New IRS Guidance on Same-Sex Spouses and Cafeteria Plans


Action by December 31st Required for Safe Harbor

Yesterday, the IRS issued specific guidance on how employers can address issues arising from the change in tax treatment for same-sex spouses under cafeteria plans.  The guidance includes a transition rule/safe harbor re: election changes that requires action by December 31, 2013.

Most of the new guidance continues IRS’ prior guidance: namely, that:

  • For Federal tax purposes, “spouse,” “husband and wife,” “husband,” “wife”, and “marriage” include same-sex spouses who are legally married. 
  • This means the same-sex couple was married in a state that permits same-sex marriage, even if they live in a state that does not permit same-sex marriage. 
  • A  domestic partnership, civil union, or other relationship recognized under state law does not count for Federal tax purposes if it is not called “marriage”.

Following up this general advice, the IRS has provided new Q&A re: applying this advice to cafeteria plans.  Key guidance includes:

  • Between June 26, 2013 and December 31, 2013 employers can allow their employees to add a same-sex spouse using a mid-year election change, treating the change in tax status of coverage as “a significant change in the cost of health coverage”.
  • Employees that were required to pay for their same-sex spouse on an after-tax basis due to Defense of Marriage Act ("DOMA") may seek a refund for years prior to 2013, and may exclude amounts paid on an after-tax basis from their gross income when filing their income tax return for 2013.
  • Flexible Spending Accounts ("FSA") - including health care, dependent care,  and adoption assistance FSA - may reimburse covered expenses for a same-sex spouse (or same-sex spouse’s dependent(s)) retroactive to (a) the beginning of the cafeteria plan year that includes June 26, 2013 or (b) the date of marriage, if later.

Cafeteria plans generally do not need to be amended to reflect these rules.  However, plans that excluded same-sex spouses from cafeteria plan provisions due to DOMA – such as the ability to make pre-tax contributions, participate in FSAs, or take advantage of mid-year election changes – should be amended as soon as possible.

For more information, see the new FAQs on the IRS website.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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