Wage Withholding Woes: Employer-Provided Benefits for Same-Sex Married Employees Become Nontaxable in 13 States

Same-sex marriage became legal in 13 states in October, after the U.S. Supreme Court's Oct. 6 refusal to hear several states' same-sex marriage ban petitions. The court let stand decisions from three federal appeals courts, legalizing same-sex marriages in these states.

As a result, same-sex marriages that are recognized for federal income tax purposes are now recognized in these states for state income tax purposes.

The state bans that were not heard by the U.S. Supreme Court included those of Indiana, Oklahoma, Utah, Virginia and Wisconsin. Same-sex marriage became legal in these states Oct.6.

Eight more states joined these states in the days that followed. Wyoming is the most recent, with same-sex marriage becoming legal Oct. 21. Arizona and Alaska followed, with same-sex marriage becoming legal Oct. 17. Same-sex marriages were legal in Colorado Oct. 7, in Idaho Oct. 15, in North Carolina Oct. 13 and in Nevada and West Virginia Oct. 9.

As a result of these developments, health benefits for partners of employees in same-sex marriages who reside in these states are to be nontaxable. Employers should not withhold income tax from such amounts.

Guidance from state revenue departments on procedures for employers have been released by Colorado, North Carolina, Utah, Virginia, West Virginia and Wisconsin.  Guidance for employers on withholding procedures for 2014 are expected from additional state revenue departments.

Guidance released in Virginia and West Virginia have said that those in same-sex marriages who  previously filed separate federal and state income tax returns may file amended returns for years that are within the state's three-year statute of limitations. Guidance from other states revenue departments will likely be similar. Because amended tax returns will be filed by individuals and will not have an unemployment tax aspect, employers will not need to issue any amended returns to employees who choose to file amended returns.

Same-sex marriage also is legal in California, Connecticut, Delaware, Hawaii, Illinois, Iowa, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New Jersey, New Mexico, New York, Oregon, Pennsylvania, Rhode Island, Vermont, Washington and the District of Columbia.

For more information, see Payroll Administration Guide’s “Tax Treatment of Spousal, Partner and Civil Union Benefits” chart.

By Allison M. Gatrone