IRS has released Information Letter 2014-0012, which
outlines the process for employees to obtain a refund of taxes paid
on the value of employer-sponsored health coverage provided to an
employee's same-sex spouse. This guidance comes in the wake of the U.S.
Supreme Court's decision in United
States v. Windsor, which declared Section 3 of the
Defense of Marriage Act ("DOMA") unconstitutional. (See the
of 6/27/13.) Section 3 of DOMA prohibited the recognition
of same-sex couples as spouses for federal tax purposes.
Background. Pursuant to Section 3 of DOMA, IRS had said that the
while the value of group health care coverage for opposite-sex
spouses is not taxed, the value of coverage for same-sex spousal
coverage is taxable income to the employee. Also, while employees
could pay their share of the cost of opposite-sex spousal group
health coverage on a pre-tax basis, the employees could not do so for
a same-sex spouse.
In response to the U.S. Supreme Court's Windsor decision,
the IRS issued guidance (i.e., Revenue Ruling 2013-17)
providing that same-sex spouses will be treated as any other spouse
for federal tax purposes, provided the couple is legally married
under state law. Subsequent IRS guidance (i.e., Notice 2014-1)
clarified that: (i) for federal tax purposes, the value of
employer-sponsored health care coverage provided to an employee's
same-sex spouse is excludable from income, and (ii) the employee cost
for same-sex spousal coverage could be paid on a pre-tax basis using
a Section 125 cafeteria plan.
Information Letter 2014-0012. The Information Letter offers two possible correction
methods for employees who have had the value of same-sex spousal
coverage included in their Form W-2:
- The employee can request
that the employer provide a corrected Form W-2 that does not
include the value of the spousal health coverage in taxable
wages. If the employer issues a corrected Form W-2, the employee
can then use the corrected Form W-2 when filing a personal tax
- If the employer does not
issue a corrected Form W-2, the employee can complete Form 4852
(i.e., Substitute for Form W-2, etc.) in accordance with
the instructions provided in the Letter and file it with a
completed Form 1040 and the uncorrected Form W-2.
The Letter also explains that employees may be entitled
to a refund of federal employment taxes paid on the value of same-sex
spousal health coverage. Employees are advised to contact their
employer to determine if the employer will seek a refund of these
amounts on the employee's behalf. If the employer will not seek a
refund, the employee can file Form 843 (i.e., Claim for Refund
and Request for Abatement).
Action Steps for Plan Sponsors. Employers are not required to issue corrected Forms
W-2 or seek a refund of federal employment taxes. Thus, employee relations
will likely dictate whether employers issue corrected Forms W-2 or
seek refunds of federal employment taxes. Payroll departments are
advised to ensure that their FormW-2 reporting and federal employment
tax withholding practices comply with Windsor and subsequent IRS guidance.
The Information Letter 2014-0012 can be accessed at: http://www.irs.gov/pub/irs-wd/14-0012.pdf