For employers charged with mastering nuances of the federal tax law in light of the U.S. Supreme Court's rejection of the Defense of Marriage Act, there's another wrinkle to consider.
When the court struck down DOMA, it essentially said same-sex couples who were legally married had to be treated the same as opposite-sex couples for tax purposes.
The IRS got busy clarifying the tax code following the decision. When it came to employer sponsored health insurance, there were major differences regarding same-sex and opposite-sex couples.
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1. The employer cost of providing opposite-sex coverage was tax free. Employer cost of same-sex coverage was considered taxable income for the employee.
2. In a cafeteria plan, employee cost of opposite-sex spousal coverage could be paid for on a pre-tax basis. Employees with same-sex spousal coverage had to pay with after-tax dollars.
Now, those differences are out the window. "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," the IRS ruled.
The guidance can be found in IRS Information Letter 2014-0012, which states the two possible "correction methods" for a same-sex marriage employee with employer-sponsored coverage.
- The employee can request a corrected Form W-2 from the employer. The new form doesn't include the value of "excludable" spousal health coverage in taxable wages. That's the form the employee should use when filing a tax return.
- Some employers won't have the corrected Form W-2. In that instance, the employee can complete Form 4852, which is a 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. That form should be filed with a completed Form 1040 and the uncorrected Form W-2.
The good news for those who have paid the tax in the past is that they may be able to recover it via an employer-sought or employee-sought refund using Form 843.
In evaluating the new tax policy from the employer's standpoint, the Society for Human Resource Management said: "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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Dan Cook
Dan Cook is a journalist and communications consultant based in Portland, OR. During his journalism career he has been a reporter and editor for a variety of media companies, including American Lawyer Media, BusinessWeek, Newhouse Newspapers, Knight-Ridder, Time Inc., and Reuters. He specializes in health care and insurance related coverage for BenefitsPRO.
