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.

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Photo of Roberta Chevlowe Roberta Chevlowe

Roberta K. Chevlowe provides advice to employers and boards of trustees of multiemployer benefit plans on a broad range of issues relating to their retirement, health and other employee benefit plans. With three decades of experience practicing in this area, Roberta employs a…

Roberta K. Chevlowe provides advice to employers and boards of trustees of multiemployer benefit plans on a broad range of issues relating to their retirement, health and other employee benefit plans. With three decades of experience practicing in this area, Roberta employs a practical, business-minded approach to helping her clients comply with the various requirements imposed by ERISA, the Internal Revenue Code, COBRA, the Affordable Care Act and other federal and state laws affecting employee benefit programs. Roberta’s practice also includes advising clients in connection with benefit claim appeals, lawsuits and government audits; drafting plan documents, policies and employee communications materials; and negotiating with plan service providers.

Roberta is best known for her work in the area of COBRA compliance and for advising employers in connection with the benefits they provide to employees’ domestic partners and same-sex spouses. She is a co-author of The COBRA Handbook and lectures and publishes articles on a variety of employee benefits topics. In addition, Ms. Chevlowe is a leader of Proskauer’s Task Force on Reproductive Health Care Benefits.

Photo of Tzvia Feiertag Tzvia Feiertag

Tzvia Feiertag is a senior associate in the Labor & Employment Law Department. She practices exclusively in the areas of ERISA and employee benefits-related tax law.

Tzvia advises a diverse group of clients, including Fortune 500 companies, financial service companies, media and publishing…

Tzvia Feiertag is a senior associate in the Labor & Employment Law Department. She practices exclusively in the areas of ERISA and employee benefits-related tax law.

Tzvia advises a diverse group of clients, including Fortune 500 companies, financial service companies, media and publishing companies, private companies and not-for-profit organizations on all aspects of pension and welfare benefit plans. She counsels clients on the design, implementation and operation of 401(k), defined contribution, defined benefit, and self-insured and fully-insured medical, life and disability plans, as well as cafeteria plans, health savings account plans, flexible spending account programs and severance plans.