On December 16th, 2013, the IRS provided additional guidance for health benefits for same sex marriages (SSM) in the form of Notice 2014-1. Some highlights of the guidance:
If a valid SSM exists as of the Date of the Windsor decision (June 26th, 2013), then, for cafeteria election changes due to the Windsor decision, an election may be accepted 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.
While a tax coverage change is normally not a "significant change in cost of coverage" for cafeteria election changes, for periods between June 26 and December 31, 2013, a cafeteria plan will not be treated as having failed to meet this change in status rule solely because the plan permitted a participant with a same-sex spouse to make a mid-year election change due to the change in the cost of health coverage.
A cafeteria plan with a calendar year plan year may permit a participant’s FSA to reimburse covered expenses of the participant’s same-sex spouse or the same-sex spouse’s dependent that were incurred during a period beginning on any date that is on or after January 1, 2013 (or the participant’s date of marriage if later). A cafeteria plan with a non-calendar year plan year may use the beginning of the cafeteria plan year that includes June 26th, 2013 (or the date of the marriage if later).
Cefeteria plans that receive notice of a SSM should correct taxation of SSM no later than the later of (1) the date that a change in legal marital status would be required to be reflected for income tax witholding under section 3402, or (2) a reasonable period of time after 12/16/13. A cafeteria plan participant may seek a refund of federal income or federal employment taxes paid on any amounts that were imputed AND may exclude these amounts from gross income when filing an income tax return for the year.
NOTICE BY PARTICIPANT
The rules state that a participant may provide notice of the marriage by making an election under the employer's cafeteria plan OR by filing a revised Form W-4 representing that the participant is married.
HEALTH SAVINGS ACCOUNTS (HSA) LIMITS
The maximum annual deductible contribution to one or more HSAs applies to SSM couples who are treated as married for federal tax purposes with respect to a taxable year (that is, couples who remain married as of the last day of the taxable year), including the 2013 taxable year. If the combined HSA contributions elected by the SSM exceed the HSA contribution limit (for a married couple), contributions for one or both of the spouses may be reduced for the remaining portion of the tax year in order to avoid exceeding the applicable contribution limit. To the extent that the combined contributions to the HSAs of the married couple exceed the contribution limit, any excess may be distributed from the HSAs of one or both spouses no later than the tax return due date for the spouses, as permitted under section 223(f)(3). Any such excess contributions that remain undistributed as of the due date for the filing of the spouse’s tax return (including extensions) will be subject to excise taxes.
DEPENDENT CARE SAVINGS ACCOUNTS (DCSA) LIMITS
The maximum contribution limit for married individuals also applies for dependent care accounts. If the combined dependent care FSA contributions elected by the same-sex spouses exceed the applicable contribution limit for a married couple, contributions for one or both of the spouses may be reduced for the remaining portion of the tax year in order to avoid exceeding the applicable contribution limit. To the extent that the combined contributions to the dependent care FSAs of the married couple exceed the applicable contribution limit, the amount of excess contributions will be includable in the spouses’ gross income as provided in section 129(a)(2)(B).
PLAN DOCUMENT AMENDMENTS
To the extent that the cafeteria plan sponsor chooses to permit election changes that were not previously provided for in the written plan document, the cafeteria plan must be amended to permit such election changes on or before the last day of the first plan year beginning on or after December 16, 2013. For a calendar year plan, this will be December 2014. Such an amendment may be effective retroactively to the first day of the plan year including December 16, 2013, provided that the cafeteria plan operates in accordance with the guidance under this notice.
December 16th, 2013.
Guidance continues to come in related to SSM and benefits. In a way, this guidance is seen as additional guidance to Rev. Rul. 2013-17 where the IRS clarified that the place of celebration for SSM will apply with respect to federal tax laws. If you need help understanding this guidance, please contact Kinney & Larson.