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Post-Windsor Guidance Addresses Employment Tax Refunds

In another round of post-Windsor guidance (here), the IRS has provided some alternative processes for obtaining refunds of employment taxes (FICA tax and withheld income tax) paid with respect to same-sex spouses prior to the Supreme Court's decision in Windsor (e.g., for coverage under a cafeteria or health plan).

Overpayments for 2013. With respect to taxes paid in 2013, there are two alternative procedures for claiming a refund: (1) the employer may true-up the entire year's withholding on its fourth quarter 2013 employment tax return (Form 941); or (2) the employer may file a single amended employment tax return (Form 941-X) for the fourth quarter of 2013 to reflect the correct withholding amounts for the entire year. Both of these approaches allow employers to avoid filing amended returns for each quarter of the year to correct the withholding for that quarter.

For the third quarter of 2013 (July-September), employers should report on the employment tax return for that quarter the amount of taxes actually withheld and not refunded by the end of the quarter. For example, if an employer adjusted its withholding system effective August 1, 2013 and also refunded any taxes withheld in July 2013, then it would not report any of those withheld amounts on its Form 941 for the third quarter. But if it did not refund the July taxes by the end of the third quarter, then those taxes should be reported on the third quarter return and a refund claimed by way of one of the methods described above (e.g., by adjusting on the fourth quarter return).

Prior Years. With respect to taxes paid before 2013 (but during an open statute of limitations), employers may adjust the withholding for the entire year by filing a single amended employment tax return (Form 941-X) for the last quarter of each year. Again, this avoids having to file amended returns for each quarter of each year.

Note: Income tax withholding for a prior year generally cannot be corrected or adjusted after the year has closed, so refunds for years before 2013 will relate solely to FICA taxes. 

Special Procedures Are Optional. The special procedures outlined in this guidance are optional. Employers may continue to use the regular procedures for correcting employment tax overpayments, if they prefer. This generally would involve filing an amended employment tax return for each quarter for which an adjustment is required. 

No Obligation to Cover Same-Sex Spouses. Nothing in this guidance or any of the prior post-Windsor administrative guidance (see, e.g., here and here) obligates an employer to extend coverage under health and welfare benefit plans to same-sex spouses where such coverage is not otherwise required by law (e.g., state insurance law). Rather, this guidance tells us that if an employer has made coverage available to same-sex spouses, that coverage generally is tax-free, both prospectively and retroactively (to the extent the statute of limitations remains open). Keep in mind, however, that same-sex spouses do have federal statutory rights under qualified retirement plans (e.g., the right to consent to distributions and obtain QDROs), and we are anticipating further guidance from the IRS on implementation of those rights.


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Don Berner, the Labor Law, OSHA, & Immigration Law Guy
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Boyd Byers, the General Employment Law Guy
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Jason Lacey, the Employee Benefits Guy
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