Tim Dewitt, the chief executive of OBOX Solutions, an IT staffing firm in Dallas, Texas, knows just how hard it’s been to run a business as a gay entrepreneur.
Although Dewitt married his husband Thom, the company’s chief operating officer, in Canada in 2003, Texas did not recognize the union. That created a thicket of legal complications as the couple sorted out joint ownership of the business, inheritance and health insurance issues. Even though they owned the company together, for example, they couldn’t qualify as spouses for their company’s own health insurance plan. And it’s been hard sometimes attracting LGBT employees, who make up 15 percent of the company’s placement staff, to take jobs in states that have disallowed their marriages.
Even more critically, the couple had to set up contingencies, such as interlocking life insurance plans, to make sure estate taxes didn’t kill their business in the event one of them died before the other.
The Supreme Court ruling last Friday, which legalized same-sex marriage in all 50 states, changed all that. And now Dewitt, whose company has $5 million in annual revenue and 50 employees, faces a new world where his business has parity with straight-owned companies, and LGBT employees who wish to marry also have equality. Still, there are significant challenges, including the best way to roll out new benefits without necessarily getting rid of old ones like domestic partner benefits, which have been in place for years.
“Now we won’t be second-guessing everything,” Dewitt says, adding his company will no longer have to spend tens of thousands of dollars on administrative and legal costs parsing the state-by-state differences for benefits such as health care for LGBT employees.
In fact, same-sex couples, including those who own or work for small businesses, are now entitled to the roughly 1,000 economic benefits that come with marriage. Those include access to a spouse’s health insurance plan, tax-free inheritance of assets including of a business, the ability to own property together without tax implications, and the potential benefits of filing tax forms jointly.
Great as all this is for many entrepreneurs and their workers, there are a number of issues that all small-business owners need to be aware of, says Todd Solomon, a partner at law firm McDermott Will & Emery.
Here are three to check on:
1. Self-insured health plans. If your business self insures, it might be advisable to start including same-sex spouses in your coverage. Since these plans are largely custom-designed, and are free of state insurance regulations, some in the past may have excluded same-sex spouses from coverage, even in states that had legalized same-sex marriage. That’s not likely to hold water anymore.
"Self-insured medical plans arguably can continue to exclude same-sex spouses from coverage,” Solomon says. “But if they don’t cover them, they could be at risk of a discrimination lawsuit.”
2. Domestic partner benefits. Starting in the 1990s, many corporations made health benefits available to LGBT employees in domestic partner relationships, because marriage was unavailable to them. This gave partners access to company health plans, but at a cost. The benefit was considered additional income, and were taxed accordingly.
While health care will no longer be taxed for same-sex married couples, the bigger question now is whether to phase out domestic partner benefits since marriage is an option.
Yet requiring employees in same-sex relationships to marry comes with its own set of concerns. Many couples, for example, may have already sorted out their financial matters in a way that’s satisfactory to them, Solomon says. And it’s still legal to fire LGBT people in 30 states based on their sexual orientation, which getting married would highlight. Like Dewitt, you may want to opt to continue offering the coverage.
"We like to add to our benefits, not take them away," Dewitt says.
If you do decide to continue offering domestic partner benefits, make sure you offer them to opposite sex couples as well, Solomon says, otherwise you risk a reverse discrimination suit.
3. Tax-filing status. If you marry, you may be filing taxes jointly for the first time. You may own the business yourself, but if your spouse is also a high earner, you may be bumped into the highest tax bracket if your combined income is over $450,000. That's the so-called marriage penalty that tax reform advocates have screamed about for years, and now same-sex couples must deal with it, too.
On the other hand, if one of the couple is a high earner, and the other is not, a business owner may be entitled to a state refund for the past three years, says Nicole Pearl, also a partner at McDermott Will & Emery. “For small-business owners of LLCs or S-Corps or other pass-through entities, if their tax would have been less in prior years if they filed jointly, they can go back and file for a refund,” Pearl says.
On balance, the new changes create a stronger foundation for everyone in business.
"The Supreme Court decision on marriage will make doing business easier for us," says Dewitt.