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Post-Windsor, what’s the tax status of benefits for same-sex married couples?

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in Employee Benefits Program,Human Resources

Q. In the wake of United States v. Windsor, we have extended a number of our employee benefits to same-sex married couples. Can you provide any guidance on the proper treatment of flexible spending account (FSA) expenses and health savings account (HSA) and dependent care assistance program (DCAP) contribution limits for same-sex married couples?

A. According to IRS Notice 2014-1, health flexible spending accounts may reimburse the expenses of same-sex spouses and their dependents, which were incurred from the start of the plan year that includes June 26, 2013, or the date of the marriage, if later. This retroactive eligibility may apply even if the employee elected self-only reimbursement coverage. For a calendar year plan, for example, a plan may reimburse medical expenses for a couple who were already married at the start of 2013, even if the expenses were incurred before the Windsor decision was issued.

Both HSA and DCAP contributions are capped for households, but prior to Windsor individuals in a same-sex marriage were not treated as a single household for income tax purposes. Under certain circumstances, each same-sex spouse could contribute the household maximum limit independently to an HSA and to a DCAP.

Notice 2014-1 applies the HSA and DCAP household limits for same-sex married couples in 2013 and future tax years. Spouses who each elected amounts that together exceed the HSA household limit have two options:

  1. prospectively reduce their contributions to a level below the household maximum, or
  2. take distributions of excess contributions before the spouses’ filing deadline for the 2013 tax year. Excess contributions to a DCAP are includable in taxable income.

If employers choose to permit election changes allowed under Notice 2014-1 but not previously provided for under their cafeteria plan documents, the plans must be amended before the end of the first plan year beginning on or after Dec. 16, 2013. These amendments may be effective retroactive to the start of the plan year. For a calendar year plan, this means any amendment should be adopted by no later than Dec. 31, 2014, and may apply as of Jan. 1, 2013.

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