In the wake of the Supreme Court decision in United States v. Windsor, 2013 U.S. LEXIS 4921 (2013) and the holdings of the subsequent Revenue Ruling issued by the Internal Revenue Service (IRS) ("Rev. Rul. 2013-17") regarding the federal tax treatment of same-sex spousal health insurance benefits, the IRS has now issued much anticipated guidance (Notice 2013-61) for employers and employees on how to claim a refund, credit or adjustment of overpayments of Social Security and Medicare (FICA) taxes and withheld federal income tax (FIT) with respect to health insurance coverage and certain fringe benefits provided, and compensation paid, to same-sex spouses. The "fringe benefits" referred to in the guidance include those that are excludable from income under Internal Revenue Code (IRC) §§ 106, 107(d), 119, 129, or 132 based on an individual's marital status.
The IRS Notice also provides two optional special administrative procedures that can be used by employers to claim refunds or make adjustments of overpayments of FIT and FICA taxes paid with respect to same-sex spousal benefits for 2013 and prior years, including overpayments resulting from the retroactive application of Rev. Rul. 2013-17. These procedures will reduce filing and reporting burdens associated with the optional retroactive application of Rev. Rul. 2013-17.
Optional Special Administrative Procedures
The first alternative permits employers to use the fourth quarter 2013 Form 941, Employer's Quarterly Federal Tax Return, to correct any overpayments of FIT and FICA taxes for the first three quarters of 2013. The second alternative permits employers to file one Form 941-X, Adjusted Employer's Quarterly Federal Tax Return or Claim for Refund, for the fourth quarter of 2013, to correct any overpayments of FICA taxes for all quarters of 2013.
Regarding FICA tax overpayments for years before 2013, employers may make a claim or adjustment for all four calendar quarters of a calendar year on one Form 941-X filed for the fourth quarter of that year, if the period of limitations on refunds (under IRC § 6511) has not expired. In the case of adjustments, the period of limitations will not expire within 90 days of filing the adjusted return. Under normal procedures, employers are required to file a Form 941-X for each calendar quarter for which a refund claim or adjustment is made.
Because the special administrative procedures are optional, employers that instead prefer to use the regular procedures for correcting FIT and FICA overpayments related to same-sex spousal benefits and compensation payments may do so.