The decision of the United States Supreme Court in United States v. Windsor impacts the federal-state unemployment compensation (UC) program. Unemployment Insurance Program Letter (UIPL) No. 14-14 describes the impact for state UC agencies and the employers they serve.
Section 3306(c)(5) of the Federal Unemployment Tax Act (FUTA), excludes from the definition of “employment” service performed by an individual in the employ of his son, daughter, or spouse. Thus, an employer spouse may not include, in the calculation of FUTA taxes, wages paid to an employee spouse.
Coverage of services under FUTA does not directly impact coverage under state UC laws. States are not required to adopt the exclusions from the definition of “employment” set out in federal law, and may cover additional services, such as services provided by a spouse in the employ of his/her spouse. However, in practice, many state UC laws closely mirror the definition of employment in FUTA. In addition to determining employer liability for state UC contributions, the state definition of “employment” determines whether wages earned by an individual may be used to establish eligibility for UC. If services are excluded from the definition of employment, the wages may not be used for UC eligibility purposes.
In 1996, Congress enacted the Defense of Marriage Act (DOMA). Section 3 of DOMA amended the rules of construction that apply to federal laws to provide that the word “marriage” meant “only a legal union between one man and one woman as husband and wife,” and the word “spouse” referred only to “a person of the opposite sex who is a husband or a wife.” By decision dated June 26, 2013, the U.S. Supreme Court, in Windsor, held that this provision was unconstitutional.
ETA policy on same-sex marriage
The Department of Labor’s policy is to recognize lawful same-sex marriages as broadly as possible to the extent that federal law permits, and to recognize all marriages valid in the jurisdiction where the marriage was celebrated (“state of celebration”). Consistent with this policy, the Employment and Training Administration (ETA) will recognize all marriages, including same-sex marriages, that are entered into lawfully and recognized under a state’s law. The ETA will recognize such marriages even if the marriage is not recognized in the state where the married individual resides. The federal-state unemployment compensation program consists of 53 “states,” including the District of Columbia, Puerto Rico, and the Virgin Islands.
Applicability of Windsor ruling to calculation of FUTA taxes
Consistent with the text of section 3306(c)(5) and the decision in Windsor, for purposes of federal law, wages paid to a same-sex spouse who is providing services in the employ of his/her same-sex spouse must be excluded from the calculation of FUTA taxes.
Consistent with the agency’s broader policy, in the case of FUTA, the ETA has adopted a “state of celebration” rule. That is, for purposes of FUTA Section 3306(c)(5), “spouse” refers to persons married in a state that legally recognizes and designates the relationship as a “marriage” under that state’s law. State of residence is not relevant to whether the exclusion applies. For example, an employer is legally married in State #1 (state of celebration), which recognizes same-sex marriage. The couple then moves to State #2 (state of residence), which does not recognize same-sex marriage. While in State #2, the employer pays wages to his/her “spouse” and files a tax return as an employer in the state. With respect to federal payroll taxes, s/he must still observe the FUTA exclusion, even if his/her marriage is not recognized in the state where s/he is filing the return.
This interpretation has no effect on state UC law, when state law does not depend on federal law for definitions or interpretations. It does not require states to recognize same-sex marriages, nor does it require an exclusion from coverage of services provided by same-sex spouses in those states that exclude spouses from coverage but do not recognize same-sex marriages. States have the authority to determine the scope of the spouse exclusion in accordance with state law.
Likewise, this interpretation does not affect payment of benefits under federal UC programs, including Unemployment Compensation for Federal Employees (UCFE), Unemployment Compensation for Ex-Service members (UCX), Disaster Unemployment Assistance (DUA), and Trade Readjustment Allowances (TRA). States pay benefits to UCFE and UCX claimants under an agreement with the Secretary of Labor, and are required, by the terms of that agreement, to pay benefits “in the same amount, on the same terms, and under the same conditions” as would have been payable under the state UC law. For DUA, the terms and conditions of state law regarding payment of regular compensation generally apply to applications for and payment of DUA. Similarly, for TRA, the law of the state in which the applicant is entitled to UC applies. (UIPL No. 14-14, June 18, 2014.)
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