The IRS recently issued Notice 2013-61 to provide streamlined alternative procedures to allow employers and employees to claim refunds or adjustments for 2013 and prior years for employee benefits provided to same-sex spouses. Until the recent Supreme Court decision in Windsor, employers withheld and paid income and employment taxes on employee benefits provided to the same-sex spouse of an employee because the marriage was not recognized for Federal income tax purposes. The Court held, however, that same-sex couples who are legally married in a jurisdiction which recognizes same-sex marriages are considered married at the Federal level. Soon thereafter, the Treasury issued Revenue Ruling 2013-17 which announced that it will follow the Windsor ruling and apply the holdings retroactively.
The purpose of Notice 2013-61 (the “Notice”) is to reduce filing and reporting burdens associated with the optional retroactive application of the holdings of Rev. Rul. 2013-17 by providing special administrative procedures for employers to correct overpayments of employment taxes for 2013 and prior years with respect to certain same-sex spouse employee benefits.
Procedures for Adjustments or Claims for Refund- 2013 Returns
The Notice provides two alternative special administrative procedures. Under the first alternative, if the employer repays or reimburses its employees for the amount of over-collected FICA and income taxes on or before December 31, 2013, employers may use the fourth quarterly 2013 Form 941, Employer’s Quarterly Federal Tax Return, to correct these overpayments of employment taxes for the first three quarters of 2013.
Under the second alternative, if the employer does not repay or reimburse the employee for the amount of the over-collection before filing third quarter 2013’s Form 941, the employer must report the amount of the over-collection on Form 941 for fourth quarter 2013. By utilizing this special alternative procedure, an employer can avoid having to file a separate Form 941-X for each calendar quarter in 2013.
It is important to note that, under the second alternative, an employer may not make an adjustment for an overpayment of income tax withholding because the overpayment is not attributable to an administrative error. Therefore, employees in same-sex marriages will receive credit for the income taxes withheld from any excludable employer-provided spousal benefits in 2013 when they file their individual income tax returns (Forms 1040) in 2014.
Procedure for Adjustments or Claims for Refund for Years Before 2013
The IRS has also provided a special administrative procedure for employers to make adjustments or claims for refund or credit of overpayments of FICA taxes paid with respect to same-sex spouse employee benefits for any year before 2013 for which the statute of limitations on credit or refund has not expired. Under this procedure, the employer may file one Form 941-X for the fourth quarter of a prior year. This fourth quarter Form 941-X would include the adjustments or refunds for all overpayments of employment taxes with respect to same-sex spouse employee benefits provided during such a prior year, including overpayments reflected in the Forms 941 for the first three quarters of the year. The employer should write “WINDSOR” in dark, bold letters across the top margin of page 1 of Form 941-X. Only corrections made under this special administrative procedure may be shown on this Form 941-X.
Employers are not required to file refund claims, and if the amounts are immaterial, the cost may outweigh the benefit. However, employee’s whose FICA taxes may be refunded would likely prefer to see employers take advantage of the streamlined procedures in the Notice. If a correction is requested, employers should determine the amount of income and employment taxes that were over-withheld in 2013 and make the necessary corrections on the fourth quarter 2013 Form 941.
Please contact your WeiserMazars tax professional for more information