Latest Post-Windsor Guidance from IRS Addresses Issues for Cafeteria Plans, Flexible Spending Accounts, and Health Savings Accounts

by Epstein Becker & Green
Contact

In its latest addition to guidance concerning the effects of the U.S. Supreme Court's decision in United States v. Windsor, the Internal Revenue Service ("IRS") has issued Notice 2014-1 to address certain issues relating to cafeteria plans, flexible spending accounts ("FSAs"), and health savings accounts ("HSAs").

In Windsor, the Supreme Court held that the federal Defense of Marriage Act ("DOMA"), which precluded recognition of same-sex marriages under federal law, was unconstitutional. The decision left many unanswered questions involving the effect of the decision on employer-provided benefits. With respect to issues under the Internal Revenue Code ("Tax Code"), the IRS has previously issued guidance confirming that same-sex couples will be treated as married for federal tax purposes regardless of where the couple is married. Further, the IRS has also addressed some tax issues under employer medical and retirement plans, including establishing certain procedures for claiming refunds of employment and income taxes, and adjustments for withholding by employers. (See our Epstein Becker Green Client Alerts entitled "The Supreme Court Strikes Down DOMA—Benefit Plan Sponsors Have Much to Consider" and "Treasury and IRS Issue Guidance on DOMA—Many, but Not All, Questions Are Answered"). Although previous guidance was effective as of September 16, 2013, many questions remained, including how to apply the various tax rules to events occurring before the decision and before the September 16, 2013, effective date.

Cafeteria Plans

Specifically, Notice 2014-1, which was issued on December 16, 2013, provides that on and after December 16, 2013, employers may allow employees who were in same-sex marriages as of June 26, 2013 (the date of the Windsor decision), or thereafter in 2013, to change their elections under cafeteria plans to reflect their marriages.

The IRS also recognized that, because there was uncertainty as to the availability of a change in marital status election in the wake of the Windsor decision, some plans may have taken the position that such elections have been allowable. Therefore, Notice 2014-1 provides that such elections between June 26, 2013, and December 16, 2013, will not cause a cafeteria plan to violate the applicable tax rules.

Further, the IRS indicated that employers may reimburse out of any funds remaining in a participant's cafeteria plan, including a health, dependent care, or adoption assistance FSA, for same-sex spousal expenses incurred during any portion of the plan year (in which the same-sex couple was married) that includes June 26, 2013.

Employees may file (or may have filed) a new W-4 or cafeteria plan election form indicating that they are married, and employers must begin to treat contributions for the spouse as pre-tax contributions by the later of a reasonable time after December 16, 2013, or when the form is effective.

Since, as noted above, a participant may be deemed to have notified a plan of his or her marital status by filing a revised W-4, even where a new election form has not been filed, employers may need to review the latest W-4 filed by any participant whose same-sex domestic partner (for purposes of the plan) is covered under the employer's health plan.

As a further recognition of the retroactive effect of marital status, employees may also treat the cost of spousal coverage under a cafeteria plan as excludable from income (and not subject to income or employment tax withholding) for the plan year including December 16, 2013 (including the remainder of a such current year even if no W-4 or new election is filed) and for any prior "open" year, even if the employer had reported such amounts as taxable, and employees may seek refunds of any income and employment taxes paid on such amounts.

Notice 2014-1 also states that employers may correct 2013 over- and under-withholdings that occurred because of an employee's marital status (same-sex), but such adjustments may only be made before the end of the year. Employees will still be able to correct over-withholding or under-withholding with their own filings, but if employers wish to help employees by doing an employer filing, they will have to act before December 31, 2013, which, as a practical matter, could not be accomplished by many employers.

Contributions. With respect to HSAs and dependent care FSA contributions, Notice 2014-1 makes clear that the combined limits on contributions apply. If spouses in a same-sex marriage have combined contributions to HSAs and/or dependent care FSAs in excess of the maximum, contributions for either or both spouses may be reduced for the remainder of the year to avoid the over-contribution, or any excess HSA contribution may be distributed from either or both of the HSAs no later than the tax return due date for the spouses. Excess HSA amounts will be subject to excise taxes under Section 4973 of the Tax Code and dependent care contributions will be taxable income.

Plan Amendments. Since Notice 2014-1 was issued mid-December, it may not be practicable for employers to make cafeteria plan amendments by the end of the current year. To address this late date, the IRS is permitting amendments to be made retroactively on or before the last day of the first plan year beginning on or after December 16, 2013. An amendment may be effective retroactively to the first day of the plan year including December 16, 2013, so long as the cafeteria plan operates in accordance with the guidance under Notice 2014-1.

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.

© Epstein Becker & Green | Attorney Advertising

Written by:

Epstein Becker & Green
Contact
more
less

Epstein Becker & Green 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.
Custom Email Digest
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.