On June 26, 2013, the Supreme Court ruled that Section 3 of the federal Defense of Marriage Act, or “DOMA,” was unconstitutional. DOMA provided that only individuals of the opposite sex can be officially recognized as being married or spouses to one another. Since it was overturned, there have been immediate implications for employers who offer retirement, fringe benefits and health insurance benefits to employees whose same-sex marriages were performed in states where same-sex marriages are permitted or recognized.
On December 16, 2013, the IRS issued guidance that employees can now elect pre-tax coverage of their same-sex spouse under their health and dependent care flexible spending arrangements (FSAs) and HSAs, per the Windsor ruling regarding DOMA.
Legally married, same-sex spouses can now not only be covered under an employer-sponsored health plan, but they can also use tax-free funds stashed in an employer’s FSA, HRA or HSA for qualified medical expenses for health, dental and vision services. Before DOMA was overturned, FSA and HSA consumers could not reimburse expenses for their same-sex partners, and while HRA consumers could, they could not do so without imputation of income.
The guidance results in a number of possible actions by employers or employees because it instructs that: employees may make a mid-year election change due to a change in legal marital status; employers may need to re-characterize amounts paid by employees for their spouse’s health coverage as pre-tax salary reductions; and, employees may seek a refund for federal income tax and federal employment tax amounts paid on an after-tax basis for their spouse’s health coverage where that coverage can now be considered a pre-tax salary reduction.