New York State Issues Tax Guidance on Same Sex Marriage and Employee Benefits

August 2011

On July 29, 2011, the New York State Department of Tax and Finance issued guidance regarding the impact of New York's legalization of same-sex marriage on the tax treatment of employee benefits provided to same-sex spouses. The following Alert describes the guidance and provides further background regarding a benefit plan's obligation to recognize a same-sex marriage in light of the New York Marriage Equality Act.

Background: New York Marriage Equality Act

While New York previously required the recognition of same-sex marriages legalized in other jurisdictions, same-sex marriages began to be legalized in the state of New York effective July 24, 2011. Further, the Marriage Equity Act generally requires that marriages of same-sex and different-sex spouses be treated equally in all respects under the laws of New York. Certain religious organizations are exempted from the law's requirements to recognize a same-sex marriage. Please contact your Patterson Belknap relationship attorney if you are interested in learning whether you qualify for the religious organization exemption.

Federal and State Requirements: Complexity in the Benefits Arena

The New York requirement to treat same-sex spouses in the same way as different-sex spouses creates significant complexity in the benefits arena. As a starting point, the Federal Defense of Marriage Act prohibits the recognition of a same-sex marriage for purposes of certain Federal benefits laws. Moreover, because ERISA generally preempts state law, even if the provision of such benefits is not otherwise prohibited by Federal law, an ERISA-governed plan is generally not required to offer benefits to same-sex spouses. Insured plans, however, are an exception to ERISA preemption and must comply with applicable state law. Thus, ERISA preemption exempts a self-insured health plan from having to provide health benefits to a same-sex spouse. In contrast, an insured health plan subject to New York insurance law must provide health benefits to a same-sex spouse, if benefits are otherwise provided to an employee's different-sex spouse. Finally, a benefit governed exclusively by New York law must be offered with respect to a same-sex spouse if offered with respect to a different-sex spouse.

We note, however, that even if New York law requires that certain insured health benefits be offered to same-sex spouses, Federal law may impose some limitations on the provision of the benefits, as described further below.

Employers offering a domestic partner program in New York only to same-sex domestic partners may now be required to offer these benefits to different-sex partners as well. Please see the section below titled "Traps for the Unwary" for a discussion of the possible ramifications of New York's anti-discrimination laws on same-sex only domestic partner policies.

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