IRS Issues Notice on Same-Sex Marriage

15 December 2015

IRS Issues Notice on Same-Sex Marriage

The Internal Revenue Service has issued Notice 2015-86 related to the Supreme Court’s decision regarding same-sex marriage and health benefit plans and cafeteria plans. This notice provides guidance on the application of the decision in Obergefell v. Hodges to health plans and cafeteria plans.

Prior to the decision of the Supreme Court in United States v. Windsor, section 3 of the Defense of Marriage Act (DOMA) prohibited recognition of same-sex spouses for purposes of Federal tax law. On June 26, 2013, the Supreme Court held in Windsor that section 3 of DOMA is unconstitutional.

On June 26, 2015, the Supreme Court held in Obergefell that the Fourteenth Amendment (i) requires a State’s civil marriage laws to apply to same-sex couples on the same terms and conditions as opposite-sex couples, and (ii) prohibits a State from refusing to recognize a lawful same-sex marriage performed in another State on the ground of its same-sex character.

Because Obergefell requires that States recognize marriages of same-sex couples performed in other States, certain marriages performed in previous periods will be recognized for the first time for State law purposes. However, because these same marriages have already been recognized for Federal tax law purposes pursuant to Windsor and the Post-Windsor Guidance, Treasury and the IRS do not anticipate any significant impact from Obergefell on the application of Federal tax law to employee benefit plans.

Treasury and the IRS understand, however, that some plan sponsors may alter aspects of their employee benefit plans or how their plans are administered in response to Obergefell. In addition, some plan sponsors have asked for clarification of the application of Obergefell to certain changes to employee benefit plans, such as a discretionary expansion of benefits that is not required under the Federal tax rules. The notice included questions and answers providing the following guidance to address these issues.

If the terms of a health plan provide that coverage is offered to the spouse of a participant as defined under applicable State law, and the plan administrator determines that applicable State law has expanded to include same-sex spouses as a result of Obergefell, then the terms of the plan would require coverage of same-sex spouses as of the date of the change in applicable State law.

If the terms of a cafeteria plan allow a participant to make a change in coverage due to a significant improvement in coverage during the coverage period under an existing coverage option, then the participant may revoke an existing election and make a new election. If the eligibility criteria for a qualified benefit offered under a cafeteria plan change during a plan year to add eligibility for same-sex spouses, this change constitutes a significant improvement in coverage under an existing coverage option. Such a change in eligibility criteria could occur, for example, as a result of an amendment to the terms of the plan; a change in applicable State law (to the extent the terms of the plan refer to state law); or a change in the interpretation of the existing terms of the plan.

A cafeteria plan that allows participants to make a change in election due to a significant improvement in coverage under an existing coverage option may permit a participant to revoke an existing election and submit a new election if same-sex spouses first become eligible for coverage under the terms of the plan during the period of coverage for any reason. This new election may be an election by a participant to add coverage for a same-sex spouse to a benefit option in which the participant is already enrolled, or an election by a participant who had not previously elected coverage to add coverage for the participant and a same-sex spouse.

In the case of cafeteria plan that must be amended to allow a change related to same-sex marriage, the amendment must be adopted no later than the last day of the plan year including the later of (i) the date same-sex spouses first became eligible for coverage under the plan, or (ii) December 9, 2015. The amendment may be retroactive to the date same-sex spouses first became eligible for coverage under the plan.

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