Q&A with Brandon Long
New IRS guidance on employee benefits for same-sex spouses
Q: When the U.S. Supreme Court struck down a major section of the Defense of Marriage Act as being unconstitutional, many were left wondering what implications the ruling would have on employee benefit plans since the definition of a spouse is no longer limited to a husband or wife of the opposite sex under federal law. What's the latest?
A: The IRS recently issued new guidance that answered some of the questions left open after the ruling. The new guidance is effective Sept. 16.
Q: What is the main takeaway from the IRS guidance for Oklahoma employers who offer qualified retirement plans to their employees?
A: Qualified retirement plans such as 401(k), 403(b) and pension plans are subject to federal law. Under the new guidance, a plan must recognize a valid same-sex marriage from another jurisdiction — even if the married couple live in a state (such as Oklahoma) that does not recognize same-sex marriage — in order to maintain federal tax compliance. Currently, same-sex marriage is legal in 13 states and the District of Columbia.
Here's an example of how that might play out in the workplace: Let's say a company's 401(k) plan provides that a plan participant's spouse is the default beneficiary unless the spouse has consented to a different beneficiary. Beginning Sept. 16, an employee's same-sex spouse would be the default beneficiary unless he/she previously consented to a different beneficiary.
Q: Does the new guidance impact how federal taxes are assessed on individual employee benefits?
A: Yes. If an Oklahoma employer provides health coverage to an employee and the employee's same-sex spouse, effective Sept. 16, the value of the coverage provided to the same-sex spouse will no longer be included in the employee's gross income. Furthermore, if an employer provided health coverage in prior years for an employee's same-sex spouse and included the value of that coverage in the employee's gross income, the employee can now file an amended Form 1040 reflecting the employee's status as a married individual to recover federal income tax paid on the value of the health coverage of the employee's spouse — for all years for which the period of limitations for filing a claim for refund is open (generally, three years from the date the return was filed or two years from the date the tax was paid, whichever is later).
Q: Should employers expect additional guidance to be issued on the topic?
A: Yes. The IRS will be issuing instructions regarding a special administrative procedure that will allow employers to claim a refund of, or make an adjustment for, any excess Social Security taxes and Medicare taxes paid as a result of previously including the value of a same-sex spouse's coverage in an employee's gross income. The IRS also intends to issue further guidance on the retroactive application of the ruling to employee benefit plans, which will likely address the steps employers must take to amend their plans, as well as any necessary corrections that employers might be required to take relating to plan operations before the future guidance is issued.
PAULA BURKES, BUSINESS WRITER