Same Sex Couples 1040X opportunities

[Guest Taxed]

For those of us who have same sex couples as clients, this may be an opportunity to add value to the client relationship and also a source for some fees. These two items should be looked at when we are doing the 1040X to change filing status.

Q10. If an employer provided health coverage for an employee’s same-sex spouse and included the value of that coverage in the employee’s gross income, can the employee file an amended Form 1040 reflecting the employee’s status as a married individual to recover federal income tax paid on the value of the health coverage of the employee’s spouse?

A10. Yes, for all years for which the period of limitations for filing a claim for refund is open. Generally, a taxpayer may file a claim for refund for three years from the date the return was filed or two years from the date the tax was paid, whichever is later. If an employer provided health coverage for an employee’s same-sex spouse, the employee may claim a refund of income taxes paid on the value of coverage that would have been excluded from income had the employee’s spouse been recognized as the employee’s legal spouse for tax purposes. This claim for a refund generally would be made through the filing of an amended Form 1040. For information on filing an amended return, go to Tax Topic 308, Amended Returns, at http://www.irs.gov/taxtopics/tc308.html.

For a discussion regarding refunds of social security and Medicare taxes, see Q&A #12.

Example. Employer sponsors a group health plan covering eligible employees and their dependents and spouses (including same-sex spouses). Fifty percent of the cost of health coverage elected by employees is paid by Employer. Employee A was married to same-sex Spouse B at all times during 2012. Employee A elected coverage for Spouse B through Employer’s group health plan beginning Jan. 1, 2012. The value of the employer-funded portion of Spouse B’s health coverage was $250 per month.

The amount in Box 1, “Wages, tips, other compensation,” of the 2012 Form W-2 provided by Employer to Employee A included $3,000 ($250 per month x 12 months) of income reflecting the value of employer-funded health coverage provided to Spouse B. Employee A filed Form 1040 for the 2012 taxable year reflecting the Box 1 amount reported on Form W-2.

Employee A may file an amended Form 1040 for the 2012 taxable year excluding the value of Spouse B’s employer-funded health coverage ($3,000) from gross income.

Q11. If an employer sponsored a cafeteria plan that allowed employees to pay premiums for health coverage on a pre-tax basis, can a participating employee file an amended return to recover income taxes paid on premiums that the employee paid on an after-tax basis for the health coverage of the employee’s same-sex spouse?

A11. Yes, for all years for which the period of limitations for filing a claim for refund is open. Generally, a taxpayer may file a claim for refund for three years from the date the return was filed or two years from the date the tax was paid, whichever is later. If an employer sponsored a cafeteria plan under which an employee elected to pay for health coverage for the employee on a pre-tax basis, and if the employee purchased coverage on an after-tax basis for the employee’s same-sex spouse under the employer’s health plan, the employee may claim a refund of income taxes paid on the premiums for the coverage of the employee’s spouse. This claim for a refund generally would be made through the filing of an amended Form 1040. For information on filing an amended return, go to Tax Topic 308, Amended Returns, at http://www.irs.gov/taxtopics/tc308.html. For a discussion regarding refunds of social security and Medicare taxes, see Q&A #12.

Example. Employer sponsors a group health plan as part of a cafeteria plan with a calendar year plan year. The full cost of spousal and dependent coverage is paid by the employees. In the open enrollment period for the 2012 plan year, Employee C elected to purchase self-only health coverage through salary reduction under Employer’s cafeteria plan. On March 1, 2012, Employee C was married to same-sex spouse D. Employee C purchased health coverage for Spouse D through Employer’s group health plan beginning March 1, 2012. The premium paid by Employee C for Spouse D’s health coverage was $500 per month.

The amount in Box 1, “Wages, tips, other compensation,” of the 2012 Form W-2 provided by Employer to Employee C included the $5,000 ($500 per month x 10 months) of premiums paid by Employee C for Spouse D’s health coverage. Employee C filed Form 1040 for the 2012 taxable year reflecting the Box 1 amount reported on Form W-2.

Employee C’s salary reduction election is treated as including the value of the same-sex spousal coverage purchased for Spouse D. Employee C may file an amended Form 1040 for the 2012 taxable year excluding the premiums paid for Spouse D’s health coverage ($5,000) from gross income.

Q12. In the situations described in FAQ #10 and FAQ #11, may the employer claim a refund for the social security taxes and Medicare taxes paid on the benefits?

A12. Yes. If the period of limitations for filing a claim for refund is open, the employer may claim a refund of, or make an adjustment for, any excess social security taxes and Medicare taxes paid. The requirements for filing a claim for refund or for making an adjustment for an overpayment of the employer and employee portions of social security and Medicare taxes can be found in the Instructions for Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund. A special administrative procedure for employers to file claims for refunds or make adjustments for excess social security taxes and Medicare taxes paid on same-sex spouse benefits will be provided in forthcoming guidance to be issued by the IRS in the near future.

[ILLMAS]

Does anyone know when all states will allow them to get married?

[Jack from Ohio]

Does anyone know when all states will allow them to get married?

When Nancy Pelosi becomes a Republican.

[ILLMAS]

Enough said

[Jack from Ohio]

Better yet, when jainen becomes a conservative....

[jainen]

>>when jainen becomes a conservative.<<

On the Political Forum this morning I exposed myself as holding positions far to the right of ANY thing else that has been stated by anyone in this community. I meant it, too.

My answer in this thread is that many states would have to change their constitutions, perhaps with 2/3 vote, so that's unlikely. I expect there will be general acceptance of legal marriages from other states, just the way it already is with common law marriages.

A more interesting question for me is about Registered Domestic Partners. In my state they can be gay or straight, but are never allowed to get married. And many would not want to be reclassified, since RDPs can keep retirement benefits not available to married couples.

[Guest Taxed]

I think states like Ohio will have to deal with this matter sooner than later. I will not be at all surprised if by next year there are efforts in all these states to allow same sex couples to file MFJ or MFS state returns if they file MFJ/MFS federal returns.

[joanmcq]

RDPs aren't married for federal, so it's the same old PITA for them. Although most of my RDP clients are getting married as before years end.

[easytax]

Help me out here/// The Supreme court ruled effective as of (I believe) 09/16/2013 on this. I have seen NOTHING about being retroactive.

Therefore: The IRS position that these folks can be single and file as single up to 09/16/2013 but as of 09/17/2013 they MUST/HAVE officially married -- not a problem until I try to figure out --- is a married or single determined NOT DETERMINED as of December 31, calendar year? If a couple lived together all year and married 12/31/???? they would be married for that year --- no way around it --- so why/how is there an excepition for same sex couples.

Another question (same basic idea) - if Supreme Court decision is effective 09/16/2013; then to me it seems, the marriages were not reconized until then, so how/why would an amended return for previous years be legal/allowed/etc.? If married and return filed, then annualed marriage; you MUST file an amended return for the previous "married returns" because the annulment means the marriage never legally took place.

Basically, each state decides on their permission and the Feds decide on the Federal position based on the Supreme Court decision --- that's business, etc. However, my question comes down to --- How do you justify going back in time (Supreme Court could but didn't --- effective 09/16/2013) when reasonable and effectively the decision starting on 09/16/2013 is the REAL STARTING point?

Maybe the IRS, just does what it wants --- regardless of what the law states... I know, but I have/had to ask.

Stay well all, I enjoy this forum, now that I've found it. A lot less back biting and in fighting --- just facts/discussions, etc. is definitely a nice thing.

[SaraEA]

The IRS says same-sex married couples "may" but do not have to file amended returns. It's going to be tricky to calculate, especially when you consider the state tax implications. Around here these marriages are legal, so couples had to file S for federal but MFJ or MFS for state. No word yet from the states about whether amending the federal will require a state amendment to have uniform filing status.

The couples it will help the most are those who paid for medical insurance for their spouse. Both the employer's and employee's share was taxable income and appeared in Box 1 of the W2. Those amounts can be removed through an amendment. Before doing it, though, I'd wait to see if the states will require a change in filing status to conform to the feds and then play with the numbers for both fed and state to see if changes really benefit the taxpayers. It will be a lot of work on our part. My fear is that you spend a few hours calculating all the scenarios and then telll the clients it's best to leave things be and that will be $300 please?

[joanmcq]

Help me out here/// The Supreme court ruled effective as of (I believe) 09/16/2013 on this. I have seen NOTHING about being retroactive.

Therefore: The IRS position that these folks can be single and file as single up to 09/16/2013 but as of 09/17/2013 they MUST/HAVE officially married -- not a problem until I try to figure out --- is a married or single determined NOT DETERMINED as of December 31, calendar year? If a couple lived together all year and married 12/31/???? they would be married for that year --- no way around it --- so why/how is there an excepition for same sex couples.

Another question (same basic idea) - if Supreme Court decision is effective 09/16/2013; then to me it seems, the marriages were not reconized until then, so how/why would an amended return for previous years be legal/allowed/etc.? If married and return filed, then annualed marriage; you MUST file an amended return for the previous "married returns" because the annulment means the marriage never legally took place.

Basically, each state decides on their permission and the Feds decide on the Federal position based on the Supreme Court decision --- that's business, etc. However, my question comes down to --- How do you justify going back in time (Supreme Court could but didn't --- effective 09/16/2013) when reasonable and effectively the decision starting on 09/16/2013 is the REAL STARTING point?

Maybe the IRS, just does what it wants --- regardless of what the law states... I know, but I have/had to ask.

Stay well all, I enjoy this forum, now that I've found it. A lot less back biting and in fighting --- just facts/discussions, etc. is definitely a nice thing.

All rulings have effective dates. I'm not sure why 9/16 is the one for this ruling, but it is. If the couple was married in 2012, then there are several possible scenarios:

1. The couple already filed as single/single for federal (in CA they've filed a joint return for the state since 2007 whether married or RDP). These couples have the choice to amend if beneficial, but don't have to. They filed under the laws as effective at the time of filing. This is the difference for same sex couples and het married couples.
2. The couple is on extension. They can file MFJ/MFS or have a window up to 9/16 in which the old laws can pertain. Planning, estimates, extension payments were all based on the law of the land as effective at the time the extension was filed. This may be the reasoning for the window.
3. The couple was not married in 2012, but has since gotten married. They will have to file MFJ/MFS for federal for 2013. They were single in previous years and do not have the ability to amend back years.

The Supremes did not rule that same-sex marriages are only recognized since the date of the ruling. DOMA, which prohibited the feds from recognizing marriages performed legally in the states or other countries was tossed out as unconstitutional and discriminatory. Same-sex couples have been legally married in many other countries and several states for many years. Like any other situation where one may have filed where the law is being litigated (remember sales of stock received in demutualization? That was litigated for years and the IRS position was not what the courts finally decided), once the courts have ruled, amendments are permitted.

Allowing amendments also follows every other pronouncement regarding SSMCs. When the feds were required to recognized CA community property law in the case of SSMCs, amendments for open years were allowed but not required.

Two states who do not have same-sex marriage but whose return calculations begin with federal and require the same filing status as federal have already said that SSMCs should use the same filing status as federal (Virginia & Utah).