On Sept. 23, 2013, the Internal Revenue Service (IRS) issued Notice 2013-61 to describe special administrative procedures that employers may use to correct overpayments of employment taxes for 2013 and prior years with respect to certain benefits provided to same-sex spouses.
Notice 2013-61 adds to the guidance in Revenue Ruling 2013-17, which announced that the IRS will recognize all legally married same-sex couples for federal tax purposes, regardless of where the couple lives. The IRS began applying the terms of Revenue Ruling 2013-17 on Sept. 16, 2013. However, taxpayers may rely on the ruling for prior years, as long as the statute of limitations has not expired.
Both IRS Notice 2013-61 and Revenue Ruling 2013-17 implement the Supreme Court’s decision on the Defense of Marriage Act (DOMA). On June 26, 2013, the Court held that same-sex couples who are legally married under state law are entitled to equal treatment under federal law with regard to income taxes and federal benefits.
The special administrative procedures described in Notice 2013-61 are optional. They are intended to reduce the filing and reporting burdens associated with the retroactive application of Revenue Ruling 2013-17. Employers that prefer to use the regular procedures for correcting employment tax overpayments related to same-sex spouse benefits, instead of the special administrative procedures, may do so.
Employment Tax Return—Third Quarter 2013
Notice 2013-61 provides that, if an employer withholds employment taxes with respect to same-sex spouse benefits in the third quarter of 2013 (July, August, September), determines the amount withheld on the benefits, and repays or reimburses employees for the amount of the taxes before filing the third quarter 2013 Form 941 (Employer’s Quarterly Federal Tax Return), the employer will not report the wages and withholding on the third quarter 2013 Form 941. For the third quarter of 2013, the Form 941 is due on Oct. 31, 2013.
If the employer does not repay or reimburse employees for the amount of the overcollection before filing the third quarter 2013 Form 941, the employer must report the amount of the overcollection on that return and can use one of the special administrative procedures for 2013 described below to make an adjustment or claim a refund for the overpayment.
Special Procedures for 2013
For overpayments of employment taxes for 2013, Notice 2013-61 provides two alternative special procedures.
- Under the first alternative, an employer must repay or reimburse employees for the amount of the over-collected Federal Insurance Contribution Act (FICA) tax and income tax withholding with respect to same-sex spouse benefits for the first three quarters of 2013 on or before Dec. 31, 2013. After repaying or reimbursing employees, employers use the fourth quarter 2013 Form 941 to correct overpayments of employment taxes for the first three quarters of 2013.
- Under the second alternative, employers file Form 941-X (Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund) for the fourth quarter of 2013 to correct the overpayment of FICA taxes during all quarters of 2013. This second alternative cannot be used for income tax withheld from employees. However, 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 Form 1040 (U.S. Individual Income Tax Return).
Special Procedure—Years Before 2013
With respect to overpayments of FICA taxes for years before 2013, employers can make a claim or adjustment for all four calendar quarters of a year on one Form 941-X filed for the fourth quarter of such year if the statute of limitations on refunds has not expired and, in the case of adjustments, the period of limitations will not expire within 90 days of filing the adjusted return. Under normal procedures, employers are required to file a Form 941-X for each calendar quarter for which a refund claim or adjustment is made.
This special administrative procedure is subject to the usual requirements that apply to corrections of overpayments for prior years, including the filing of Forms W-2c, repaying or reimbursing employees for the overwithheld taxes and obtaining the required written statements (and consents if applicable) from employees.
Also, this special administrative procedure for prior years cannot be used with regard to income tax withheld from employees with respect to same-sex spouse benefits in prior years. Employees may receive refunds of income tax paid with respect to same-sex spouse benefits in prior years by filing Form 1040X (Amended U.S. Individual Income Tax Return). As indicated above, an employer filing a claim for refund or credit or making adjustments for prior years must file Forms W-2c for the prior years. Forms W- 2c will assist employees in claiming a refund of income tax.
Statute of Limitations
Generally, the statute of limitations for filing a refund claim is three years from the date the return was filed or two years from the date the tax was paid, whichever is later. As a result, it is possible that refund claims may still be filed for tax years 2010, 2011 and 2012.
Same-sex Spouse Benefits
For purposes of Notice 2013-61, “same-sex spouse benefits” refers to the benefits specified in Revenue Ruling 2013-17 for which amended income tax returns and adjusted employment tax returns or claims for refund or credit may be filed. These benefits are same-sex spouse employer-provided health coverage and fringe benefits that were provided by an employer to a same-sex spouse and are excludable from income under section 106, 117(d), 119, 129 or 132 of the Internal Revenue Code based on an individual’s marital status.
Source: Internal Revenue Service