United States: Treasury Department/IRS Issue Guidance Instructing Employers On How To Make Claims For FICA Refunds Or Credits Post-Windsor

Last Updated: November 25 2013
Article by Alden J. Bianchi

On June 26, 2013, in United States v. Windsor,1 the Supreme Court held that section 3 of the Defense of Marriage Act (DOMA) is unconstitutional. (For a discussion of the issues and holding in United States v. Windsor, please see our client advisory of July 12, 2012.) Before Windsor, the IRS applied section 3 of DOMA to prohibit the recognition of same-sex marriages for purposes of Federal tax law. As a result, employers were required to withhold and pay employment taxes with respect to otherwise non-taxable benefits provided to the same-sex spouse of an employee. Shortly after the decision was handed down, the Treasury Department and the IRS announced that they intended to issue "streamlined procedures for employers who wish to file refund claims for payroll taxes paid on previously-taxed health insurance and fringe benefits provided to same-sex spouses."2 On August 29, the Treasury Department issued Rev. Rul. 2013-17,3 which held:

  • For Federal tax purposes, the terms "spouse," "husband and wife," "husband," and "wife" include an individual married to a person of the same sex if the individuals are lawfully married under state law, and the term "marriage" includes such a marriage between individuals of the same sex;
  • For Federal tax purposes, a marriage of same-sex individuals that was validly entered into in a state whose laws authorize the marriage of two individuals of the same sex is valid even if the married couple is domiciled in a state that does not recognize the validity of same-sex marriages; and
  • For Federal tax purposes, the terms "spouse," "husband and wife," "husband," and "wife" do not include individuals (whether of the opposite sex or the same sex) who have entered into a registered domestic partnership, civil union, or other similar formal relationship recognized under state law that is not denominated as a marriage under the laws of that state, and the term "marriage" does not include such formal relationships.

Rev. Rul. 2013-17 clarified that individual taxpayers are allowed to file a claim for a credit or refund of an overpayment of FICA and/or income tax with respect to employer-provided health coverage benefits or certain other fringe benefits. It also provided instructions for the filing of certain income and payroll tax refunds. (For an explanation of Rev. Rul. 2013-17, please see our client advisory of September 9, 2013.)

In recently issued Notice 2013-61, the Treasury Department and the Internal Revenue Service described methods, and provided special administrative procedures, under which employers and employees may make claims for refund or adjustments of FICA and Federal income tax withholding with respect to certain benefits provided to same-sex spouses. (The notice refers to these claims for refunds and adjustments collectively as "corrections.") Affected benefits include group health plans, cafeteria plans, and health reimbursement arrangements, along with qualified tuition reduction programs, arrangements providing or reimbursing meals and lodging for the convenience of the employer, and dependent care assistance programs (relating to the care of a disabled spouse). Thus, if an employee made a pre-tax salary-reduction cafeteria plan election that included health coverage for a same-sex spouse on an after-tax basis under his or her employer's group health plan, the taxpayer may now treat these amounts as pre-tax salary reduction amounts for both payroll and income tax purposes.

General correction procedures under current regulations

FICA taxes are reported on IRS Form 941, "Employer's QUARTERLY Federal Tax return," which is filed quarterly. Corrections are made using a Form 941-X, "Adjusted Employer's QUARTERLY Federal Tax Return," for each calendar quarter being corrected. Generally, a separate X form must be filed for each taxable period. Where an employer claims a refund or credit of FICA taxes for a prior year, the employer must file Forms W-2c (Corrected Wage and Tax Statement) for such year.

The employer's and employees' shares of FICA taxes (Social Security and Medicare taxes) may be corrected for any period during with the statute of limitations has not expired. In contrast, Federal income tax withholdings may be corrected only for the current calendar year, except in the case of an administrative error (e.g., wrong amount of withholdings reported on Form 941). The statute of limitations is generally three years from the date a return is filed. For Form 941 purposes, however, all four quarterly returns are deemed to be filed on April 15 of the following year. No adjustment may be made, however, if the overpayment relates to a return period for which the period of limitations on credit or refund of such overpayment will expire within 90 days of filing the adjusted return.

Corrections of overpayments of FICA tax are generally made only after an error has been determined or "ascertained" by making a claim for a refund. An error is ascertained only when the employer has sufficient knowledge of the error to be able to correct it. Before making an adjustment of an overpayment of FICA tax with respect to an employee, an employer must repay or reimburse the employee in the amount of the over-collection. In the case of FICA tax over-collected in a prior year, the employer must secure the employee's written statement confirming that the employee has not made any previous claims (or that the claims were filed but rejected) and will not make any future claims for a refund or credit of the amount of the over-collected FICA tax. This requirement does not apply, however, to the extent that the employee FICA taxes were not withheld from the employee or, after the employer makes reasonable efforts to repay or reimburse the employee or secure the employee's consent, the employer cannot locate the employee or the employee will not provide consent. No refund to the employer is allowed for the overpayment of withheld income tax which the employer deducted or withheld from an employee.

Special rule for the 3rd quarter of 2013

If an employer (i) withheld employment taxes with respect to same-sex spouse benefits paid to or on behalf of an employee in the third quarter of 2013, (ii) ascertains the amount withheld on such benefits, and (iii) repays or reimburses the employee for the amount of such taxes before filing the third quarter 2013 Form 941, the employer need not report the wages and withholding on its third quarter 2013 Form 941. If, however, the employer does not repay or reimburse the employee for the amount of the over-collection before filing the third quarter 2013 Form 941, the employer must report the amount of the over-collection either under the general method explained above or by applying one of the special administrative procedures described below.

Special administrative procedures for 2013 (on 4th quarter 2013 Form 941)

Notice 2013-61 provides two alternative special administrative procedures for employers that treated the value of same-sex spouse benefits as wages on Forms 941 for the first three quarters of 2013:

  • First alternative special administrative procedure — correct all calendar quarters of 2013 on 4th quarter Form 941 (due January 31, 2014).

Under the first alternative special administrative procedure, an employer must repay or reimburse its employees for the amount of the over-collected FICA tax and the over-collected income tax withholding with respect to the same-sex spouse benefits for the first three quarters of 2013 on or before December 31, 2013. After repaying or reimbursing the employees, the employer may reduce the fourth quarter wages, tips, and other compensation by the amount of the same-sex spouse benefits treated as wages for the first three quarters of 2013. The income tax withheld from wages, tips, and other compensation is similarly reduced by the amount of affected income tax withholding. The advantage of this procedure is that employers will not have to file separate Forms 941-X to correct each of the first three quarters of 2013.

Adjustments of Social Security taxes are limited to that portion of the benefits that, when added to other Social Security wages for the year, does not exceed the taxable wage base for the year ($113,700 in 2013). To the extent an employee's other wages exceed the taxable wage base, the adjustment of the FICA taxes related to same-sex spouse benefits will be limited to Medicare taxes. Additional rules are provided to ensure that use of this special administrative procedure does not result in a mismatch between total taxes and total liability for the quarter.

  • Second alternative special administrative procedure — correct all calendar quarters of 2013 on a single Form 941-X for the 4th quarter of 2013.

The second alternative special administrative procedure applies where an employer does not repay or reimburse employees for the amount of withheld FICA and income taxes with respect to same-sex spouse benefits provided in 2013 on or before December 31, 2013. In this case, the employer will file the 2013 fourth quarter Form 941 without making the adjustment. Correction will, therefore, require the filing of a Form 941-X. Under this option, an employer may file a single Form 941-X for the fourth quarter of 2013 to make adjustments or claim refunds or credits of overpayments of FICA taxes with respect to same-sex spouse benefits paid in all quarters of 2013. This option is available only if the employer has otherwise satisfied the requirements for filing Form 941-X, including repaying or reimbursing the over-collected employee FICA tax to employees (or, for refund claims, securing consents from employees), and obtaining the required written statements from employees. Employers using this approach are instructed to write "WINDSOR" in dark, bold letters across the top margin of page 1 of Form 941-X.

Notice 2013-61 advises that "[a]n employer may not make an adjustment for an overpayment of income tax withholding for a prior calendar year unless the overpayment is attributable to an administrative error." As a consequence, this second special administrative procedure cannot be used with regard to income tax withheld from employees with respect to same-sex spouse benefits in 2013 because an employer can use this Form 941-X procedure only if the employer did not repay or reimburse employees for the amount of withheld taxes with respect to same-sex spouse benefits provided in 2013 on or before December 31, 2013. Instead, employees will receive credit for the income tax withheld for purposes of determining any entitlement to a refund of income tax paid with respect to same-sex spouse benefits provided in 2013 when they file their individual return.

Special administrative procedure for years before 2013

Notice 2013-61 provides a separate 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 benefits for any year before 2013. Under this procedure, the employer must take into account the applicable Social Security wage base in determining the overpayment of FICA taxes for the prior year being corrected. The employer may file one Form 941-X for the fourth quarter of the prior year, which includes the adjustments or refunds for all overpayments of employment taxes with respect to same-sex spouse benefits provided during such prior year, including overpayments reflected in the Forms 941 for the first three quarters of the year. As is the case with the second alternative special administrative procedure described above, employers using this approach are directed to write "WINDSOR" in dark, bold letters across the top margin of page 1 of Form 941-X.

This special procedure is subject to the usual requirements that apply in the case of corrections of overpayments for prior years, including the filing of Forms W-2c, repaying or reimbursing employees for overwithheld taxes, and obtaining the required written statements (and consents where applicable) from employees.

Footnotes

1. 70 U.S. ___, (2013).

2. U.S. Department of the Treasury Press Center, "All Legal same-sex Marriages Will Be Recognized for Federal Tax Purposes" (Aug. 29, 2013), available at: .

3. 2013-38 I.R.B. 201.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Alden J. Bianchi
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions