When the Supreme Court legalized same-sex marriage nationwide in 2015 with the Obergefell decision, it was hailed as a watershed moment for equality. And it was—no question about it. Same-sex couples could finally marry in all 50 states and access the same legal protections and benefits as opposite-sex couples. At least, that was the promise.
Nearly a decade later, the reality is more complicated than many couples anticipated. While federal law now treats all marriages equally, the intersection of employer benefits, tax law, and lingering state-level complications continues to create confusion and unexpected tax bills for same-sex couples. These issues catch people off guard precisely because they seem like they should have been resolved years ago. If you’re legally married, your spouse is your spouse, right? Well, yes—but also, it’s complicated.
The Federal Framework Post-Windsor and Obergefell
To understand where things stand today, it helps to know how we got here. Before the 2013 Supreme Court decision in United States v. Windsor, the federal government didn’t recognize same-sex marriages at all, even those performed in states where they were legal. This meant same-sex spouses couldn’t be covered under each other’s employer health insurance on a pre-tax basis, couldn’t file joint federal tax returns, and were excluded from Social Security survivor benefits and countless other federal protections tied to marriage.
Windsor struck down that federal non-recognition, requiring the federal government to treat same-sex marriages the same as opposite-sex marriages for all federal purposes. Two years later, Obergefell made same-sex marriage legal nationwide. Problem solved, right?
Not entirely. While these decisions created marriage equality in the legal sense, they didn’t automatically update every system, process, and tax code provision overnight. And they certainly didn’t eliminate all state-level complications, particularly around taxation.
The Domestic Partner Hangover
One lingering issue stems from the domestic partner arrangements that many companies offered before marriage equality. Before same-sex couples could legally marry, progressive employers extended health insurance and other benefits to domestic partners. This was generous—but it came with a significant tax penalty.
Because the IRS didn’t recognize these relationships as marriages, the fair market value of health insurance coverage for a domestic partner (and any children who weren’t the employee’s legal dependents) was treated as taxable income to the employee. This could add thousands of dollars to an employee’s taxable income annually, resulting in a substantial “imputed income” tax bill that opposite-sex married couples never faced.
Many flexible employee benefits providers helped companies navigate these domestic partner arrangements and the associated imputed income calculations, creating systems that worked within the discriminatory framework that existed at the time. When marriage equality arrived, the expectation was that these complications would simply disappear—same-sex spouses would be treated like any other spouse, and the imputed income issues would become obsolete.
And at the federal level, that’s exactly what happened. Same-sex spouses can now be covered on each other’s employer health plans with pre-tax dollars, just like opposite-sex spouses. No imputed income, no tax penalty. From the IRS’s perspective, a spouse is a spouse.
The State Tax Trap
Here’s where couples continue to get caught off guard: state tax treatment doesn’t always match federal treatment. While Obergefell requires all states to recognize and perform same-sex marriages, it didn’t mandate that states conform their tax codes to treat same-sex spouses identically to opposite-sex spouses for tax purposes.
Most states have updated their tax codes to mirror federal treatment, either through explicit legislative action or through administrative interpretation. But the timing of these updates varied, and in some cases, there are still quirks in how states handle benefits for same-sex spouses.
The complications typically arise in a few specific scenarios:
States with non-conforming tax codes: Some states are slow to update their tax statutes to match federal changes. This can create situations where benefits that are pre-tax at the federal level are still taxable at the state level, at least temporarily. While most states have eventually conformed, the lag time creates confusion and unexpected state tax bills.
Community property states: The nine community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin) have special rules about how income and assets are allocated between spouses. These rules apply to same-sex couples just as they do to opposite-sex couples, but many same-sex couples aren’t aware of them and don’t know how to properly handle community property on their tax returns. The result can be filing errors that trigger audits or penalties.
States where couples married before local legalization: Some couples traveled to other states to marry before their home state recognized same-sex marriage. The date-of-marriage can matter for various tax purposes, and there’s sometimes confusion about which date applies—the date they legally married, or the date their home state began recognizing the marriage.
Health Insurance Premium Tax Treatment
The most common area where tax surprises occur is health insurance. At the federal level, it’s clear: employer contributions toward a same-sex spouse’s health insurance are excludable from the employee’s income, just like for opposite-sex spouses. But getting that exclusion properly reflected on W-2s and in payroll systems requires that those systems have been updated correctly.
Some employers, particularly smaller ones or those using older payroll systems, have been slow to make these updates. In some cases, the systems are still flagging same-sex spouses as domestic partners and automatically calculating imputed income, even though this is no longer correct for federal purposes. Employees may not notice this until they receive their W-2 and see that their taxable wages are higher than expected.
The fix usually involves going back to the employer’s payroll department, explaining the issue, and requesting an amended W-2. But this takes time, can delay tax filing, and creates frustration for employees who thought this issue was behind them.
The COBRA Complication
COBRA—the law requiring employers to offer continuation coverage when employees lose eligibility for group health insurance—explicitly includes spouses as qualifying beneficiaries. Post-Obergefell, same-sex spouses clearly qualify for COBRA coverage just like opposite-sex spouses.
But here’s where it gets tricky: COBRA premiums are paid with after-tax dollars, unlike active employee coverage which is typically paid pre-tax. For same-sex couples who became eligible for spousal coverage only recently (relative to the length of opposite-sex marriage recognition), there can be confusion about how COBRA works, whether the spouse qualifies, and how the premiums should be handled for tax purposes.
Additionally, some employers’ COBRA administration processes weren’t updated to properly identify same-sex spouses as qualifying beneficiaries, leading to situations where spouses were incorrectly denied COBRA coverage. While these administrative errors are fixable, they create stress and potential coverage gaps during an already difficult time (job loss or reduction in hours).
Flexible Spending Accounts and Dependent Care
FSAs present another area of potential confusion. Employees can use Healthcare FSA funds to reimburse qualified medical expenses for themselves, their spouse, and their tax dependents. Post-marriage-equality, same-sex spouses clearly qualify, and their medical expenses can be reimbursed from the employee’s FSA.
However, FSA administration systems need to be configured to recognize these relationships correctly. In some cases, particularly with older systems or third-party administrators who haven’t updated their platforms, same-sex spouses might be flagged as ineligible dependents, causing reimbursement claims to be denied incorrectly.
Dependent Care FSAs, which allow employees to set aside pre-tax dollars for child care expenses, also apply equally to same-sex couples. But there can be complications when both spouses work and both have access to Dependent Care FSAs. The $5,000 annual limit applies per household, not per person, so couples need to coordinate their contributions to avoid exceeding the limit—which would result in the excess being taxable income.
Retirement Benefits and Beneficiary Designations
The tax implications extend beyond health benefits into retirement planning. Same-sex spouses now have the same rights under ERISA (the Employee Retirement Income Security Act) as opposite-sex spouses, including automatic survivor benefits in pension plans and the requirement for spousal consent if the employee wants to name someone else as the beneficiary.
These protections are valuable, but they require that retirement plan administration systems correctly identify and track same-sex spouses. Some older pension systems weren’t designed with same-sex marriage in mind and may not have fields or processes to properly handle these relationships.
For couples who were in domestic partnerships or had named each other as beneficiaries before legally marrying, there’s the question of whether those beneficiary designations need to be updated. In many cases, marriage automatically supersedes prior beneficiary designations for certain types of benefits, but not always. The lack of clarity can lead to situations where benefits don’t go to the intended recipient after death, creating both financial and emotional devastation for survivors.
Social Security and Tax Filing Status
At the federal level, same-sex married couples can now file jointly and access all the Social Security spousal and survivor benefits available to opposite-sex couples. This is a huge financial benefit—joint filing often results in lower overall taxes, and Social Security spousal benefits can be substantial.
However, couples who married recently may not realize they can amend prior year tax returns to claim refunds if they would have been better off filing jointly. The IRS generally allows amendments going back three years. For couples who filed as single in years when they were legally married (even if their state didn’t recognize the marriage at the time), there may be significant refund opportunities that they’re missing simply because they don’t realize they’re eligible.
There are also complications for couples who married in a state that recognized their marriage but then moved to a state that didn’t (before Obergefell). The IRS ultimately clarified that federal recognition depends on where the marriage was performed, not where the couple currently lives, but this created years of confusion and resulted in many couples filing incorrectly during that interim period.
International and Immigration Complications
For binational same-sex couples—where one spouse is a U.S. citizen and the other is not—there are additional tax complications. These couples can now sponsor their spouses for immigration purposes, which was previously impossible. But immigration and tax status don’t always align neatly.
A non-citizen spouse may have income from their home country, which creates foreign income reporting requirements. They may not have a Social Security number, requiring an ITIN (Individual Taxpayer Identification Number) for tax filing purposes. The interaction between U.S. tax obligations and foreign tax systems can be extremely complex, and many same-sex couples in this situation don’t have access to tax professionals with expertise in both international tax and the nuances of same-sex marriage recognition.
What Couples Should Do
If you’re in a same-sex marriage and receiving spousal benefits through an employer, here are some steps to protect yourself from unexpected tax surprises:
Review your W-2 carefully: Check that your employer isn’t incorrectly calculating imputed income on your same-sex spouse’s health insurance coverage. If you see imputed income listed when it shouldn’t be there, contact your HR or payroll department immediately.
Verify your state’s tax treatment: Confirm that your state conforms to federal tax treatment of same-sex marriage. If there are any differences, factor that into your tax planning and withholding.
Coordinate FSA contributions: If both spouses have access to Dependent Care FSAs, make sure you’re not exceeding the household limit. For Healthcare FSAs, understand that you can only be covered by one plan—you can’t both have Healthcare FSAs and double-dip on reimbursements.
Update beneficiary designations: Review all your benefit plan beneficiary designations to ensure they reflect your current marital status and intentions. Don’t assume that getting married automatically updated everything.
Consider amending past returns: If you were legally married in prior years but filed as single, consult a tax professional about whether amending those returns would result in a refund.
Work with knowledgeable professionals: Find tax and financial advisors who have specific experience with same-sex couples and understand the unique issues that can arise. Don’t assume that every tax preparer or financial planner is up to speed on these nuances.
The Path Forward
The good news is that these complications are generally decreasing over time. As systems are updated, payroll administrators gain experience, and state tax codes conform to federal treatment, the unexpected tax surprises become less common. But they haven’t disappeared entirely, and for many same-sex couples, the assumption that marriage equality means complete tax parity can lead to costly surprises.
The fundamental issue is that legal equality doesn’t automatically translate to administrative and tax equality. Systems, processes, and human knowledge all need to catch up to the law, and that catching-up process is still ongoing nearly a decade after Obergefell.
For same-sex couples navigating employee benefits, the message is clear: stay vigilant, ask questions, and don’t assume that everything is being handled correctly just because it should be. The law is on your side, but you still need to advocate for yourself to ensure you’re receiving the full tax benefits that you’re entitled to as a married couple.
