In the wake of
the Supreme Court's decision in United States v. Windsor,
which held part of the Defense of Marriage Act ("DOMA") to
be unconstitutional (see the Alert of 6/27/13), and IRS Notice
2013-61 which said that the IRS will recognize all legally-married,
same-sex couples for federal tax purposes, certain questions have
arisen with respect to the administration of cafeteria plans and
health savings accounts (HSAs). The IRS has now released Notice
2014-1 in response to these questions.
One major issue
concerning same-sex couples is whether the Windsor decision
itself constitutes a "change-in-status" event that would
allow for a mid-year election change in a cafeteria plan. The
regulations governing the change-in-status rules include "events
that change an employee's legal marital status." IRS says that
the federal recognition of same-sex marriage under Windsor is
such a change in marital status and therefore a mid-year election
change would be allowed.
provides that the mid-year election change may be made at any time
during the plan year that includes either June 26, 2013 (i.e.,
the date of the Windsor decision) or December 16, 2013 (i.e.,
the date of this Notice). Cafeteria plans that do not already provide
that "change-in-status" includes changes in legal marital
status can be amended to enable these election changes. The Notice
permits such amendments to be adopted as late as the end of the first
plan year commencing after December 16, 2013 (i.e., by
December 31, 2014 for calendar year plans), and to be effective as
early as of the beginning of the plan year that includes December 16,
2013 (i.e., January 1, 2013 for calendar year plans).
further permits tax-exempt reimbursements from health care, dependent
care, and adoption assistance FSAs for expenses incurred by an
employee's same-sex spouse (or the spouse's dependent) on or after
the later of: (i) the date of the marriage; or (ii) the beginning of
the FSA plan year that includes the Windsor decision. This
rule may be retroactively applied if the FSA did not previously
reimburse same-sex spouse expenses.
The Notice also
confirms that certain limitations now apply to same-sex couples as
they do for opposite sex married couples. These limitations include
the prohibition on couples contributing more than a total of $5,000
to all dependent care FSAs. In addition, the contribution limit for
HSAs for married couples ($6,450 in 2013) applies to the total of all
contributions made by a same-sex couple in the same manner as it
applies to opposite-sex couples.
have additional questions regarding how the Notice affects their
plans should consult with qualified employee benefits professionals.
Moreover, employers that wish to amend their cafeteria plans to
include changes in legal marital status as a
"change-in-status" event to allow employees with same-sex
spouses to make the retroactive elections provided for by the Notice
are advised to engage qualified benefits counsel to do so.
The Notice may be
accessed at: http://www.irs.gov/pub/irs-drop/n-14-01.pdf.