Although the government shutdown appears to be over, at least temporarily, businesses will need to deal with the aftermath of the lengthy shutdown. One of the many unintended, and perhaps unforeseen, consequences of the shutdown was its impact on federal tax collection efforts. During the shutdown, Internal Revenue Service Revenue Officers who handle collection matters were deemed non-essential and furloughed. Although in-person collection activity ceased, automated collection activity did not. This created the possibility that an individual or business taxpayer could receive computer generated Notice of Intent to Levy during the shutdown. A Notice of Intent to Levy generally provides a taxpayer thirty days to respond, after which period the IRS can levy assets. Given the length of the shutdown, a Notice of Intent to Levy could have been issued and have expired, or be ready to expire, while the shutdown continued. While it may require a human being to send out a levy notice, now that the shutdown has ended there will be officials at the IRS who can issue actual levies. Now that the shutdown is over, it remains to be seen if the IRS can react quickly enough to stop levy activity on all the accounts that received automated Notices during the shutdown. If your business receives a Levy Notice shortly after the shutdown, for your own account or for assets payable to an employee, it might be worth some follow up before submitting requested payment to the Internal Revenue Service. Note though, that without evidence that a Levy Notice has been withdrawn, compliance is required.
In the latest case to challenge elements of the Affordable Care Act (“Act”), the United States Supreme Court in a six-to-three vote, ruled on June 25, 2015 in King v. Burwell that premium subsidies will remain available in 36 states in which the federal government has primary responsibility for running health insurance exchanges.
The legal issue before the Court was the validity of Internal Revenue Service regulations that allow premium subsidies to individuals enrolled in a health plan through exchanges operated by a State or by the federal government. The regulation interprets Section 36B(b)(2) of the Internal Revenue Code added by the Act which provides that the IRS is to calculate tax credits for premiums for qualified health plans “which were enrolled in through an Exchange established by the State.”
The Court was not persuaded by the petitioners’ argument that the plain, unambiguous language of the statutory provision prevented the IRS from establishing the regulation and there was no basis for the Court rejecting the plain text of Section 36B that only tax credits were available on state exchanges. Rather, the Court viewed Section 36B as ambiguous in that the phrase could be limited in its reach to State exchanges but it could also refer to all exchanges—both State and Federal—for purposes of the tax credits. Given that it determined that the text was ambiguous, the Court looked to the broader structure of the Act to determine whether one of Section 36B’s permissible meanings produced a substantive effect that was compatible with the rest of the Act, the core purpose of which is to provide quality, affordable health care.
Chief Justice Roberts concluded his lengthy majority opinion with the following statement that summarized the majority’s rational for the decision “[a] fair reading of legislation demands a fair understanding of the legislative plan. Congress passed the Affordable Care Act to improve health insurance markets, not to destroy them. If at all possible, we must interpret the Act in a way that is consistent with the former, and avoids the latter. Section 36B can fairly be read consistent with what we see as Congress’s plan, and that is the reading we adopt.”
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.