Thanks to last-minute action by the IRS, legally married same-sex couples can claim tax benefits this year if they’re enrolled in a flexible spending account, health care savings account or cafeteria plan.
The IRS – responding to the Supreme Court’s ruling in June invalidating part of the Defense of Marriage Act – said plans also are able to allow a midyear election change for participants marrying a same-sex spouse after the so-called Windsor decision.
In August, the government said same-sex couples will be viewed as married for federal tax purposes, regardless of whether their marriages were recognized by the state in which they lived.
Carol Calhoun, a Washington, D.C., based attorney and former IRS official, said employees can use benefits remaining in their 2013 FSA accounts for same-sex spousal benefits, even in the case of FSAs set up as self-only FSAs.
“This information obviously needs to be communicated to those responsible for processing FSA benefits,” she said in a post on her firm’s website.
Employers, she wrote, also can now correct inadvertent overwithholding or underwithholding due to the recognition of an employee’s marital status, “but only if they act quickly to do so before the end of the year.”
The IRS notice will affect the amount reportable as income on W-2s, she said, so it’s important for HR departments to be aware of the new guidance as soon as possible.
Retirement plan sponsors are still awaiting IRS guidance on whether they will be compelled to retroactively apply the DOMA decision in calculating spousal and other benefits to same-sex partners.
Here are excerpts from the latest notice, offered by the IRS in Q&A form:
Question: If a cafeteria plan participant was lawfully married to a same-sex spouse as of the date of the Windsor decision, may the plan permit the participant to make a mid-year election change on the basis that the participant has experienced a change in legal marital status?
Answer: Yes. A cafeteria plan may treat a participant who was married to a same-sex spouse as of the date of the Windsor decision (June 26, 2013) as if the participant experienced a change in legal marital status for purposes of Treas. Reg. § 1.125-4(c).
Accordingly, a cafeteria plan may permit such a participant to revoke an existing election and make a new election in a manner consistent with the change in legal marital status. For purposes of election changes due to the Windsor decision, an election may be accepted by the cafeteria plan if filed at any time during the cafeteria plan year that includes June 26, 2013, or the cafeteria plan year that includes December 16, 2013.
A cafeteria plan may also permit a participant who marries a same-sex spouse after June 26, 2013, to make a mid-year election change due to a change in legal marital status.