subject to annual or lifetime dollar limits.
- A self-funded or large group insured employer plan must satisfy the out-of-pocket cost-sharing limitations with respect to the EHB they provide. . These plans must use an authorized definition of EHB to identify which benefits they provide are subject to the out-of-pocket maximums.
According to the preamble to the regulations, confirmed informally by HHS staff, a self-funded or large group insured employer plan can use any benchmark plan authorized in the regulations to define EHB for these purposes, without regard to any distinctions as to products that operate in only one State or more than one State. In addition, the preamble to the regulations states that the enforcement agencies intend to work with plans that make a good faith effort to apply an authorized definition of EHB. Based on an informal conversation with HHS staff, it appears that individually designed definitions of EHB will not be considered for approval by HHS.
These are the available choices under the final regulations:
- The largest health plan by enrollment in any of the three largest small group insurance products by enrollment in a single State’s small group market.
- Any of the largest three employee health benefit plan options by enrollment offered and generally available to State employees in a single State.
- Any of the largest three national Federal Employee Health Benefits Program plan options by aggregate enrollment offered to all federal employees eligible for health benefits, regardless of the employees’ location in all States.
- The commercial non-Medicaid HMO plan with the largest enrollment operating in a single State.
- The EHB benchmark plan in each State in which the plan operates, complying with any State standards relating to substitution of benchmark benefits or standard benefit designs.
Your plan’s independent advisers may be able to help you choose the most suitable benchmark for your plan.
Don’t forget to prepare to report and pay your Patient-Centered Outcomes Research Institute fee! The first annual payment is due July 31, 2013. The fee is based on the number of participants in your plan during the prior year.
See also our prior posts relating to these fees.
Update 7/25/13: Also, the IRS has posted some FAQson the PCORI Fee as well
HHS announced in a recent settlement agreement (with a corrective action plan) a long list of medical centers alleged to have violated HIPAA. The medical centers, in what appears to be a well-intentioned defense of allegations against them, disclosed information. Their argument, as detailed in this story from last year, was that the patient implicitly waived her HIPAA protection by disclosing aspects of her treatments publicly. While that argument has some logical appeal, logic does not always carry the day when it comes to the law, and in particular HIPAA’s privacy protections.
1. It serves as yet another indication that HIPAA enforcement is on the rise.
2. More importantly, it underscores that covered entities and their workforce members should not disclose protected health information unless permitted by HIPAA or pursuant to an express authorization. (Hint: communicating with a reporter without an authorization is not permitted by HIPAA.)
Given the release of the updates to the HIPAA rules earlier this year, now (or in the next couple of months) is a good time for health plan sponsors to brush up on their policies and procedures and revisit whether any workforce members need training (or a refresher of previous training).
Tax-exempt entities are permitted to sponsor non-qualified deferred compensation plans for select groups of highly compensated employees, managers, directors or officers (i.e., “top hat” plans) under Code Section 457(b). Approximately 200 non-governmental organizations sponsoring these plans will receive a “compliance check“ letter by the end of September 2013, and another 200 in the next 12-month rolling period, from the IRS’s Employee Plans Compliance Unit (“EPCU”). This outreach effort is part of a project recently announced by the IRS designed to:
- learn more about the operation of these plans,
- verify that the plans comply with the applicable Code requirements,
- identify common issues of noncompliance, and
- recommend ways to remove any “barriers” to compliance.
EPCU is requesting “timely” responses to its request for information (or a response indicating that the compliance request was received in error because the employer does not maintain a 457(b) plan). While the compliance check letter is not an audit notice (and the EPCU does not necessiarly plan to inspect books and records based on the compliance check), if a targeted employer does not respond to the request for information, the IRS has indicated that it “may need to take other measures to ensure compliance, including an audit of your plan or organization.”
What should an employer with a section 457(b) plan do at this point in time? An internal compliance check may be in order. If the EPCU determines that a plan is not established or operated in accordance with Code Section 457(b), EPCU plans to inform the sponsor what actions it beleives are needed. In this case, an audit of the plan may be performed or correction may be suggested under the IRS’s Voluntary Correction Program, so it’s advisable to get into compliance before the IRS knocks on the door.
What should an employer do if it receives a Section 457(b) compliance check letter? Prepare a thoughtful and careful response in a timely manner. As we learned during a similar 401(k) plan compliance check program conducted by the IRS several years ago, an improperly prepared response, or a failure to respond, will likely lead to further action by the IRS, possibly including a full-scale audit.
As you’re probably well aware, last year the Supreme Court held that Congress has the power to use its “taxation” authority under Article I, Section 8 of the Constitution to impose the individual coverage mandate under the Patient Protection and Affordable Care Act of 2010 (or PPACA). National Federation of Independent Businesses v. Sebelius. In the wake of that decision, plaintiffs still wishing to challenge the constitutionality of PPACA have looked to new theories on which to challenge the legislation. A series of recent cases have focused the Constitutionality discussion on the first clause of Article I, Section 7 of the Constitution (more commonly referred to as the “Origination Clause”), which generally requires that “ all revenue raising bills (e.g., tax bills) originate in the House of Representatives”.
The Origination Clause carries two kinds of prohibitions. First, the Senate may not originate any measure that includes a provision for raising revenue, and second, the Senate may not propose any amendment that would raise revenue to a non-revenue measure. The Senate, however, may generally amend a House-originated revenue measure as it sees fit. These prohibitions can be enforced in either the House or the Senate, and there are ample precedents for both. As with many provisions of the Constitution, the precise meaning and application of these few words has been refined through practice and precedent since it was first ratified.
The House passed a version of health care reform on November 7, 2009, and sent it to the Senate. Unhappy with this version, a group of senators wanted to produce their own bill. The Origination Clause, however, requires that all bills for raising revenue must begin in the House, and health care reform included many new taxes/revenue raisers, including the individual mandate. To solve this problem, the Senate amended another tax bill that the House had recently passed: H.R. 3590. This House bill originally changed the tax rules for servicemen and women buying new homes. The Senate struck out the text of the existing bill, and inserted its new proposal as an amendment (i.e., it used a “shell bill”). This modified version of H.R. 3590 passed the Senate by a vote of 60-39.
The plaintiffs in Hotze v. Sebelius (filed at the beginning of May in the Southern District of Texas) and Pacific Legal Foundation v. Salazar (filed late March in the Eastern District of California) have both challenged PPACA based on this Origination Clause argument. The plaintiffs in each case have contended that PPACA violates the Origination Clause because the Senate replaced the language of the “Service Members Home Ownership Tax Act of 2009” (H.R. 3590) – a non-revenue raising bill which purported to modify a first-time homebuyer’s taxcredit by waiving recapture of the credit for members of the armed forces ordered to extended duty service overseas – after it had passed the House with the text of the Affordable Care Act and renamed the bill PPACA. Thus, they claim, PPACA – a revenue raising bill – did not actually originate in the House as required by the Origination Clause.
Some commentators are skeptical of the Origination Clause argument and point to the internal congressional mechanisms by which the House may “return” an improper Senate bill. The House’s primary method for enforcement of the Origination Clause is through a process known as “blue-slipping.” As described in a Congressional Research Service report, “[b]lue-slipping is the term applied to the act of returning to the Senate a measure that the House has determined violates its prerogatives as defined by the Origination Clause.” [As an FYI – this process is called blue-slipping because historically the resolution returning the offending bill to the Senate has been printed on blue paper.]
Historically, the judicial role in enforcing the Origination Clause has been limited. Typically, Justices have been reluctant to look behind a bill as enrolled to determine its validity. The Court primarily limits its role to determining whether a given measure fits the definition of a bill for raising revenue. When questions of origination have been involved, the Court has looked to the measure’s designation as a House or Senate bill, but not examined the journals of the House or Senate to determine in which house a specific revenue provision may actually have originated.
Still, commentators assert that if ever there was an act could be deemed to violate the Origination Clause, it would seem to be PPACA. Of particular relevance to this assertion is Chief Justice Roberts’ majority opinion where he states in no uncertain terms that PPACA establishes a federal tax (rather than a mandate). As with other provisions of the Constitution, if the Court were to find that a revenue bill had been passed in violation of the Origination Clause, the consequence would be for the statute or provision to be held invalid. If it is decided that the bill did indeed begin in the Senate, there may be serious ramifications.
Hotze and Pacific Legal Foundation are not the first direct challenges to the constitutionality under the Origination Clause. In fact, at the end of last month, a D.C. District Court dismissed a similar claim brought by Sissel v. United States Department of Health and Human Services (also brought by the Pacific Legal Foundation), the plaintiff claimed that the minimum coverage provision / individual mandate was unconstitutional because (i) Congress lacked the power to enact it under the Commerce Clause and (ii) it was passed in violation of the Origination Clause. The Court, in dismissing Sissel’s complaint, found in regards to the Original Clause that Sissel’s complaint failed to meet both of the requirements for an Original Clause claim: (i) the bill at issue is a “bill for raising revenue” and (ii) the bill at issue must not have originated in the House of Representatives. Even though the Court recognized that the individual mandate would raise revenues through shared responsibility payments, it stated that any revenue created was “incidental” to the primary goal of expanding insurance coverage (and, thus, the mandate was not a bill for raising revenue). Additionally, as the individual mandate was an amendment to a bill originated in the House (i.e., H.R. 3590), the complaint could not meet the second prong of an Origination Clause claim. Earlier this month, an appeal was filed in the D.C. Circuit Court of Appeals.
The Origination Clause has also been raised by a number of plaintiffs as after-the-fact arguments. Take, for example, AAPS v. Sebelius, filed in the U.S. District Court of the District of Columbia in 2010 and decided by the district court in 2012. In dismissing the plaintiffs’’ lawsuit in AAPS v. Sebelius, the district court declined to address the Origination Clause claim as the plaintiffs did not properly plead the issue in their complaint or response to the motion to dismiss, but instead only in a supplemental brief. The plaintiffs’ appeal of the district court’s decision is currently pending before the D.C. Circuit. Similarly, the Court of the Appeals for the 4th Circuit just recently in Liberty University v. Lew waived plaintiff’s Origination Clause on appeal of a lower court decision because the plaintiffs “had the opportunity to raise these arguments in the district court and in the original briefing in this case but did not do so.” There is clearly some hesitance in reviewing the Origination Clause argument, outside of the Sissel Court’s decision.
In the National Federation of Independent Businesses dissent, Justice Scalia alluded to the Origination Clause argument against PPACA stating, “[t]axes have never been popular . . . and in part for that reason, the Constitution requires tax increases to originate in the House of Representatives . . . Imposing a tax through judicial legislation inverts the constitutional scheme, and places the power to tax in the branch of government least accountable to the citizenry.” From this it can be inferred that there is concern among the dissenting Justices regarding the procedural mechanisms the Constitution puts into place.
However, a 1914 Supreme Court decision in Rainey v. United States, gives support for the affirmation of PPACA. In that case, the majority allowed the Senate to add an excise tax to a House revenue measure where there was no connection between the two at all other than the fact that both provisions were taxes. With regards to a revenue raising act, the Rainey Court observed that “the section was proposed by the Senate as an amendment to a bill for raising revenue which originated in the House. That is sufficient. Having become an enrolled and duly authenticated act of Congress, it is not for this court to determine whether the amendment was or was not outside the purposes of the original bill.”
The Constitution does not provide specific guidelines as to what constitutes a bill for raising revenue. Not surprisingly, the meaning of a “bill for raising revenue” is therefore a question of interpretation. In most instances in which the courts have ruled with regard to Origination Clause matters, it has been as to whether a particular measure was a revenue bill within the meaning of the clause, not as to the question of its origin. Deference is typically given to the House to determine whether the Origination Clause applies in a given case. Still, that determination may be subject of judicial review if the Supreme Court so chooses. The interested parties have aligned in a predictable way and despite the ruling in National Federation of Independent Businesses, it is evident that the challenges to PPACA are far from over.
A special thanks to our summer associate, Alejandro Montenegro, for his valuable assistance in drafting this blog entry.
As anyone who made it through grade school knows, rumors that are repeated frequently start to take on the air of truth, regardless of their veracity. The same could be said of statistics. According to this White House report, 5.8 million of the 6 million businesses in the US (or about 96%) employ fewer than 50 workers and thus would be exempt from the employer “play or pay” mandate. Of the remaining 4% affected most (some say 95%) already provide insurance, meaning the mandate only impacts 5% of 4% of businesses or a mere 0.2%. These statistics (or some version of them) have been repeated by senators and others so many times that they have started to take on an air of truth, yet we have not seen a study that anyone has cited showing this is actually the case.
In fairness, 2012 data collected by the Agency for Healthcare Research and Quality does show that 95.9% of firms with more than 50 employees offer insurance. However, it also shows that the number of firms with more than 50 employees is actually closer to 1.7 million out of a little more than 6.7 million, bringing the estimate of business with more than 50 employees to north of 24.5% of companies with 50 or more employees. That’s a far cry from 4%, which raises the possibility that those citing these statistics are (perhaps unintentionally) mixing and matching numbers; that’s a statistical no-no.
Additionally, the data from the AHRQ may be unreliable for purposes of determining who is impacted by the employer mandate. This 2011 questionnaire for the same survey asks questions about the location to which the questionnaire is delivered and the organization of which that location is a part. It does not ask whether the organization is part of a controlled group.
Recall from prior posts that the shared responsibility penalties apply on a controlled group basis, so multiple organizations with a common owner or owners could be aggregated for purposes of the penalty. However, based on our experience from talking with business owners, most of them treat entities that are in separate LLCs or corporations as separate businesses. In fact, many are surprised to learn that the penalties apply on a controlled group basis. Therefore, while we don’t know for sure, it seems there is at least a decent likelihood that many of those small businesses receiving the survey answered these questions only with respect to the business to which the questionnaire was addressed, and not on a controlled group basis. If our supposition (and it is only that, admittedly) is correct, then potentially many more businesses are subject to the penalties than even the AHRQ statistics indicate.
Of course, cutting in the other direction is the fact that, while the questionnaire does ask about part-time employees, it doesn’t get into the details of calculating full-time equivalents, as required by the employer mandate. Therefore, some of those with more than 50 employees still may not be subject to the penalties, depending on the composition of their part-time workforce.
Furthermore, the AHRQ report does not address whether the insurance provided by employers provides minimum value (which is also necessary to avoid the penalties). In fairness, that’s not data that AHRQ could have collected from employers. Nevertheless, what it means is that even of the 95.9% providing insurance, some of those plans (such as mini-med plans that are operating under waivers) may not provide minimum value, thus the cost impact on those employers could be significant.
And what none of these statistics actually show is that any employer who is subject to the mandate and has part-time employees still has to figure out how to comply with the mandate to avoid the penalties, regardless of size or whether they already offer insurance. Additionally, employers hovering around the 50 FTE threshold have to monitor their hiring practices to avoid inadvertently tripping the mandate. So to say that the mandate doesn’t “affect” these business is to misstate their compliance costs. So why is it a big deal? Because it affects more than 5% of 4% of businesses.
The Benefits world was rocked last week when it was announced that enforcement of the ACA employer shared responsibility penalties would be delayed for one-year. IRS Notice 2013-45, released late yesterday, July 9, officially confirmed the delay, but provided no real additional guidance. Employers are asking, what exactly this means? Read on for our summary of where things stand.
I. What ACA requirements are delayed in 2014?
- Employer Mandate: Employers must offer coverage to employees who work on average 30+ hours per week.
- Affordability: Coverage must be affordable (i.e., the employee’s share of the coverage cost cannot exceed 9.5% of the employee’s household income).
- Minimum Value: Coverage must provide minimum value (although this requirement is waived, employer must still report whether a plan provides minimum value on the SBC).
- Certain Reporting Requirements: Employers (and insurers) must provide information regarding employees and coverage in order to facilitate enforcement of the employer mandate.
II. What ACA requirements remain effective in 2014 for employers?
- SBC: Summaries of Benefits and Coverage must be distributed during open enrollment for the 2014 coverage period and must indicate whether the plan provides minimum value.
- Exchange Notices: Employers must distribute exchange notices to employees by October 1, 2013, and thereafter to new employees upon hire.
- Application for Advance Premium Credits: Employers are required to complete a 12 page form entitled, “Application for Health Coverage and Help Paying Costs” when requested by employees who are applying for advance premium tax credits when purchasing coverage on the market..
- ACA Fees: Patient-Centered Outcome Research Institute Fees (“PCORI Fees”) must be paid in July 2013. The first Transitional Reinsurance Fee must be paid on or before January 15, 2015.
- W-2 Reporting: Employers must continue to report the aggregate value of health coverage on Forms W-2.
- Counting Period for Employer Mandate: Employers that need to determine whether they will be subject to the employer mandate in 2015 (50 or more full-time or full-time equivalent employees in 2014) will need to record employee hours in 2014. It is not yet clear whether a short counting period will be available which means that employers may wish to track hours on a per-employee, monthly basis beginning January 1, 2014.
- Measurement Period for Employer Mandate: Employers will need to count employees and record hours over the applicable measurement period to determine which employees are eligible for coverage offers effective January 1, 2015, under the employer mandate. Presumably the transitional measurement period will no longer be available which means employers may want to count hours over a 12-month Standard Measurement Period commencing November 1, 2013. This would afford employers a two-month administrative period at the end of 2014 in which to evaluate eligibility data and extend coverage offers to eligible employees.
- Benefit Mandates For All Plans: Plan design requirements for all plans continue to apply (e.g., maximum 90-day waiting period, no limits on pre-existing conditions or essential health benefits, expansion of wellness incentives, dependent coverage to age 26).
- Benefit Mandates for Non-Grandfathered Plans Only: Plan design requirements for non-grandfathered plans only continue to apply (e.g., preventive care coverage requirements, limits on out-of-pocket maximums, coverage for clinical trial-related services, and provider nondiscrimination, and for small group health plans, limits on annual deductibles).
III. What ACA requirements for individuals remain effective in 2014?
- Individual Mandate: Individuals must have health care coverage or pay a penalty.
- Exchanges: Public exchanges are still scheduled to offer coverage effective January 1, 2014.
- Subsidies: Premium subsidies will be available to help eligible individuals buy policies on the exchange.
The additional time afforded by the delay should be a welcome reprieve for employers – as well as an opportunity to more thoroughly evaluate various compliance strategies and their relative costs and administrative burdens. The delay will also afford employers more time to implement and communicate their selected health care reform compliance strategies.
Since the Supreme Court struck down Section 3 of DOMA, employers and employees face numerous issues, including whether to file claims for tax refunds. [Additional background information may be found here.]
Background. The Internal Revenue Code permits employers to provide nontaxable group health coverage to their employees’ spouses. However, employers who extended group health coverage to domestic partners and, prior to Windsor, same gender spouses were required to impute, and report on the employee’s W-2, income equal to the fair market value of that coverage. Also, the employer was required to withhold federal income and employment taxes and pay the employer’s share of FICA and FUTA.
Employers. Now that same gender marriages are recognized for federal purposes in certain states, employers who have extended group health coverage to same gender spouses should, on a going forward basis beginning June 26 (the date Windsor was handed down), stop imputing income and withholding and paying employment and income taxes. Employers should also consider filing protective claims for refund of employment taxes paid for prior years.
Employees. Individuals in same gender marriages should also consider filing protective claims for refund for the imputed income. In addition, couples in same gender marriages may wish to explore whether they should file amended returns as married filing jointly. However, the advisability of an amended return depends on whether filing jointly or as a head of household will be advantageous.
Issues to be resolved. Although Edith Windsor will receive a refund with interest of the federal estate tax that she paid (U.S. v. Windsor is an estate tax refund case), it is not clear whether the IRS will give Windsor general retroactive effect. In general, claims for refund can be filed only for the open tax years (generally 3 years after the return was filed). Even if the IRS gives Windsor retroactive effect, the period for filing a refund claim may also depend on when the couple’s state of residence recognized same gender marriage. For example, Massachusetts recognized same gender marriage in 2004 while Maryland recognized same gender marriage beginning January 1, 2013. If the couple moves from the state in which the marriage was performed to a state that does not recognize same gender marriage, it is not clear whether the marriage will be treated as valid for some or all federal law purposes even though the state of residence does not recognize the marriage.
Officials from the IRS have said that they expect to issue guidance in the near future to clarify at least some of the issues raised by Windsor. The guidance should include clarification of the retroactive effect and whether and how refund claims may be filed.