Prior to the U.S. Supreme Court’s Windsor decision that repealed Section 3 of the federal Defense of Marriage Act (DOMA), same-sex spouses were not recognized as spouses for federal tax and benefits purposes. In the immediate aftermath of Windsor, the Internal Revenue Service (IRS) issued Revenue Ruling 2013-17, which stated the IRS position that, for federal tax purposes, the term “spouse” now includes legally married same-sex couples regardless of whether their state of residence permits same-sex marriage. As a result, the value of employer-provided health coverage for a same-sex spouse would no longer be taxable under federal law, and employees could pay for the coverage on a pre-tax basis through an employer’s cafeteria plan. Employees also could obtain reimbursement for same-sex spouses’ expenses under health care and other reimbursement plans.
On December 16, 2013, the IRS supplemented that guidance with the release of Notice 2014-1, written in Q&A format with examples. Notice 2014-1 clarifies several issues for plan sponsors and administrators of cafeteria plans, flexible spending accounts (FSAs) and health savings accounts (HSAs). First, it allows an employer to permit an employee to make a mid-year election change under its cafeteria plan with regard to health coverage for a same-sex spouse. Second, it provides that an employee may be reimbursed from his or her health care FSA for expenses incurred by a same-sex spouse during the 2013 plan year, even before the date of the Windsor decision (but no earlier than the date of the marriage). Third, it confirms that a same-sex married couple is subject to the joint limits applicable to married couples under HSAs and dependent care plans.