October 8, 2013

More Agency Guidance Issued on Same-Sex Marriage

As a follow-up to last month’s Benefit Beat article, For Federal Tax Purposes, a Spouse is a Spouse, Whether Same or Opposite Sex, says the IRS and Treasury, the Department of Labor and the Internal Revenue Service has issued guidance relating to same-sex marriage.

Department of Labor Technical Release

On September 18, 2013, the Department of Labor issued Technical Release 2013-04 addressing same-sex marriage.  The DOL, like the IRS and Treasury, is using the “celebration rule”; meaning that if a couple is legally married in a jurisdiction that recognizes same-sex marriage, the marriage is deemed to be valid for all employee benefit plan purposes over which the DOL has jurisdiction.  For example, this guidance affirms that a same-sex spouse is entitled to the same rights under COBRA and HIPAA as is an opposite-sex spouse.  This is true even if the couple resides in a jurisdiction that does not recognize same-sex marriage.

The DOL has indicated that it intends to issue further guidance, but in the meantime, employers should proceed in reviewing, updating, and administering their employee benefit plans consistent with the position that a couple legally married, whether same or opposite sex, qualifies as a marriage.

IRS – Optional Simplified Methodologies for FICA Claims or Refunds

On September 23, 2013 IRS issued Notice 2013-61 providing simplified procedures for employers to claim refunds or adjust overpayments of FICA taxes applicable to certain benefits and remunerations provided to same-sex spouses.   

As a result of the Windsor decision, for group health plan purposes, the portion paid by an employer for same-sex spouse coverage is excludable from the employee’s income, and the premium paid by the employee toward the same-sex spouse’s coverage can be paid on a pre-tax basis through the terms of an IRC Section 125 cafeteria plan.  If an employer had previously provided health coverage for an employee’s same-sex spouse and included the value of that coverage in the employee’s gross income, an employee would be entitled to re-coup the federal income tax paid on the value of health coverage on the spouse. 

Similarly, if cafeteria plan allowed an employee to pay his/her portion of health coverage on a pre-tax basis and the employee paid coverage on an after-tax basis for the same-sex spouse, the employee could claim a refund of income taxes paid on the premiums. 

According to prior IRS guidance (Rev Rule 2013-17), the affected employee would file an amended Form 1040 in order to obtain a refund of federal taxes.  Taxpayers can file a claim for a federal tax refund for the 3-year period from the date the return was filed, or two years from the date the tax was paid, whichever is later.  Affected taxpayers should consult with his/her tax adviser relating to state tax matters.

For employers, the IRS provides some administrative procedures that could be used to correct FICA overpayments in 2013. 

  1. The employer repays or reimburses its employees for the amount of the over-collected FICA tax relating to the same-sex spouse benefits.  If the over-withholding is made by December 31, 2013,  the employer could use the fourth quarter 2013 Form 941, Employer’s Quarterly Federal Tax Return, to correct overpayments of FICA taxes for the first three quarters of 2013; or
  2. An employer who does not repay or reimburse employees for the amount of FICA withholding relating to same-sex spouse benefits provided in 2013 can file one Form 941-X, Adjusted Employer's Quarterly Federal Tax Return or Claim for Refund, for the fourth quarter of 2013 to correct the overpayment of FICA taxes for all quarters of 2013.

For overpayments of FICA taxes for years before 2013, employers could use Form 941-X to make a claim or adjustment for all four calendar quarters of a calendar year, as long as the applicable period of limitations on the credit or refund has not expired.

Employers filing a Form 941-X are subject to the usual requirements applicable to correcting overpayments for prior years, including filing of the Form W-2c, repaying or reimbursing employees for the over-withheld FICA taxes, and obtaining the required written statements from employees.

It should be noted that the procedures provided in this IRS guidance are optional.  An employer can use its traditional method of correcting FICA tax overpayments rather than use these procedures. 


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