IRS Provides Simplified Procedures For Overwithheld Employment Taxes On Benefits, Wages For Same-Sex Spouses

In Notice 2013-61, the Internal Revenue Service has provided guidance to employers to make claims for refund or adjustments of overpayments of Federal Insurance Contributions Act (FICA) taxes and federal income tax withholding (employment taxes) that arose from the Supreme Court decision in United States v. Windsor and Rev. Rul. 2013-17. The Notice provides special administrative procedures that can be used by employers to claim refunds or make adjustments of overpayments of employment taxes paid with respect to same-sex spouse benefits for 2013, and a special administrative procedure that can be used with respect to overpayments of FICA taxes for years before 2013.

In Windsor, the Supreme Court held that section 3 of the Defense of Marriage Act (DOMA), which defined “marriage” for federal purposes as a union between one man and one woman, was unconstitutional. As a result, the IRS issued Rev. Rul. 2013-17, which provided that same-sex marriages that were legal where they were performed would be recognized for federal tax purposes. The ruling applied prospectively as of Sept. 16, 2013, but taxpayers could also apply it to prior tax years for which the limitations period for refund and credit claims had not yet expired.

Under DOMA, wages and gross income for federal tax purposes included employment benefits provided to an employee’s same-sex spouse, even if the same benefits were excluded from wages and income when provided to an employee’s opposite-sex spouse. Thus, employers withheld and paid employment taxes with respect to same-sex spouse benefits. An employer also may have withheld and paid employment taxes on amounts paid for services performed by a same-sex spouse, without applying the employment tax exceptions for certain remuneration paid to spouses.

The new guidance provides special administrative procedures for employers to correct these overpayments of employment taxes for 2013 and prior years with respect to these same-sex spouse benefits and remuneration paid to same-sex spouses, including overpayments that result from a taxpayer’s retroactive application of Rev. Rul. 2013-17. These procedures are intended to simplify the normal process, under which employers must file a separate Form 941-X for each calendar quarter for which a refund claim or adjustment is made.

Two special procedures apply to 2013:
• employers may use the fourth quarter 2013 Form 941, Employer’s QUARTERLY Federal Tax Return, to correct overpayments of employment taxes for the first three quarters of 2013; or
• employers may file one Form 941-X, Adjusted Employer’s QUARTERLY Federal Tax Return or Claim for Refund, for the fourth quarter of 2013 to correct these overpayments of FICA taxes for all quarters of 2013.

For FICA tax overpayments for years before 2013, employers can make a claim or adjustment for all four calendar quarters of a calendar year on one Form 941-X filed for the fourth quarter of each year if the period of limitations for refund and credit claims is still open. For adjustments, the period of limitations will not expire within 90 days of filing the adjusted return.

All of these special administrative procedures are optional. Employers that prefer to use the regular procedures for correcting employment tax overpayments related to same-sex spouse benefits and remuneration, instead of the special administrative procedures, may do so, according to the Notice.

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