Since section 3 of DOMA was stricken down in June of this year, an onslaught of new tax decisions have been presented to same-sex couples. Businesses, too, have had to change some processes to accommodate the laws that now include previously unrecognized spouses. The Tax Warriors® at Drucker & Scaccetti have been at the forefront of this and other tax-related LGBT issues since well before it became the law of the land. To that end, we thought we’d share the IRS’s new frequently asked questions regarding the taxes of same-sex couples, including three questions regarding payroll taxes with respect to benefits provided by an employer for an employee's same-sex spouse.
While most of the new FAQs deal with payroll issues explained below, there is one that is interesting in its simplicity: If spouses each materially participate as the only members of a jointly owned and operated business, and they file a joint return for the tax year, they can elect to be treated as a qualified joint venture instead of a partnership. FAQ #20 specifies that this rule applies to same-sex married couples. That’s a Tax Warrior no-brainer.
The other newly posted questions cover payroll tax subjects:
FAQ #21 provides somewhat different advice about two earlier FAQs, i.e., FAQ #10 and FAQ #11, than the advice IRS previously issued. FAQ #10 and FAQ #11 provide that an employee may claim a refund, on an amended Form 1040, for Social Security and Medicare taxes paid on the following benefits: (1) employer-provided health coverage for an employee's same-sex spouse (to recover federal income tax paid on the value of the health coverage of the employee's spouse), or (2) an employer-sponsored cafeteria plan that allowed employees to pay premiums for health coverage on a pre-tax basis (to recover income taxes paid on premiums that the employee paid on an after-tax basis for the health coverage of the employee's same-sex spouse).
FAQ #21 says that the employee is allowed to file a refund claim in these two situations if the period of limitations for filing a claim for refund is open, and the employee: (i) has not been reimbursed by the employer for the Social Security and Medicare taxes, and (ii) has not authorized the employer to file a claim for refund of those taxes on his or her behalf. The employee should seek a refund of Social Security and Medicare taxes from his or her employer first. However, if the employer indicates an intention not to file a claim or adjust the overpaid Social Security and Medicare taxes, the employee may claim a refund of any overpayment of employee Social Security and Medicare taxes by filing Form 843, Claim for Refund and Request for Abatement. Employees should write "Windsor Claim" in dark, bold (we suggest red) letters across the top margin of Form 843.
FAQ #22 asks whether an employer using the first special administrative procedure under Notice 2013-61 and Notice 2013-42 i.e., employer repays or reimburses an employee for 2013 overpayments of taxes on or before December 31, 2013, and corrects the overpayment on the fourth quarter 2013 Form 941; needs to obtain a written statement from its employees with respect to the 2013 overpayments. In this situation, a written statement is not required. However, an employer using the second special administrative procedure under the Notices (i.e., employer does not repay or reimburse an employee for an overpayment of taxes on or before Dec. 31, 2013, and corrects the overpayment on a Form 941-X) is required to obtain such written statement from each affected employee.
FAQ #23 addresses whether an individual who employed his or her same-sex spouse to perform domestic (household) services in the individual's private home can get a refund of Social Security, Medicare and FUTA taxes on wages that the individual paid to the spouse for such service, and if so, which forms should the individual use to claim refunds.
A refund is available in that case if the period of limitations for filing a claim for refund is open. If the taxes for these services were reported on Schedule H (Form 1040), Household Employment Taxes, and taxes were paid in connection with the Form 1040, the individual should file an amended Form 1040 to claim refund of those taxes together with an amended Schedule H. If the Social Security and Medicare taxes for the domestic service were reported on Form 941, Employer's Quarterly Federal Tax Return, the individual employer can use Form 941-X to claim a refund of these taxes. If the FUTA taxes for the domestic service were reported on Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return, the individual employer can file an amended Form 940 for the prior year to obtain a refund. The previous year's Form 940 should be used to claim a refund of FUTA taxes for that prior year.
For more information about the history of tax topics impacting same- sex marriages, visit our LGBT Tax Consulting & Financial Planning practice’s webpage. There, you can contact us with any questions or concerns you may have about you, your employees or your business, or simply contact Rosalind W. Sutch, CPA, MT, at (215) 665-3960.