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More Post-Windsor Tax Guidance: IRS Issues Letter Outlining Steps for Individuals to Obtain Tax Refunds for Same-Sex Spousal Health Coverage

Posted in DOMA

July 21, 2014

On June 27, 2014, the IRS published a letter outlining the steps taxpayers should take in order to obtain a refund for taxes paid on the value of employer-sponsored health coverage provided to an employee’s same-sex spouse.  The letter, originally dated February 24, 2014, is in response to an inquiry from Rep. Peter Welch of Vermont, who had requested guidance on the issue on behalf of a constituent.

The IRS addressed a fact pattern in which a taxpayer’s employer issued the taxpayer a Form W-2 that reports the value of spousal health coverage as taxable wages.  Following the Supreme Court’s decision in United States v. Windsor, the IRS announced in Rev. Rul. 2013-17 and Notice 2014-1 that a same-sex spouse will be treated as a spouse for federal tax purposes, provided the couple is lawfully married under state law.  Therefore, as is the case with opposite-sex spouses, the value of employer-sponsored health coverage provided to an employee’s same-sex spouse is excludable from an employee’s income for federal tax purposes.  The Form W-2 issued to the taxpayer by the employer was therefore inaccurate.

The IRS instructs that the taxpayer should contact her employer and request a corrected Form W-2, which the taxpayer can then use to complete her tax return.  If the employer does not issue a corrected Form W-2, the taxpayer should file her tax return using the original Form W-2 and file a Form 4852 (Substitute for Form W-2 or Form 1099-R) reporting the correct amount of her taxable wages (subtracting the value of excludable spousal health coverage).  Where Form 4852 asks to describe how the taxpayer determined the corrected amounts, she should explain that the amounts reported on Form W-2 included the value of excludable spousal health coverage and that these amounts have been excluded on Form 4852 as permitted by Rev. Rul. 2013-17 and Notice 2014-1.  The taxpayer should also explain how she determined the value of the excludable spousal health coverage.  The taxpayer should then complete her tax return using the amounts in Form 4852 instead of the incorrect Form W-2.

The IRS also notes that the taxpayer may be entitled to a refund of federal employment taxes paid on the value of the spousal health coverage, and suggests that the taxpayer contact her employer to determine whether the employer is seeking a refund on her behalf.  If the employer is not seeking a refund, the taxpayer may file Form 843 (Claim for Refund and Request for Abatement).

The letter confirms what many believed to be the case – employers are not obligated to automatically furnish corrected Forms W-2 to employees who had imputed income in years pre-Windsor for the value of employer-sponsored health coverage provided to same-same spouses.  However, it serves as a good reminder that employers should be prepared to respond to such requests as employees continue to seek refunds.