Breathe a little easier if you have a cafeteria plan that, after the demise of the federal Defense of Marriage Act (DOMA) and before the IRS released guidance, allowed same-sex married employees to cover their spouses’ health insurance on a pretax basis or allowed them to seek reimbursement from health or dependent care flexible spending accounts (FSAs). You’re also in good shape if you have a cafeteria plan and decided to wait until the IRS made its position known. According to the IRS, both of those positions were reasonable, and plans didn’t jeopardize their tax-favored status. (Notice 2014–1, IRB 2014-2)
Midyear election changes. Cafeteria plans may, but aren’t required to, allow employees who change their marital status to revoke their current elections and make new elections in the middle of a plan year. The IRS now says that plans may accept midyear election changes that are filed during the cafeteria plan year that includes June 26, 2013, or the plan year that includes Dec. 16, 2013. Cafeteria plans may also allow employees who marry same-sex spouses after June 26, 2013, to make midyear changes. No special treatment: Elections made by employees in same-sex marriages take effect on the date that any other changes in coverage become effective.
Pretax deductions. Prior to DOMA’s death, employees could only pay for their same-sex spouses’ health coverage with after-tax dollars. Under the guidance, employers that, before the end of the cafeteria plan year that includes Dec. 16, 2013, receive notice that employees are married to same-sex spouses must begin treating their after-tax deductions for spousal coverage as pretax deductions by the later of the date that refiled W-4 forms claiming marital status must be recognized or a reasonable period of time after Dec. 16, 2013.
TIME LIMIT ON REFILED W-4s: You must put refiled W-4s into effect as soon as possible, but not later than the start of the first pay period ending on or after the 30th day from the date employees refile with you. Twist: Employees who marry aren’t required to refile their W-4s to claim married status, and many don’t. If that’s the case, employees’ election changes serve as notice of their marital status. Either way, it’s crucial to maintain an open communication line with the Benefits department.
FSA reimbursements. The IRS reiterates that limits that apply to tax-free benefits—$2,500 in pretax deductions into health FSAs or $5,000 for dependent care—apply to same-sex married employees.
However, cafeteria plans may allow employees’ FSAs to reimburse covered expenses related to same-sex spouses or dependents that were incurred during a period beginning on a date that’s no earlier than the beginning of the cafeteria plan year that includes June 26, 2013 (this would include all of 2013 for calendar year plans) or, if later, the date employees were married.