You may owe money to some employees – and the IRS may owe you even more!

For same-sex married couples, the out of pocket cost for benefits has been as much as 50% higher for the spouse’s coverage because of taxes. The extra cost came into play because the benefits were taxable to the employee.

The IRS now recognizes same-sex for all federal income tax purposes. And the recognition is retroactive for earlier years – if employees were married in those years. The IRS will refund overpayments for up to three years.

It seems simple, but there’s a bit of work involved. The first step for employers is to identify employees who paid tax on a partner’s benefits – but who was married to the partner at the time!

For fringe benefits that were taxed (but that, thanks to Windsor, are now tax-free), there are four parts to getting taxes refunded:

  • By December 31, 2013 (yep – December 31 2013!)  employers must refund the employee the employee’s portion of social security and Medicare tax.
  • The employer must prepare and files amended Forms W-2 and W-3 removing the benefits from taxable income
  • The employer applies for a refund of both the employee and employer portions of social security and Medicare taxes from the IRS. The IRS has provided special procedures for claiming these refunds.
  • The employee must amend federal and state tax returns (using the corrected W-2s from the employer) to get a refund of income taxes that have been overpaid.