The American Payroll Association (APA) published a Compliance Update on Thursday, September 26, 2013 outlining how to correct employment tax overpayments in same-sex marriage cases.
Employment tax returns for the third quarter of 2013
As cited in the APA update, “if an employer withholds employment taxes with respect to same-sex spouse benefits paid to or on behalf of an employee in the third quarter of 2013 and repays or reimburses the employee for the amount of such taxes before filing the third quarter 2013 Form 941, the employer will not report the wages and withholding on that Form 941. If the employer does not repay or reimburse the employee before filing the third quarter 2013 Form 941, the employer can use one of the special administrative procedures for 2013 described below to make an adjustment or claim a refund for the overpayment.”
Adjustments for 2013 on fourth quarter Form 941 or 941-X
The IRS has provided the two alternative special administrative procedures listed below for employers that treated the value of same-sex spouse benefits as wages on Forms 941 for the first three quarters of 2013 and that seek to correct overpayments of employment taxes attributable to the benefits:
Employers must repay or reimburse their employees for the amount of the over-collected FICA and income tax withholding with respect to the same-sex spouse benefits for the first three quarters of 2013 on or before December 31, 2013. Employers, when completing fourth quarter 2013 Form 941, may reduce the fourth quarter amounts for wages subject to income, social security, and Medicare taxes by the amount of the same-sex spouse benefits treated as wages for the first three quarters of 2013, along with the taxes withheld and paid on that amount. By taking advantage of this special administrative procedure, employers will not have to file separate Forms 941-X to correct each of the first three quarters of 2013. To ensure that use of this special administrative procedure for the 2013 fourth quarter Form 941 does not result in a mismatch between total taxes reported on line 10 (total taxes after adjustments) and total liability for the quarter reported on line 16 for a monthly schedule depositor or on Schedule B (Form 941) for a semiweekly schedule depositor, employers should treat the repayments or reimbursements of FICA taxes to employees during the third quarter as paid on October 1, 2013.
If employers repay or reimburse the employee share of FICA taxes or income tax withholding to employees during the fourth quarter, the repayment or reimbursement and the corresponding reduction of the employer portion of FICA tax should be reflected by reductions in the amount reported on line 16 of the fourth quarter Form 941 or Schedule B (Form 941) on the date of the repayment or reimbursement.
Employers that do not repay or reimburse employees for the amount of withheld FICA and income taxes with respect to same-sex spouse benefits provided in 2013 on or before December 31, 2013, and thus, file the 2013 fourth quarter Form 941 without making the adjustment, may correct overpayments of FICA taxes using Form 941-X. Under this option, employers may file one Form 941-X for the fourth quarter of 2013 to make adjustments or claim refunds or credits of overpayments of FICA taxes with respect to same-sex spouse benefits paid in all quarters of 2013, provided the employer has satisfied the usual requirements for filing Form 941-X. The employer should write “WINDSOR” in dark, bold letters across the top margin of page 1 of Form 941-X. Only corrections made under this special administrative procedure may be shown on this Form 941-X.v
Employers may not make an adjustment for an overpayment of income tax withholding for a prior calendar year unless the overpayment is attributable to an administrative error. In such case, employees will receive credit for the income tax withheld for purposes of determining any entitlement to a refund of income tax paid with respect to same-sex spouse benefits provided in 2013 when they file Form 1040, U.S. Individual Income Tax Return.
Adjustments or claims for refund for years before 2013
The IRS is also providing a special administrative procedure for employers to make adjustments or claims for refund or credit of overpayments of FICA taxes paid with respect to same-sex spouse benefits for any year before 2013 for which the applicable period of limitations on credit or refund has not expired. Under this procedure, the employer may file one Form 941-X for the fourth quarter of the prior year that includes the adjustments or refunds for all overpayments of employment taxes with respect to same-sex spouse benefits provided during such prior year. The employer should write “WINDSOR” in dark, bold letters across the top margin of page 1 of Form 941-X. Only corrections made under this special administrative procedure may be shown on this Form 941-X.
Although the employer may file for all four quarters of a prior year on the fourth quarter Form 941-X, this special administrative procedure is subject to the usual requirements that apply in the case of corrections of overpayments for prior years, including the filing of Forms W-2c, repaying or reimbursing employees for the overwithheld taxes, and obtaining the required written statements (and consents if applicable) from employees.
An employer may not make an adjustment for an overpayment of income tax withholding for a prior calendar year unless the overpayment is attributable to an administrative error.