Yesterday, the IRS released guidance giving employers two additional methods to correct overpayments of employment taxes for 2013 and prior years. [Note: This guidance only pertains to the overpayment of FICA taxes; employees will have to file a claim directly with the IRS for income tax refunds].
This guidance follows on the tail of Revenue Ruling 2013-17, released Aug. 29, which provided that the IRS would recognize all legally married same-sex couples (using a “state of celebration” approach). Now, since the IRS recognizes these marriages retroactively, same-sex spouses may file refund claims for prior open tax years (e.g. 2010, 2011, 2012). Additional discussion on this guidance may be found here.
In the past, if an employer provided health coverage or fringe benefits to a same-sex spouse, the benefits were taxable to the employee and employers had to withhold and pay employment taxes with respect to these benefits because the marriage was not recognized by the IRS. If these benefits would have been excluded from tax had the IRS recognized same-sex marriages, any tax overpayments may now be refunded.
Under the general correction method for FICA tax overpayments, the error may be corrected during the reporting period by simply reimbursing the employee (i.e. no additional IRS forms need to be filed). However, for quarters in which employers have already submitted Form 941, employers must (i) repay or reimburse the employee in the amount of the overcollection, (ii) get confirmation that the employee has not made (or will not make) a claim for refund, and (iii) file Form 941-X to correct overreported taxes on a previously filed Form 941 (generally requiring a separate form for each taxable quarter).
Now, Notice 2013-61 provides two additional methods for correcting these overpayments (both optional):
- Employers may use the 2013 fourth quarter Form 941 to correct the overpayment of employment taxes during the first three quarters of 2013.
- If the employer does not correct overpayments during 2013, employers may file one Form 941-X for the fourth quarter of 2013 to correct overpayments for all quarters of 2013. For open tax years prior to 2013, employers may also file just one Form 941-X for the fourth quarter of the year to make corrections for all quarters of the year. Make sure you mark the Form 941-X on the top of the first page with “WINDSOR” (yes, the IRS specified this should be bold and all-caps).
If you choose to move forward with a refund claim, the Notice contains additional detail regarding how the form chosen to claim the refund should be completed.