What you need to know:
In response to the Supreme Court’s decision in United States v. Windsor that restricting the federal definition of marriage to heterosexual marriage is unconstitutional, the Department of the Treasury and the Internal Revenue Service have announced that, effective September 16, 2013, all couples lawfully married in any US state, the District of Columbia or a foreign country will be treated as married for federal tax purposes. Same-sex couples in registered domestic partnerships, civil unions or similar formal relationships will not be treated as married for federal tax purposes.
What you need to do:
All employers, including employers in jurisdictions that do not recognize same-sex marriage, should review their employee benefit plans to ensure that all participants in same-sex marriages are treated as married, and that the same-sex spouse of a participant is treated as a spouse, beginning September 16. Employers who currently offer group health coverage to same-sex spouses of employees should cease imputing income to the employee-spouse for the value of the coverage as of September 16.
If a same-sex couple is legally married in a jurisdiction that allows same-sex marriage, the couple will be treated as married for federal tax purposes.
Under guidance from the Department of the Treasury and IRS effective September 16, same-sex marriages lawfully performed in any US state, the District of Columbia or a foreign country will be recognized for federal tax purposes, regardless of where the couple resides. Same-sex couples in registered domestic partnerships, civil unions or similar formal relationships will not be treated as married for federal tax purposes.
Imputed income no longer required for group health coverage of same-sex spouses.
Prior to the issuance of this guidance, an employer who provided group health coverage to the same-sex spouses of an employee was required to impute income to the employee equal to the value of the coverage. This imputation of income is no longer required and employers should cease imputing income to employees for group health coverage provided to same-sex spouses as of September 16.
Employers should wait for forthcoming cafeteria plan guidance before allowing employees to change existing cafeteria plan elections.
The IRS has indicated that additional guidance is forthcoming for cafeteria plans. Employers should wait for this guidance to be issued before allowing employees to change existing cafeteria plan elections, such as group health insurance premium payments and contributions to flexible spending arrangements. While it is logical that mid-year changes will be allowed, the requirements for mid-year cafeteria plan election changes are technical and are not necessarily satisfied by the issuance of the Windsor decision and this recent guidance.
Retirement plans must treat same-sex spouses as spouses starting September 16.
Qualified retirement plans, such as 401(k) plans and defined benefit pension plans, must begin treating same-sex spouses as spouses as of September 16. The IRS intends to issue guidance on how qualified retirement plans should apply Windsor and the recent guidance to periods prior to September 16. The future guidance will address the substance and timing of any required plan amendments and any necessary corrections relating to plan operations prior to the issuance of the promised guidance.
Employers may be eligible for a refund of Social Security and Medicare taxes they have paid.
Employers may seek a refund, or claim a credit against future taxes owed, of Social Security and Medicare taxes paid in the past three years (and sometimes earlier) on income of an employee with a same-sex spouse that would have been excluded from income if the employee’s marriage had been recognized for federal tax purposes. Employers should take steps now to determine the amount of Social Security and Medicare taxes for which they may seek a refund or claim a credit.
The IRS has indicated that it will establish a special administrative procedure for employers to seek refunds or claim credits for Social Security and Medicare taxes related to same-sex spousal benefits. The IRS will set forth this special administrative procedure in forthcoming guidance. It appears that Form 941-X will be used to seek refunds and claim credits for these amounts. We note that Form 941-X generally requires the cooperation of affected employees: employers filing Form 941-X must request a written statement from each affected employee that the employee has not claimed (or the claim was rejected), and will not claim, a refund or credit for the over-collection of Social Security and Medicare taxes.