In September, the IRS published Notice 2013-61 providing guidance to employers and employee regarding tax adjustments and refunds for same-sex married couples. That notice also promised that further guidance would be provided on cafeteria plans and health savings accounts. The new guidance is now available in Notice 2014-1.
Highlights of the recent notice include:
- A change in legal marital status is a change in status event that permits an election change in a Cafeteria Plan.
- Plans may accept election changes due to the Windsor decision at any time during the plan year that includes either June 26, 2013, December 16, 2013, or both. The change of election must be made effective by a reasonable period of time after December 16, 2013.
- A change in tax treatment generally does not permit an election change, but a same-sex couple that was married prior to the Windsor decision has also experienced a change in legal marital status that would permit a change in status election as long as the requested change is consistent with the change in legal marital status.
- Employees who paid post-tax for their same-sex spouse’s health coverage may exclude the post-tax amounts from gross income on their 2013 income tax return and may seek a refund of “federal income or federal employment taxes” for prior years until the refund limitation period expires (generally three years from when a return was filed).
- Health flexible spending account claims for a same-sex spouse may be honored for reimbursement no earlier than the date of the Windsor decision (June 26, 2013) or the date of the marriage, whichever is later.
- HSA contributions for a married couple are limited to $6,450 for 2013. If an employee and same-sex spouse each contributed the single maximum of $3,250 to their own HSA, they will have a combined contribution greater than the allowed $6,450. To correct the contributions, one of the spouses will need to take a distribution of the excess amount. The correction must be made no later than the tax return due date for either spouse in order to avoid tax penalties.
- Dependent care elections are limited to $5,000 for married couple or $2,500 each if filing separately. If the married couple jointly elected more than the maximum, they will need to include the excess contributions as taxable income when filing their income tax return(s).
Please note that the above information may or may not be different for employees on their state tax returns. Participants may still have to account for same-sex spouse benefits when filing state tax returns and relevant dates may differ from the federal Notice. Please contact your payroll/tax advisor for additional assistance.