Understanding Benefit Rate Enhancements for U.S. Same-Sex Spouse

This topic describes benefit rate enhancements for U.S. same-sex spouse.

The U.S. Federal Government recognizes same-sex marriage. Some states (and local jurisdictions within those states) do not.

The same-sex spouse dependent relationship affects both the before-tax spouse portion and nontaxable employer-contributed spouse portion of a benefit plan. In addition, for states that do not recognize same-sex marriage, employers must process taxable benefits differently at the state and local level than at the federal tax level.

For states that recognize same-sex marriage, the total (employee and beneficiaries) health and life insurance benefit deduction amount reduces both federal and state taxable gross for dependent spouse relationships.

For states that do not recognize same-sex marriage, taxable benefits are processed differently at the state and local level than at the federal tax level. For states that do not recognize same-sex marriage, the spouse portion of benefits is taxable. In this situation, the state taxable same-sex spouse portion of the benefit premium must be added to the federal taxable gross to determine the state taxable gross.

The employee contribution for the same-sex spouse and the employer contribution for the same-sex spouse need to be separated, to be able to impute the appropriate portion of the deduction amount according to each state and local jurisdiction. In addition, the ability to choose a deduction class to be adjusted is also required.

This is to account for the following scenarios:

• In some states, the local tax jurisdictions do not recognize before-tax Sec 125 deductions and require that such deduction amounts be added back in order to determine the employee’s local taxable wages.

• Some states do not exclude Sec 125 before-tax deductions from state unemployment taxable wages. This does not impact employee paychecks, but impacts the employer’s correct reporting of state unemployment taxable wages, and therefore state unemployment tax due.

The HR Manage Base Benefits product accounts for the above scenarios. For states/locals where tax adjustment amounts need to be separated for the before-tax spouse portion and the employer contributed spouse portion of a benefit plan, users can specify multiple tax adjustment amounts. These multiple tax adjustment amounts are defined in a new Other Rates table found in the Benefit Rate definition identified by Other Rate ID and Deduction Class.

To comply with different state tax processing requirements for states that do not recognize same-sex marriage, the Taxable Gross Component ID ‘SSP’ is used on the Taxable Gross Definition Table for each state, with the corresponding Tax Adjustment Other Rate ID and deduction class attached. For more information about the use of the Taxable Gross Component ID, Other Rate ID, and deduction class in the Taxable Gross Definition Table, see product documentation for Payroll for North America.