On June 26, 2013, in United States v. Windsor,1 the Supreme Court held that section 3 of the Defense of Marriage Act (DOMA) is unconstitutional. (For a discussion of the issues and holding in United States v. Windsor, please see our .) client advisory of July 12, 2012Before Windsor, the IRS applied section 3 of DOMA to prohibit the recognition of
- For Federal tax 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, and the term “marriage” includes such a marriage between individuals of the same sex;
- For Federal tax purposes, a marriage of
same-sexindividuals that was validly entered into in a state whose laws authorize the marriage of two individuals of the same sex is valid even if the married couple is domiciled in a state that does not recognize the validity of same-sexmarriages; and
- For Federal tax purposes, the terms “spouse,” “husband and wife,” “husband,” and “wife” do not include individuals (whether of the opposite sex or the same sex) who have entered into a registered domestic partnership, civil union, or other similar formal relationship recognized under state law that is not denominated as a marriage under the laws of that state, and the term “marriage” does not include such formal relationships.
Rev. Rul. 2013-17 clarified that individual taxpayers are allowed to file a claim for a credit or refund of an overpayment of FICA and/or income tax with respect to employer-provided health coverage benefits or certain other fringe benefits. It also provided instructions for the filing of certain income and payroll tax refunds. (For an explanation of Rev. Rul. 2013-17, please see our client advisory of September 9, 2013.)
In recently issued Notice 2013-61, the Treasury Department and the Internal Revenue Service described methods, and provided special administrative procedures, under which employers and employees may make claims for refund or adjustments of FICA and Federal income tax withholding with respect to certain benefits provided to
General correction procedures under current regulations
FICA taxes are reported on IRS Form 941, “Employer’s QUARTERLY Federal Tax return,” which is filed quarterly. Corrections are made using a Form 941-X, “Adjusted Employer’s QUARTERLY Federal Tax Return,” for each calendar quarter being corrected. Generally, a separate X form must be filed for each taxable period. Where an employer claims a refund or credit of FICA taxes for a prior year, the employer must file Forms W-2c (Corrected Wage and Tax Statement) for such year.
The employer’s and employees’ shares of FICA taxes (Social Security and Medicare taxes) may be corrected for any period during with the statute of limitations has not expired. In contrast, Federal income tax withholdings may be corrected only for the current calendar year, except in the case of an administrative error (e.g., wrong amount of withholdings reported on Form 941). The statute of limitations is generally three years from the date a return is filed. For Form 941 purposes, however, all four quarterly returns are deemed to be filed on April 15 of the following year. No adjustment may be made, however, if the overpayment relates to a return period for which the period of limitations on credit or refund of such overpayment will expire within 90 days of filing the adjusted return.
Corrections of overpayments of FICA tax are generally made only after an error has been determined or “ascertained” by making a claim for a refund. An error is ascertained only when the employer has sufficient knowledge of the error to be able to correct it. Before making an adjustment of an overpayment of FICA tax with respect to an employee, an employer must repay or reimburse the employee in the amount of the over-collection. In the case of FICA tax over-collected in a prior year, the employer must secure the employee’s written statement confirming that the employee has not made any previous claims (or that the claims were filed but rejected) and will not make any future claims for a refund or credit of the amount of the over-collected FICA tax. This requirement does not apply, however, to the extent that the employee FICA taxes were not withheld from the employee or, after the employer makes reasonable efforts to repay or reimburse the employee or secure the employee’s consent, the employer cannot locate the employee or the employee will not provide consent. No refund to the employer is allowed for the overpayment of withheld income tax which the employer deducted or withheld from an employee.
Special rule for the 3rd quarter of 2013
If an employer (i) withheld employment taxes with respect to
Special administrative procedures for 2013 (on 4th quarter 2013 Form 941)
Notice 2013-61 provides two alternative special administrative procedures for employers that treated the value of
- First alternative special administrative procedure — correct all calendar quarters of 2013 on 4th quarter Form 941 (due January 31, 2014).
Under the first alternative special administrative procedure, an employer must repay or reimburse its employees for the amount of the over-collected FICA tax and the over-collected income tax withholding with respect to the
Adjustments of Social Security taxes are limited to that portion of the benefits that, when added to other Social Security wages for the year, does not exceed the taxable wage base for the year ($113,700 in 2013). To the extent an employee’s other wages exceed the taxable wage base, the adjustment of the FICA taxes related to
- Second alternative special administrative procedure — correct all calendar quarters of 2013 on a single Form 941-X for the 4th quarter of 2013.
The second alternative special administrative procedure applies where an employer does not repay or reimburse employees for the amount of withheld FICA and income taxes with respect to
Notice 2013-61 advises that “[a]n employer may not make an adjustment for an overpayment of income tax withholding for a prior calendar year unless the overpayment is attributable to an administrative error.” As a consequence, this second special administrative procedure cannot be used with regard to income tax withheld from employees with respect to
Special administrative procedure for years before 2013
Notice 2013-61 provides a separate special administrative procedure for employers to make adjustments or claims for refund or credit of overpayments of FICA taxes paid with respect to
This special procedure is subject to the usual requirements that apply in the case of corrections of overpayments for prior years, including the filing of Forms W-2c, repaying or reimbursing employees for overwithheld taxes, and obtaining the required written statements (and consents where applicable) from employees.
1 570 U.S. ___, (2013).
2 U.S. Department of the Treasury Press Center, “All Legal
3 2013-38 I.R.B. 201.