News Flash December 18, 2013—IRS Provides Guidance on Same-Sex Spouse Cafeteria Plan, FSA and HSA Participation; PBGC Recognizes Same-Sex Marriages
News Flash: December 18, 2013—IRS Provides Guidance on Same-Sex Spouse Cafeteria Plan, FSA and
HSA Participation; PBGC Recognizes Same-Sex Marriages
On December 16, 2013, the IRS issued Notice 2014-1, providing guidance on how same-sex spouse
participation in cafeteria plans, flexible spending accounts and health savings accounts should be
addressed in 2013, based on the Supreme Court’s decision in United States v. Windsor.
The Defense of Marriage Act (DOMA) prohibited the recognition of same-sex marriages for purposes of
federal tax law, including benefits law. On June 26, 2013, the U.S. Supreme Court ruled in United States v.
Windsor that section 3 of DOMA was unconstitutional and that members of same-sex marriages were
entitled to the same rights and privileges that were provided to members of opposite sex marriages under
In Revenue Ruling 2013-17, the IRS stated that for federal tax (including benefit law) purposes, the terms
“spouse,“ “husband and wife,” “husband,” and “wife” include an individual married to a person of the
same sex if the individuals are lawfully married under state law. The IRS also ruled that the validity of a
same-sex marriage for federal tax law purposes would be determined under the laws of the state that
authorizes the marriage of two individuals of the same sex and where the marriage was entered into (the
“state of celebration”) and not the state in which the marriage is domiciled, even if the married couple is
domiciled in a state that does not recognize the validity of same-sex marriages. In addition, the IRS
declared that marriage under federal tax law does not include a domestic partnership, civil union or
similar formal relationship under state law that is not recognized as a marriage under the laws of that
Cafeteria Plan Mid-Year Election Changes
The latest IRS guidance on same-sex marriages allows employees with same-sex spouses to make mid-year
changes to their cafeteria plan elections during 2013 under circumstances described below, subject to the
usual rules governing election changes (additional information about these rules can be found in Cafeteria
Plans: An Employer Guide, available on Willis Essentials):
If the employee was married to the same-sex spouse as of the date of the Windsor decision (June 26,
2013), the cafeteria plan can view the employee as having made a change in legal marital status (also
a qualifying event for purposes of HIPAA special enrollment rights) as of June 26, 2013, and the
employee can revoke an existing cafeteria plan election and make a new election on that basis. The
cafeteria plan can accept that election change at any time during the cafeteria plan year that includes
June 26, 2013, or during the cafeteria plan year that includes December 16, 2013.
An employee who marries a same-sex spouse after June 26, 2013, may also make a mid-year election
change on that basis.
Alternatively, an employee with a same-sex spouse can make a mid-year election change based on the
change in tax treatment of health coverage for the spouse resulting in a significant change in the cost
of coverage, provided the election change is received between June 26, 2013 and December 31, 2013,
and the plan contains language permitting such an election change.
A Windsor-related election change made between June 26, 2013 and December 31, 2013, must
become effective by the later of:
o The date that the cafeteria plan would make new coverage effective under the plan’s usual
o A reasonable period of time after December 16, 2013. There is no guidance on what is meant by
“reasonable period,” but the example provided made the coverage effective by December 20,
If a cafeteria plan already contains language permitting an election change upon a change in legal
marital status, no plan amendment is required to permit a marital status change for employees with
same-sex spouses. Cafeteria plans that do not address election changes due to a change in marital
status or significant change in cost will need to be amended in order to provide for these special samesex spouse elections.
Cafeteria Plan Contribution Change
The following are the guidelines that the IRS provided for enabling employee pre-tax salary contributions
for a same-sex spouse during 2013:
If an employee has elected to pay for the cost of health coverage on a pre-tax basis for the employee
and on an after-tax basis for the employee’s same-sex partner, and the employer receives notice that
the employee and the same-sex partner are married, the employer must switch the partner
contributions to pre-tax by the later of:
o The date a change in legal marital status would be required to be reflected for federal income tax
withholding purposes (as of the beginning of the first payroll period that ends on or after the 30th
day following the date the employee submitted a revised W-4 reflecting the employee’s marriage
to the same-sex spouse); or
o A reasonable period of time after December 16, 2013. Again there is no guidance regarding what
constitutes a “reasonable period.”
The employee provides notice of the same-sex spouse either through making a mid-year election
change or by filing a revised Form W-4 that indicates that the employee is married.
In lieu of switching to pre-tax contributions, an employee with a same-sex spouse can continue to
contribute towards the spouse’s coverage on an after-tax basis.
Regardless of whether an employee is contributing on a pre-tax or after-tax basis for the employee’s
spouse, the amount the employee paid for spousal coverage is not subject to federal income or
employment taxes. This rule applies to the cafeteria plan year that includes December 16, 2013, and
all prior employee tax years that are still open. An employee can exclude any after-tax contributions
from gross income, and can seek a refund of federal income or employment taxes that the employee
previously paid on the cost of spousal coverage.
A cafeteria plan may allow an employee to be reimbursed from the employee’s health, dependent care or
adoption assistance flexible spending account for expenses incurred by the employee’s same-sex spouse,
if the expenses were incurred on or after the later of:
• The beginning of the cafeteria plan year that includes June 26, 2013 (January 1, 2013 for cafeteria
plans with calendar plan years); or
• The date of the marriage.
This reimbursement may be made regardless of whether the employee had initially elected a self-only FSA
during that period.
HSA and Dependent Care Assistance Contribution Limits
Because prior to the Windsor decision, employees and their same-sex spouses were viewed as individuals
and not married or a “family” unit, employees and their same-sex spouses contributed to health savings
accounts (HSA) and dependent care assistance program FSA (DCAP) accounts on an “individual” basis,
subject to the individual contribution limit. One effect of the Windsor decision was to cause an immediate
mid-year marital status change for employees and their partners, creating uncertainty regarding how that
change in marital status would affect the contribution limits applicable to those accounts. The following
IRS guidelines address how the employee and the same-sex spouse contributions for 2013 are brought
into compliance with the legal limits:
Same-sex couples who are treated as married for federal tax purposes as of December 31, 2013, are
viewed as subject to the 2013 family contribution/joint deduction limit applicable to HSAs ($6,450)
and DCAPs ($5,000) just like opposite sex married couples.
To the extent the combination of the spouses’ individual contributions exceeds the applicable 2013
HSA or DCAP contribution limit for a married couple, contributions for one or both of the spouses may
be reduced for the remaining portion of the 2013 tax year in order to avoid exceeding the contribution
If reduction in future contributions cannot bring the spouses’ separate contributions in line with the
applicable 2013 HSA limit, the excess amount (along with any earnings on that amount) may be
distributed to one or both spouses and is taxable as income.
In the event the combined DCAP contributions cannot be lowered to the proper 2013 level through
future contribution reduction, the excess amount is includable in the spouses’ income.
Joining the previous guidance issued by the IRS and DOL, the Pension Benefit Guaranty Corporation
(PBGC) announced on December 16, 2013, that it was changing its policy to recognize same-sex marriages
in its administration of benefits for terminated retirement plans. The PBGC also confirmed that it would
continue to determine the validity of a marriage based on the laws of the state of celebration, and not the
state of domicile. This PBGC ruling will affect the various spousal pension benefit rights that are protected
under retirement plan law.
Willis’ National Legal & Research Group will continue to review and provide timely updates on these and
other related changes in health and welfare benefit law that affect employers.
The information in this publication is not intended as legal or tax advice and has been prepared solely
for informational purposes. You may wish to consult your attorney or tax adviser regarding issues
raised in this publication.