New IRS Guidance on Tax Treatment of Employer-Provided Benefits for Same-Sex Spouses

by Davis Wright Tremaine LLP
Contact

The U.S. Supreme Court’s decision in U.S. v. Windsor changed the tax treatment of benefits provided to legally married same-sex spouses and their dependents. Prior to the Windsor decision, employers were required to treat any employer contributions for benefits offered to an employee’s same-sex spouse as imputed income. The IRS previously advised that effective Sept. 16, 2013, benefits provided to same-sex spouses under medical, cafeteria, and other fringe benefit plans are now entitled to the same favorable tax treatment as opposite-sex spouses, and refunds may be available for prior years.

On Sept. 23, 2013, the IRS issued further guidance in Notice 2013-61, describing a special administrative procedure for employers to file claims for refunds or make adjustments for over-withheld income taxes and excess employment taxes paid on same-sex spouse benefits. As a result of this guidance, employers should take the following action:

First, employers should immediately stop imputing income tax and deducting FICA, FUTA, and income withholding taxes from the value of medical and fringe benefits provided to same-sex spouses and their dependents.

Second, for plan year 2013, the employer should immediately take steps to recover the income tax, FICA, and FUTA taxes previously withheld. There are also less urgent steps to be taken to recover taxes for prior years.

There are two simplified methods set forth in Notice 2013-61 for recovering employment taxes (i.e. “FICA and FUTA”) and one method for recovering income taxes.

Approach One – Correct for 2013 in Current Year (Preferred Method). Under approach one, the employer reimburses the employee for the over-withheld FICA and FUTA taxes and income taxes by reducing future tax payments for 2013 by the amount over-withheld. Reimbursement or repayment must be completed by Dec. 31, 2013. The adjustment for FICA taxes is made only if the employee’s wages are projected to be less than $113,700 for the year. The adjustment for FUTA taxes and income taxes are made regardless of the total amount of the employee’s earnings. The reduced amounts withheld are reported on the employer’s semi-monthly or monthly payroll deposits and will also be reported on the 4th Quarter Form 941, due by Jan. 31, 2014. Under this approach, all accounts are reconciled by year-end, so there are no special reports or employee consents required. This is the only method by which the employer can assist the employee with respect to the over-withheld income tax.

Approach Two – Correct for 2013 After Year-End (Requires amended returns and employee consent). Under this approach, the employer stops imputing income, but has not fully corrected the over-withholding of FICA (for those earning less than $113,700) and the over-withholding of FUTA and income tax by year-end. The employer cannot assist the employee with the over-withholding of income tax after year-end. The employee may claim an income tax refund on his or her 2013 tax return. The employer can obtain the over-withheld FICA and FUTA by filing amended returns along with a signed statement from the employee. The employee’s statement must indicate that the employee has not and will not, in the future, file a claim for a refund of the FICA and FUTA taxes. Prior to filing, the employer must reimburse the employee for the employee’s share of over-withheld FICA or FUTA taxes. The employer would then issue a corrected W-2 to the employee, i.e. form W-2c. The employer would also file an amended Form 941-X, for the fourth quarter, with the words WINDSOR written across the top. This is a simplified procedure, as normally the employer would be required to file an amended Form 941-X for each quarter of 2013.

Correction of Other Open Years. The IRS has indicated that the employee and employer can file retroactively for all open years, i.e. generally 2010 and later years. However, an employee who files retroactively for income tax refunds must amend and file the prior Form 1040 returns consistent with such status, i.e. married. Employers who file retroactively to recover FICA and FUTA must obtain a written statement/consent from the employee and must refund the employee’s share of over-withheld FICA and FUTA to the employee prior to filing. The employer must file an amended Form W-2, W-2c, and file an amended Form 941, i.e. a 941-X. The employer can file an amended Form 941-X for the last quarter of the year and seek a refund for the entire year. An amended fourth quarter Form 941-X must be filed for each year that the employer is seeking a refund. Absent this special procedure, the employer would have to file an amended Form 941-X for each quarter of the year.

Given the work involved in filing for open years, an employer may wish to correct only calendar year 2013, before Dec. 31, 2013, and await an employee request before filing for earlier years.

 

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.

© Davis Wright Tremaine LLP | Attorney Advertising

Written by:

Davis Wright Tremaine LLP
Contact
more
less

Davis Wright Tremaine LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.
Feedback? Tell us what you think of the new jdsupra.com!