The federal Defense of Marriage Act (DOMA) prohibits the extension of federal marriage benefits, including tax benefits, to same-sex couples who marry under state law.
Federal courts that have reviewed DOMA have ruled it unconstitutional. In response to these rulings, the Department of Justice says that it will no longer defend the law. House Republicans say they will continue to defend it.
Regardless of how this plays out in court, you shouldn’t jump the gun and treat homosexual and heterosexual married couples equally. The IRS says that it’s still enforcing DOMA as it applies to the tax laws that cover married couples.
The lawsuits that challenged DOMA alleged that it discriminated against same-sex married couples by not allowing them to claim married filing jointly status and because employer-provided health benefits are taxable to them. Federal courts agreed. These decisions impact payroll departments.
Marital status affects employees’ W-4s. While you should never routinely question employees’ W-4s, if you believe a W-4 is false, ask the employee to file a new one. If he or she doesn’t refile, you may withhold on the basis of an old form you believe is accurate, or—in the absence of an old form—withhold using single/zero status, until the employee files a form you believe is accurate.
Health benefits and other tax-free benefits are taxable to employees’ same-sex spouses, unless the spouses are tax dependents (i.e., their income doesn’t exceed $3,700 for 2011, they receive more than half of their support during the year from the employee and they live in the same house with employee and are members of the employee’s family). You must withhold the taxes, or—if the company wants to treat all married couples equally—you must gross up the taxes.
State laws vary
Connecticut, the District of Columbia, Iowa, Massachusetts, New Hampshire and Vermont allow same-sex marriages. Employees in those states are entitled to the same tax benefits for state purposes as heterosexual couples.
Civil-union laws in Hawaii (beginning Jan. 1, 2012), Illinois and New Jersey extend nearly all marriage benefits to same-sex couples. Domestic partnership laws in California, Maine, Nevada, Oregon, Washington and Wisconsin extend varying levels of benefits to employees’ same-sex partners. In other states, benefits are treated as taxable.