IRS Updates, Supplements Cafeteria Plan & HSA Post-Windsor Same-Sex Participant Guidance

Sponsoring employers and administrators of cafeteria plans now have additional guidance from the Internal Revenue Service (IRS) about when same-sex couples can be treated as spouses for purposes of Internal Revenue Code (Code) Section 125’s rules on cafeteria plans, including health and dependent care flexible spending arrangements (FSAs), and Code Section 223’s rules about health savings accounts (HSAs) following the Supreme Court decision declaring unconstitutional the Defense of Marriage Act (DOMA) in United States v. Windsor, 570 U.S. ___, 133 S. Ct. 2675 (2013).  Notice 2014-01 supplements the guidance originally published by the IRS by responding to certain questions about when plan amendments may be necessary, the handling of mid-year election requests based on acquisition of a same-sex spouse and the reimbursement of medical or dependent care expenses of same-sex spouses.

Original Post-Windsor Guidance

Before the Windsor decision declared DOMA unconstitutional, Internal Revenue Service (IRS) guidance prohibited cafeteria plans, including HSAs and FSAs from treating same-sex partners as married based on DOMA’s restriction of the definition for federal tax and other federal law purposes to only a legal union between one man and one woman and the definition of “spouse” only to a person of the opposite sex who is a husband or wife.  As a result, IRS pre-Winsor guidance prohibited HSAs, FSAs and other cafeteria plans from allowing employees to elect coverage of same-sex spouses on a pre-tax basis under a cafeteria plan unless the spouse otherwise qualified as a tax dependent of the employee.

In Windsor, the Supreme Court struck down DOMA’s prohibition of the recognition of same-sex couples as married or spouses as an unconstitutional violation of the Fifth Amendment to the United States Constitution.

In response to the Windsor ruling of DOMA unconstitutional, the IRS initially updated its guidance to reflect the Windsor ruling in Rev. Rul. 2013-17, which held:

  • 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, the IRS adopts a general rule recognizing a marriage of same-sex individuals that was validly entered into in a state whose laws authorize the marriage of two  individuals of the same sex even if the married couple is domiciled in a state that does not recognize the validity of same-sex marriages;
  • 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 also stated that taxpayers could rely on this holding retroactively for purposes of filing original returns,   amended returns, adjusted returns, or claims for credit or refund  employment tax and income tax with respectto employer-provided health coverage benefits or fringe benefits that  the employer provided and are excludable from income under sections 106, 117(d), 119, 129, or 132 based on an individual’s marital status; and
  • For purposes of the preceding sentence, if an employee made a pre-tax salary-reduction election for health coverage under a section 125 cafeteria plan sponsored by an employer and also elected to provide health coverage for a same-sex spouse on an after-tax  basis under a group health plan sponsored by that employer, an affected  taxpayer may treat the amounts that were paid by the employee for the coverage of the same-sex spouse on an after-tax basis as pre-tax salary  reduction amounts.

Subsequently, the IRS also published special administrative procedures for employers to use to make adjustments or claims for refund or credit of employment taxes paid with respect to the value of same-sex spousal benefits that are excludable from the income and wages of an employee under the Windsor decision, as interpreted by Rev. Rul. 2013-17.

Notice 2014-01 Supplemental Guidance

Notice 2014-01 discusses when plan sponsors may need to amend their cafeteria plan documents to allow mid-year election changes by same-sex spouses.  It states that a cafeteria plan that does not contain written terms that allow changes of election upon change in legal marital status generally would need to be amended before a same-sex couple could be allowed to make an election change.  However, where the cafeteria plan already contains written terms permitting a change in election upon a change in legal marital status, Notice 2014-01 states a plan amendment generally is not required to allow an employee who acquires a same-sex spouse to make a mid-year election change in response to the acquisition of a same-sex spouse.

Beyond this plan amendment guidance, Notice 2014-01 also further clarifies the IRS’ previous post-Windsor guidance by  answering various questions about the treatment of same-sex couples following Windsor for purposes of  administering FSA-reimbursements, HSA limits and mid-year election changes.

For Representation, Training & Other Resources

If you need assistance monitoring these and other regulatory policy, enforcement, litigation or other developments, or to review or respond to these or other workforce, benefits and compensation, performance and risk management, compliance, enforcement or management concerns, the author of this update, attorney Cynthia Marcotte Stamer may be able to help.

Board Certified in Labor & Employment Law, Past Chair of the ABA RPTE Employee Benefit & Other Compensation Arrangements Group, Co-Chair and Past Chair of the ABA RPTE Welfare Plan Committee, Vice Chair of the ABA TIPS Employee Benefit Plans Committee, Vice President of the North Texas Health Care Compliance Professionals Association, Past Chair of the ABA Health Law Section Managed Care & Insurance Section and the former Board Compliance Chair of the National Kidney Foundation of North Texas, Ms. Stamer has more than 24 years experience advising health plan and employee benefit, insurance, financial services, employer and health industry clients about these and other matters. Ms. Stamer has extensive experience advising and assisting health care providers, health plans, their business associates and other health industry clients to establish and administer medical privacy and other compliance and risk management policies, to health care industry investigation, enforcement and other compliance, public policy, regulatory, staffing, and other operations and risk management concerns. She regularly designs and presents HIPAA and other risk management, compliance and other training for health plans, employers, health care providers, professional associations and others.

For the past two years, Ms. Stamer has served as the  scribe for the ABA Joint Committee on Employee Benefits agency meeting with OCR.   Ms. Stamer also regularly works with OCR, FTC, USSS, FBI and state and local law enforcement on privacy, data security, health care, benefits and insurance and other matters, publishes and speaks extensively on medical and other privacy and data security, health and managed care industry regulatory, staffing and human resources, compensation and benefits, technology, public policy, reimbursement and other operations and risk management concerns. Her publications and insights appear in the Health Care Compliance Association, Atlantic Information Service, Bureau of National Affairs, World At Work, The Wall Street Journal, Business Insurance, the Dallas Morning News, Modern Health Care, Managed Healthcare, Health Leaders, and a many other national and local publications. For instance, Ms. Stamer for the second year will serve as the appointed scribe for the ABA Joint Committee on Employee Benefits Agency meeting with OCR. Her insights on HIPAA risk management and compliance frequently appear in medical privacy related publications of a broad range of health care, health plan and other industry publications Among others, she has conducted privacy training for the Association of State & Territorial Health Plans (ASTHO), the Los Angeles Health Department, the American Bar Association, the Health Care Compliance Association, a multitude of health industry, health plan, insurance and financial services, education, employer employee benefit and other clients, trade and professional associations and others.  You can get more information about her HIPAA and other experience here.

If you need assistance with these or other compliance concerns, wish to inquire about arranging for compliance audit or training, or need legal representation on other matters please contact Ms. Stamer at (469) 767-8872 or via e-mail here.

You can review other recent publications and resources and additional information about the other experience of Ms. Stamer here. Examples of some recent publications that may be of interest include:

If you or someone else you know would like to receive future updates about developments on these and other concerns, please be sure that we have your current contact information including your preferred e-mail by creating or updating your profile here. For important information concerning this communication click here.

©2013 Cynthia Marcotte Stamer.  Non-exclusive right to republish granted to Solutions Law Press, Inc.   All rights reserved.

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