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On June 27, 2014, the IRS released Information Letter 2014-0012, which contains guidance for employees who have had the value of same-sex spousal coverage under employer health plans — which until recently was required to be included in gross income — reported on their Forms W-2.

BACKGROUND

Historically, the employer cost of opposite-sex spousal coverage under employer-provided health plans was tax free, see Treas. Reg. section 1.106-1, while the employer cost of same-sex spousal coverage resulted in taxable income to the employee.  Further, the employee cost of opposite-sex spousal coverage could be paid for on a pre-tax basis through a cafeteria plan, see I.R.C. section 125, while same-sex spousal coverage could only be paid for with after-tax dollars.

 In United States v. Windsor, 570 U.S. ___, 133 S. Ct. 2675 (2013), the U.S. Supreme Court declared Section 3 of the Defense of Marriage Act (“DOMA”) — which had prohibited the recognition of same-sex couples as spouses for federal tax law purposes — unconstitutional.  Thereafter, the IRS issued guidance providing that same-sex spouses who were lawfully married under the law of any state — regardless of where those same-sex spouses resided — would be treated the same as opposite-sex spouses for federal tax purposes.  See Revenue Ruling 2013-17.  Subsequent IRS guidance clarified the tax treatment of the employer cost and the employee cost of same-sex spousal coverage:  the former would not result in taxable income to the employee and the later could be paid on a pre-tax basis through a cafeteria plan.  See Notice 2014-1.

 

INFORMATION LETTER 2014-0012 

Information Letter 2014-0012 outlines two possible correction methods for an employee who has had the value of same-sex spousal health coverage reflected on a Form W-2.   

Option One:  The employee can ask the employer for a corrected Form W-2 — that does not include the value of any excludable spousal health coverage in taxable wages — and use the corrected Form W-2 when filing the employee’s tax return. 

Option Two:  If the employer does not issue a corrected Form W-2, the employee can complete Form 4852 (Substitute for Form W-2, Wage and Tax Statement, or Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.) pursuant to the instructions contained the Information Letter and file it with a completed Form 1040 and the uncorrected Form W-2. 

The Information Letter also advises employees that they may be entitled to a refund of federal employment taxes (social security and Medicare) paid on the value of excludable spousal health coverage and provides two possible refund methods:  an employer-sought refund and an employee-sought refund via Form 843 (Claim for Refund and Request for Abatement).     

 

Key Take Away:  Significantly, Information Letter 2014-0012 does not require employers to issue corrected Form W-2s or seek a refund of federal employment taxes.  Accordingly, considerations of payroll department workload and employee relations can determine whether issuance of a corrected Form W-2 or the seeking of a refund is appropriate.  Payroll departments who have not already done so should ensure their Form W-2 reporting and federal employment tax withholding aligns with Windsor and subsequent IRS guidance.        

 

 

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Photo of Melissa Ostrower Melissa Ostrower

Melissa Ostrower is Principal in the New York City office of Jackson Lewis P.C.

Ms. Ostrower advises companies on all aspects of employee benefits law, including compliance with ERISA and the Code as well as administrative matters and fiduciary issues relating to benefit…

Melissa Ostrower is Principal in the New York City office of Jackson Lewis P.C.

Ms. Ostrower advises companies on all aspects of employee benefits law, including compliance with ERISA and the Code as well as administrative matters and fiduciary issues relating to benefit plans.  Ms. Ostrower has extensive experience in executive compensation matters and counsels both public and private companies on executive compensation issues, including Section 409A and 162(m) of the Code.

Ms. Ostrower is also a member of the Jackson Lewis healthcare reform task force and is intimately involved in helping Jackson Lewis clients ensure compliance with recently enacted healthcare reform legislation.

Ms. Ostrower is a graduate of Brandeis University (B.A., M.A.), George Washington University Law School (J.D.) where she was a member of The Law Review, and New York University (LL.M.).

Photo of Stephanie O. Zorn Stephanie O. Zorn

Stephanie O. Zorn is Of Counsel in the St. Louis, Missouri, office of Jackson Lewis P.C.

Ms. Zorn has over twenty years of experience representing management in employee benefits and employment matters, both as in-house counsel and in private practice.

Ms. Zorn’s employee…

Stephanie O. Zorn is Of Counsel in the St. Louis, Missouri, office of Jackson Lewis P.C.

Ms. Zorn has over twenty years of experience representing management in employee benefits and employment matters, both as in-house counsel and in private practice.

Ms. Zorn’s employee benefits practice includes counseling clients with regard to plan compliance, administration, participant disclosures, reporting and drafting requirements under ERISA, the Internal Revenue Code, ACA, HIPAA and COBRA.  Ms. Zorn assists clients with a broad range of plans, including retirement plans, welfare benefit plans, nonqualified plans, executive compensation plans, severance plans and voluntary early retirement plans.  Ms. Zorn’s practice includes counseling clients on fiduciary compliance — including investment selection, service provider reviews and plan committee issues — and merger and acquisition issues.  Ms. Zorn also represents clients in a range of employee benefits claims and litigation, including ERISA claims for plan benefits and COBRA compliance challenges.

Ms. Zorn’s employment practice consists of counseling and defending employers in connection with discrimination, harassment, disability accommodations, family and medical leave and wage and hour matters.  Ms. Zorn also assists clients with reductions in force and reorganizations, noncompete and confidentiality agreements, retention agreements, service provider classification, outsourcing and international labor and employment matters.

Ms. Zorn is a frequent speaker on employee benefits and employment law issues, including federal health care reform and discrimination laws.