On September 23, 2013, the IRS released Notice 2013-61 which provides special rules for employers making claims for refunds or adjustments of Federal Insurance Contributions Act (FICA) and federal employment taxes resulting from the United States Supreme Court’s decision in Windsor. In Windsor, the Court found that Section 3 of the Defense of Marriage Act (DOMA), which defined marriage as only between a man and a woman, was unconstitutional.
In the wake of Windsor, the IRS first released Revenue Ruling 2013-17 and adopted a “place of celebration” test for determining whether same-sex couples are considered legally married for federal tax purposes (which is more fully discussed here). Under the “place of celebration” test, once a couple is married in a state that recognizes same-sex marriage, the IRS considers them married for all purposes going forward, even if they move to a state where same-sex marriage is not recognized.
Prior to Windsor and Revenue Ruling 2013-17, an employer who made benefits available to a same-sex partner of an employee was required to impute the value of those benefit as income to the employee, and then withhold and pay FICA and employment taxes based on that imputed income amount. As a result of Windsor and Revenue Ruling 2013-17, however, employers no longer need to impute income to employees with same-sex partners who are validly married.
Revenue Ruling 2013-17, which took effect on September 16, 2013, is retroactive to all open tax years (2010, 2011, 2012). Individual taxpayers may amend their previously filed tax returns back to 2010 to change their filing status and recalculate their federal income tax to exclude imputed income based on benefits provided to a same-sex spouse. Like individual taxpayers, employers may also claim a refund or make an adjustment for any excess FICA and employment taxes paid. With Notice 2013-61, the IRS eased the process for employers seeking such an adjustment. Rather than filing a Form 941-X for each calendar quarter for which a refund or adjustment is needed (including 2013), an employer may file a single Form 941-X for each calendar year for which a refund or adjustment is desired. Notice 2013-61 also provides employers with two optional methods for correcting 2013 overpayments. The first correction method allows an employer to use its 2013 fourth quarter quarterly tax return (IRS Form 941) to correct any overpayments made during the first three quarters of 2013. The second correction method allows an employer to file one amended employer’s quarterly tax return (IRS Form 941-X) for the fourth quarter of 2013 to correct overpayments of FICA taxes for all four quarters of 2013.
Employers should be aware that these special rules are optional. If an employer desires to use regular procedures for correcting employment tax payments instead of the special administrative procedures (e.g., submitting amended returns for each quarter), it may still do so.