Tag Archives: supreme court

same sex

The impact of the Supreme Court’s Windsor ruling

Section 3 of the Defense of Marriage Act (“DOMA”) defined marriage under federal law as a legal union between one man and one woman. In June, the Supreme Court declared that provision unconstitutional in U.S. v. Windsor (No. 12-307, June 26, 2013). On Aug. 29, 2013, the Department of the Treasury and the IRS jointly issued initial guidance on how Windsor affects federal tax law. Here are answers to some questions that will help clarify the impact.

AFTER WINDSOR, WHAT CONSTITUTES A MARRIAGE FOR TAX PURPOSES?
Rev. Rul. 2013-17 states that a marriage is recognized for federal tax purposes if the marriage was validly entered into in any one of the 50 states, the District of Columbia, a U.S. territory or foreign country whose laws authorize the marriage of same sex individuals. Even if a married couple resides in a state where the marriage is not recognized under state law, federal tax law will treat the same-sex couple as legally married. Rev. Rul. 2013-17 does not extend such recognition to other relationships recognized under state law that are not “marriages,” such as registered domestic partnerships or civil unions.

WHEN IS REV. RUL. 2013-17 EFFECTIVE?
The ruling is effective for most purposes on Sept. 16, 2013 and is primarily prospective; however, it may be relied on retroactively for purposes of filing tax returns, amending returns and certain credit or refund claims for income and employment taxes regarding exclusions from income based on an individual’s marital status for employer-provided health benefits and certain fringe benefits.

HOW DOES WINDSOR AFFECT RETIREMENT PLANS?
The Internal Revenue Code requires certain benefits and options for spouses, such as default survivor annuity benefits for married participants and qualified domestic relations orders for the assignment of retirement benefits during a legal separation or divorce. The guidance clarifies that, effective Sept. 16, 2013, retirement plans must recognize the spouses of same-sex marriages and extend to them the same rights that spouses in opposite sex marriages previously enjoyed. Future guidance will address the application of Windsor for periods prior to Sept. 16, 2013, and will provide sufficient time for employers to amend and correct their qualified plans as necessary to avoid disqualification and preserve favorable tax treatment.

HOW DOES WINDSOR AFFECT THE TAX TREATMENT OF HEALTH, WELFARE AND OTHER FRINGE BENEFITS?
Before Windsor, employees were taxed on health, welfare and other fringe benefits provided to their same-sex spouses, domestic partners or partners in a civil union. As a result, employers had to impute income on the employee’s W-2 for such benefits. According to Rev. Rul. 2013-17, health, welfare and other fringe benefits for legally married same-sex spouses are generally excluded from income for federal tax purposes. However, employees will still be taxed on employer-provided benefits extended to domestic partners and civil union partners unless the partner qualifies as the employee’s dependent.

WHAT OTHER CHANGES WILL BE REQUIRED FOR HEALTH AND WELFARE PLANS?
Certain health plan requirements, such as HIPAA special enrollment rights and COBRA continuation coverage for recognized same-sex spouses, may require amendments to health plans that cover spouses. Employers will also need to revise cafeteria plans to allow premium reimbursement for same-sex spouse coverage pre-tax and to permit the reimbursement of the medical expenses of same-sex spouses by health flexible spending arrangements. The FAQs indicate that all limits and rules applicable to opposite sex married couples now apply to legally married same-sex couples. Notably, plans must impose a single family maximum contribution to both spouses in a same-sex marriage.

DOES THE WINDSOR DECISION CHANGE RIGHTS RETROACTIVELY?
Rev. Rul. 2013-17 clarifies that the Windsor decision will be applied retroactively, although to what extent remains an open question. Among the possibilities, the IRS could take an expansive view of retroactivity for retirement plans, since the IRS’s correction program already allows for (and generally requires) correction for closed tax years. Rev. Rul. 2013-17 promises future guidance on Windsor’s retroactive impact for employee benefit plans.

FOR EMPLOYERS IN STATES THAT DO NOT RECOGNIZE SAME-SEX MARRIAGE, WILL ANYTHING CHANGE?
Yes, all employers must be prepared to amend and administer plans to reflect federal tax law recognition of legally married same-sex spouses. Depending on state law, the value of health coverage and certain fringe benefits provided to legally married same-sex spouses in states that do not recognize same-sex marriage will be tax-free for federal income tax purposes but may still be taxable for state income tax purposes.

CAN EMPLOYERS AND EMPLOYEES OBTAIN REFUNDS FOR TAXES ALREADY PAID ON THE VALUE OF EMPLOYER-PROVIDED HEALTH COVERAGE OR FRINGE BENEFITS FOR THE EMPLOYEE’S SAME-SEX SPOUSE?
As long as the statute of limitations on refund claims is still open (generally, 2010, 2011 and 2012 for most taxpayers), employers that paid Social Security and Medicare (FICA) taxes may file refund claims to recover those taxes and affected employees may file for income tax refund claims paid with respect to the following benefits: employer contributions for health plan coverage, qualified tuition reductions, meals and lodging furnished to an employee for the convenience of the employer, dependent care assistance, and no additional cost services, employee discounts, retirement planning services and on-premises gym facilities. In addition, employees may file income tax refund claims with respect to amounts an employee paid on an after-tax basis for health benefits for a same-sex spouse if the employer had a cafeteria plan and the employee made pre-tax salary reductions for his or her own coverage. The IRS intends to issue guidance with a streamlined process for employers to file FICA tax refund claims.

WHAT SHOULD EMPLOYERS DO NOW?
Starting Sept. 16, 2013, any same-sex spouse must be recognized prospectively if benefits are required under federal tax law (for example, survivor annuities, consent requirements) or if plans are already extending benefits to same-sex spouses. Employers must prepare now to implement plan design and administration changes, as well as plan communications to describe those changes. While awaiting further guidance, employers should take the following steps:
* Identify benefits currently available for spouses under its benefit plans (e.g. death benefits, medical coverage eligibility, reimbursements for spousal expenses).
* Review how each plan defines “spouse” and “marriage.”
* Interpret “spouse” and “marriage” to include same-sex spouses as of Sept. 16, 2013.
* Gather workforce data: for example, which employees have entered into legally recognized same-sex marriages, domestic partnerships, and/or civil unions, and in which states they reside.
* Stop imputing income (and withholding employment taxes) for health and other fringe benefits provided to employees with same-sex spouses, and make adjustments for current year federal income tax withholding by year-end.
* Consider the company’s goals — does the employer wish to extend benefits to all same sex couples or other relationships recognized under state law.
* Manage litigation risks through the use of thoughtful, honest communications with employees who inquire about benefits while the company is assessing its options.

 

Joseph T. Clees and Nonnie L. Shivers are shareholders in the Phoenix office of Ogletree, Deakins, Nash, Smoak & Stewart, P.C.

same sex

The impact of the Supreme Court's Windsor ruling

Section 3 of the Defense of Marriage Act (“DOMA”) defined marriage under federal law as a legal union between one man and one woman. In June, the Supreme Court declared that provision unconstitutional in U.S. v. Windsor (No. 12-307, June 26, 2013). On Aug. 29, 2013, the Department of the Treasury and the IRS jointly issued initial guidance on how Windsor affects federal tax law. Here are answers to some questions that will help clarify the impact.

AFTER WINDSOR, WHAT CONSTITUTES A MARRIAGE FOR TAX PURPOSES?
Rev. Rul. 2013-17 states that a marriage is recognized for federal tax purposes if the marriage was validly entered into in any one of the 50 states, the District of Columbia, a U.S. territory or foreign country whose laws authorize the marriage of same sex individuals. Even if a married couple resides in a state where the marriage is not recognized under state law, federal tax law will treat the same-sex couple as legally married. Rev. Rul. 2013-17 does not extend such recognition to other relationships recognized under state law that are not “marriages,” such as registered domestic partnerships or civil unions.

WHEN IS REV. RUL. 2013-17 EFFECTIVE?
The ruling is effective for most purposes on Sept. 16, 2013 and is primarily prospective; however, it may be relied on retroactively for purposes of filing tax returns, amending returns and certain credit or refund claims for income and employment taxes regarding exclusions from income based on an individual’s marital status for employer-provided health benefits and certain fringe benefits.

HOW DOES WINDSOR AFFECT RETIREMENT PLANS?
The Internal Revenue Code requires certain benefits and options for spouses, such as default survivor annuity benefits for married participants and qualified domestic relations orders for the assignment of retirement benefits during a legal separation or divorce. The guidance clarifies that, effective Sept. 16, 2013, retirement plans must recognize the spouses of same-sex marriages and extend to them the same rights that spouses in opposite sex marriages previously enjoyed. Future guidance will address the application of Windsor for periods prior to Sept. 16, 2013, and will provide sufficient time for employers to amend and correct their qualified plans as necessary to avoid disqualification and preserve favorable tax treatment.

HOW DOES WINDSOR AFFECT THE TAX TREATMENT OF HEALTH, WELFARE AND OTHER FRINGE BENEFITS?
Before Windsor, employees were taxed on health, welfare and other fringe benefits provided to their same-sex spouses, domestic partners or partners in a civil union. As a result, employers had to impute income on the employee’s W-2 for such benefits. According to Rev. Rul. 2013-17, health, welfare and other fringe benefits for legally married same-sex spouses are generally excluded from income for federal tax purposes. However, employees will still be taxed on employer-provided benefits extended to domestic partners and civil union partners unless the partner qualifies as the employee’s dependent.

WHAT OTHER CHANGES WILL BE REQUIRED FOR HEALTH AND WELFARE PLANS?
Certain health plan requirements, such as HIPAA special enrollment rights and COBRA continuation coverage for recognized same-sex spouses, may require amendments to health plans that cover spouses. Employers will also need to revise cafeteria plans to allow premium reimbursement for same-sex spouse coverage pre-tax and to permit the reimbursement of the medical expenses of same-sex spouses by health flexible spending arrangements. The FAQs indicate that all limits and rules applicable to opposite sex married couples now apply to legally married same-sex couples. Notably, plans must impose a single family maximum contribution to both spouses in a same-sex marriage.

DOES THE WINDSOR DECISION CHANGE RIGHTS RETROACTIVELY?
Rev. Rul. 2013-17 clarifies that the Windsor decision will be applied retroactively, although to what extent remains an open question. Among the possibilities, the IRS could take an expansive view of retroactivity for retirement plans, since the IRS’s correction program already allows for (and generally requires) correction for closed tax years. Rev. Rul. 2013-17 promises future guidance on Windsor’s retroactive impact for employee benefit plans.

FOR EMPLOYERS IN STATES THAT DO NOT RECOGNIZE SAME-SEX MARRIAGE, WILL ANYTHING CHANGE?
Yes, all employers must be prepared to amend and administer plans to reflect federal tax law recognition of legally married same-sex spouses. Depending on state law, the value of health coverage and certain fringe benefits provided to legally married same-sex spouses in states that do not recognize same-sex marriage will be tax-free for federal income tax purposes but may still be taxable for state income tax purposes.

CAN EMPLOYERS AND EMPLOYEES OBTAIN REFUNDS FOR TAXES ALREADY PAID ON THE VALUE OF EMPLOYER-PROVIDED HEALTH COVERAGE OR FRINGE BENEFITS FOR THE EMPLOYEE’S SAME-SEX SPOUSE?
As long as the statute of limitations on refund claims is still open (generally, 2010, 2011 and 2012 for most taxpayers), employers that paid Social Security and Medicare (FICA) taxes may file refund claims to recover those taxes and affected employees may file for income tax refund claims paid with respect to the following benefits: employer contributions for health plan coverage, qualified tuition reductions, meals and lodging furnished to an employee for the convenience of the employer, dependent care assistance, and no additional cost services, employee discounts, retirement planning services and on-premises gym facilities. In addition, employees may file income tax refund claims with respect to amounts an employee paid on an after-tax basis for health benefits for a same-sex spouse if the employer had a cafeteria plan and the employee made pre-tax salary reductions for his or her own coverage. The IRS intends to issue guidance with a streamlined process for employers to file FICA tax refund claims.

WHAT SHOULD EMPLOYERS DO NOW?
Starting Sept. 16, 2013, any same-sex spouse must be recognized prospectively if benefits are required under federal tax law (for example, survivor annuities, consent requirements) or if plans are already extending benefits to same-sex spouses. Employers must prepare now to implement plan design and administration changes, as well as plan communications to describe those changes. While awaiting further guidance, employers should take the following steps:
* Identify benefits currently available for spouses under its benefit plans (e.g. death benefits, medical coverage eligibility, reimbursements for spousal expenses).
* Review how each plan defines “spouse” and “marriage.”
* Interpret “spouse” and “marriage” to include same-sex spouses as of Sept. 16, 2013.
* Gather workforce data: for example, which employees have entered into legally recognized same-sex marriages, domestic partnerships, and/or civil unions, and in which states they reside.
* Stop imputing income (and withholding employment taxes) for health and other fringe benefits provided to employees with same-sex spouses, and make adjustments for current year federal income tax withholding by year-end.
* Consider the company’s goals — does the employer wish to extend benefits to all same sex couples or other relationships recognized under state law.
* Manage litigation risks through the use of thoughtful, honest communications with employees who inquire about benefits while the company is assessing its options.

 

Joseph T. Clees and Nonnie L. Shivers are shareholders in the Phoenix office of Ogletree, Deakins, Nash, Smoak & Stewart, P.C.

law.courts

Determining Supervisory Status in Harassment Cases

In a season filled with many highly-anticipated rulings from the Supreme Court, one that warrants particular attention by Arizona employers is its June 24, 2013 decision in Vance v. Ball State University, in which the Court clarified the circumstances under which employers will be held strictly (i.e., automatically) liable for harassment by supervisors.

According to previous Supreme Court rulings, employers could be held automatically liable for harassment by a supervisor if the harassment culminated in a “tangible” employment action.  If, however, the harasser was not the victim’s supervisor, but instead merely a co-worker, then the employer only could be held liable if it was negligent in controlling working conditions.

It was under this 15-year old legal precedent that a federal court in Indiana considered Maetta Vance’s lawsuit.  Vance, an African-American woman, worked in the Banquet and Catering Department at Ball State University. Over the course of her employment, Vance lodged numerous complaints of racial discrimination and retaliation, including against Saundra Davis, a white catering specialist.  Vance alleged that Davis intimidated and harassed her due to her race.  Although the parties disputed the facts, they agreed that Davis did not have authority to hire, fire, demote, transfer, promote, or discipline Vance, although she could direct Vance’s daily tasks.

The trial court concluded that, even if Vance’s factual allegations were true, the University could not be held strictly liable for Davis’ alleged creation of a racially hostile work environment because Davis was not empowered to make tangible employment decisions regarding Vance, and therefore was not a supervisor.  Other courts, however, had ruled inconsistently, finding that strict liability applies to “supervisors” who have the right to exert significant direction over another’s daily work, even if they cannot hire or fire.

The Supreme Court concluded that, while an employer will be held automatically liable for harassment perpetrated by employees who have the authority to hire, fire, promote, reassign, or make significant changes in benefit decisions with respect to other employees, they will not be automatically liable if, as in the Vance case, the “supervisor” can do no more than direct another employee in the performance of routine duties.  According to the Court, establishing a “bright line” test for determining supervisory status is essential to providing guidance to employers, employees, courts and juries in harassment cases.  The Court rejected the far more amorphous standard proposed by Vance.

This outcome is clearly favorable to employers, as it reduces the number of employees whose actions can result in automatic employer liability for workplace harassment.  That said, Arizona employers should nonetheless continue to be vigilant in preventing, investigating, and disciplining harassers.  Additionally, because employers can be held strictly liable for the actions of their supervisory employees, they must continue to draft and disseminate clear policies prohibiting racial, sexual, and other forms of unlawful harassment.  Supervisors and managers – and not just the most senior managers in an organization, but all supervisors who have authority to hire, fire, demote, and promote employees – should be trained on, and held accountable for complying with, these policies.  Complaints of harassment should be promptly escalated for investigation, and credible complaints of harassment should result in prompt disciplinary action against the harasser, up to and including termination.  Failure to do so could expose employers to substantial liability.  Arizona employers are therefore urged to review their current policies, amend those policies if and to the extent necessary, and consider implementing or refreshing manager training on harassment prevention.

Lawrence J. Rosenfeld is a partner and Laura Lawless Robertson is a senior associate at Squire Sanders in Phoenix.

law.courts

Major victories for same-sex marriage

In a historic victory for gay rights, the Supreme Court on Wednesday struck down a provision of a federal law denying federal benefits to married gay couples and cleared the way for the resumption of same-sex marriage in California.

“Today’s significant ruling will likely spur further expansion of protections for LGBT individuals,” said Nonnie Shivers, a shareholder in the Phoenix office of Ogletree Deakins. “Employers must keep abreast of these rapidly expanding protections under federal, state, and local laws for not only gay, lesbian, bisexual, and transgender individuals, but also covering gender identity and gender expression. Employers should expect changes to federal laws impacting the workplace based on today’s rulings, in particular the inclusion of same-sex partners in leave considerations under the Family and Medical Leave Act and potentially sponsorship of same-sex partners for immigration purposes, as well as expanded state and local protections.”

The justices issued two 5-4 rulings in their final session of the term. One decision wiped away part of a federal anti-gay marriage law that has kept legally married same-sex couples from receiving tax, health and pension benefits.

The other was a technical ruling that said nothing at all about same-sex marriage, but left in place a trial court’s declaration that California’s Proposition 8 is unconstitutional. Gov. Jerry Brown quickly ordered that marriage licenses be issued to gay couples as soon as a federal appeals court lifts its hold on the lower court ruling, possibly next month.

In neither case did the court make a sweeping statement, either in favor of or against same-sex marriage. And in a sign that neither victory was complete for gay rights, the high court said nothing about the validity of gay marriage bans in California and roughly three dozen other states. A separate provision of the federal marriage law that allows a state to not recognize a same-sex union from elsewhere remains in place.

President Barack Obama praised the court’s ruling on the federal marriage act, which he labeled “discrimination enshrined in law.”

“It treated loving, committed gay and lesbian couples as a separate and lesser class of people,” Obama said in a statement. “The Supreme Court has righted that wrong, and our country is better off for it.”

House Speaker John Boehner, R-Ohio, said he was disappointed in the outcome of the federal marriage case and hoped states continue to define marriage as the union of a man and a woman.

The ruling in the California case was not along ideological lines. Chief Justice John Roberts wrote the majority opinion, joined by Justices Ruth Bader Ginsburg, Stephen Breyer, Elena Kagan and Antonin Scalia.

“We have no authority to decide this case on the merits, and neither did the 9th Circuit,” Roberts said, referring to the federal appeals court that also struck down Proposition 8.

vote

Arizona citizenship proof ruled illegal

The Supreme Court ruled Monday that states cannot on their own require would-be voters to prove they are U.S. citizens before using a federal registration system designed to make signing up easier.

The justices voted 7-2 to throw out Arizona’s voter-approved requirement that prospective voters document their U.S. citizenship in order to use a registration form produced under the federal “Motor Voter” voter registration law.

Federal law “precludes Arizona from requiring a federal form applicant to submit information beyond that required by the form itself,” Justice Antonia Scalia wrote for the court’s majority.

The court was considering the legality of Arizona’s requirement that prospective voters document their U.S. citizenship in order to use a registration form produced under the federal “motor voter” registration law. The 9th U.S. Circuit Court of Appeals said that the National Voter Registration Act of 1993, which doesn’t require such documentation, trumps Arizona’s Proposition 200 passed in 2004.

Arizona appealed that decision to the Supreme Court.

“Today’s decision sends a strong message that states cannot block their citizens from registering to vote by superimposing burdensome paperwork requirements on top of federal law,” said Nina Perales, vice president of litigation for the Mexican American Legal Defense and Educational Fund and lead counsel for the voters who challenged Proposition 200.

“The Supreme Court has affirmed that all U.S. citizens have the right to register to vote using the national postcard, regardless of the state in which they live,” she said.

legal

Arizona allows law students take early bar exams

Law students in Arizona who are nearing graduation will have the chance to take the bar exam early in an experimental program approved by the state Supreme Court.

The experiment will run from January 2013 through December 2015 and would be available to students who are expected to graduate within 120 days of the test date and have satisfied all but eight semester hours of their course requirements.

Law students have traditionally taken the exam in July and get their results in October.

Students at Arizona’s three law schools would have the option of taking the test in February and would get back their results in June.

Proponents of the change say early tests would allow law school graduates to find work as lawyers faster.