Treasury Notes

 Treasury Notice Advances Federal Tax Equality for Same-Sex Married Couples

By: Betsy Bourassa

The Supreme Court’s decision in U.S. v. Windsor last June, invalidating a key provision of the Defense of Marriage Act, has given rise to crucial protections to same-sex married couples nationwide.  In August, Treasury and IRS helped to clarify the federal tax implications of Windsor by determining that all legal same-sex marriages will be recognized for federal tax purposes​.  Today, Treasury and IRS made significant progress in further promoting tax equality by issuing a new, related notice.

In follow-up to the Windsor decision, this notice addresses how the rules for cafeteria plans, flexible spending accounts (FSAs), and health savings accounts (HSAs) apply to individuals with same-sex spouses.  A cafeteria plan provides participants with an opportunity to receive certain benefits on a pre-tax basis.  Similar to the way in which individuals can choose among several options in a cafeteria, cafeteria plan participants can choose among at least one taxable benefit and one qualified benefit. 

Taxpayers typically must make pre-tax elections under a cafeteria plan before the beginning of the plan year and cannot change their elections until the following year.  Because the Windsor decision was issued mid-year, this notice permits changes to elections for same-sex married couples during the plan year that includes the date of the Windsor decision.  Accordingly, under this notice, sponsors of cafeteria plans could permit employees to choose to enroll same-sex spouses in health coverage in the middle of a plan year, even though mid-year enrollments would otherwise be prohibited.  

In our prior notice on Windsor, we provided transition relief to employees who elected to pay for their own health coverage on a pre-tax basis, but were previously required to pay for their same-sex spouses’ coverage on an after-tax basis.  That transition relief allows employees in this situation to treat the cost of the same-sex spouse coverage as having been paid on a pre-tax basis by excluding the cost of same-sex spouse coverage from their income. The notice clarifies that this relief will apply through the end of the current cafeteria plan year. 

Also, before Windsor, FSAs were not permitted to reimburse expenses incurred by the same-sex spouse of an employee.  Based on the notice, a cafeteria plan could choose to reimburse qualifying expenses incurred by same-sex spouses and their dependents before the date of the Windsor decision, provided the expenses were incurred after the couple was married but not earlier than the beginning of the cafeteria plan year that includes the date of the Windsor decision.  The notice also explains how the limits on contributions to HSAs and dependent care FSAs apply to individuals with same-sex spouses. 

This notice underscores the Administration’s continued commitment to providing equal access to federal benefits, regardless of sexual orientation.

Betsy Bourassa is a Media Specialist at the U.S. Department of the Treasury. 

Posted in:  Tax Policy
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