IRS Clarifies Same-Gender Marriage Rules for FSAs, HSAs

Notice 2014-1 addresses rules under section 125 of the Internal Revenue Code relating to cafeteria plans, including health and dependent care flexible spending arrangements (FSAs) and section 223 of the Code relating to health savings accounts (HSAs).

If a cafeteria plan participant was lawfully married to a same-sex spouse as of the date of the Windsor decision, the plan may permit the participant to make a mid-year benefit election change on the basis that the participant has experienced a change in legal marital status. A cafeteria plan may also permit a participant who marries a same-gender spouse after June 26, 2013, to make a mid-year election change due to a change in legal marital status.

An election made under a cafeteria plan with respect to a same-gender spouse as a result of the Windsor decision generally takes effect as of the date that any other change in coverage becomes effective for a qualifying benefit that is offered through the cafeteria plan.

An employer that, before the end of the cafeteria plan year including December 16, 2013, receives notice that such a participant is married to the individual receiving health coverage, must begin treating the amount that the employee pays for the spousal coverage as a pre-tax salary reduction under the plan. The deadline to apply the reduction is the later of the date that a change in legal marital status would be required to be reflected for income tax withholding purposes or a reasonable period of time after December 16, 2013.

A cafeteria plan may permit a participant’s FSA to reimburse covered expenses incurred by the participant’s same-gender spouse during a period beginning on a date that is no earlier than the beginning of the cafeteria plan year including the date of the Windsor decision or the date of marriage, if later.

A same-gender married couple subject to the joint deduction limit for contributions to a HSA If the combined HSA contributions elected by two same-gender spouses exceed the applicable HSA contribution limit for a married couple, contributions for one or both of the spouses may be reduced for the remaining portion of the tax year in order to avoid exceeding the applicable contribution limit. To the extent that the combined contributions to the HSAs of the married couple exceed the applicable contribution limit, any excess may be distributed from the HSAs of one or both spouses no later than the tax return due date for the spouses.

The agency previously announced same-gender couples, legally married in jurisdictions that recognize their marriages, will be treated as married for federal tax purposes, no matter in which state they reside (see “Same-Sex Marriages Recognized for Tax Purposes”). Notice 2013-61 contains special administrative procedures for employers who want to make adjustments or claims for refund or credit of employment taxes paid with respect to the value of same-gender spousal benefits that are excludable from the income and wages of an employee under the Windsor decision, as interpreted by Rev. Rul. 2013-17 (see “IRS Provides Procedures for Same-Sex Marriage Tax Credits”).

The new guidance explains tax treatment of FSAs and HSAs. Notice 2014-1 is here.