New IRS Guidance for DOMA Refund Claims
Same sex marriage became legal in New York State on July 24, 2011. The federal government did not recognize such marriages until the Supreme Court struck down DOMA on June 26, 2013. The time period between these two events gives rise to some interesting tax issues.
Prior to the Windsor decision, if an employer did provide spousal coverage for a same-sex couple, the value of the spouse’s coverage was considered additional taxable wages, reported on Form W-2, and the added wages were also subject to FICA and Medicare taxes. The IRS has just confirmed that taxpayers may be entitled to refund of such income taxes and FICA/Medicare taxes, provided the taxpayers were legally married under state law.
The IRS has now guidance on how to apply for refunds of these employee taxes:
1. Contact your employer and ask for a corrected W-2 which excludes the value of spousal coverage from wages and the FICA/Medicare base, for the affected years. Your employer is not required to amend W-2s for this, but many should be willing to so. Use the amounts on the corrected W-2s when amending your returns.
2. If your employer does not issue corrected W-2s, use Form 4852 (Substitute W-2) to report the correct wage and FICA/Medicare base amounts. Use the Form 4852 amounts on your amended tax returns.
3. If you are entitled to a refund of FICA/Medicare taxes, first contact your employer to see if he will apply for a refund on your behalf. If he will not, then you can claim your refund on Form 843 (Claim for Refund).
Two caveats apply:
1. For taxpayers legally married in New York, this may affect tax returns filed for 2011 and 2012, and the statute of limitations for amending these returns is generally April 15, 2015 (For 2011 returns) and 2016 (for 2012 returns).
2. You can not selectively amend for only the items that benefit you. If you choose to amend, you must correct all items that should be reported differently from the original return. For example, if you amend for the health care exclusion, you must change your filing status from “single” to either “married- joint” or “married-separate,” because the Windsor decision is applied retroactively.
You are not required to amend 2011 and 2012 for Windsor issues. The decision whether to amend should include an evaluation of all of the tax items that could change.
The IRS Information Letter did not address refunds of employer taxes, but it seems clear that the employer can claim refunds for FICA and Medicare taxes paid on the spousal insurance costs previously included on the W-2. It involves preparing amended W-2 s on Form W-2C, and also amending the quarterly reports with Form 941-X. (If the health insurance inclusion was reported in the 4th quarter, then only the 4th quarter should be amended.) The 941-X provides for claiming a refund of both employee and employer share of FICA/Medicare taxes, or just the employer share. Considering the high costs of health insurance, any employer with 3 or more employees in this situation will likely receive a large enough refund to justify the cost of filing.
Source: IRS Information Letter 2014-0012 (2/24/2014)