Since the Supreme Court ruled section 3 of DOMA unconstitutional in United States v. Windsor, benefits practitioners have been eagerly awaiting IRS guidance as to how the decision impacts employee benefits. On December 16, 2013, the IRS released Notice 2014-1, to provide some information as to how Federal tax recognition of same-sex spouses affects cafeteria plans, including health and dependent care flexible spending accounts (“FSAs”) and health savings accounts (“HSAs”). Though there were no surprises in the Notice, it may give comfort to employers who allowed employees with same-sex spouses to change elections mid-2013 as a result of Windsor. However, requirements as to the timing of some cafeteria plan amendments is still left unsettled.

Election Changes

Under the Code Section 125 rules, an employee may change cafeteria plan elections mid-year and make new elections only under certain circumstances and as permitted by the plan. The Notice provides that a cafeteria plan may treat a participant who was married to a same-sex spouse as of June 26, 2013 (the date of the Windsor decision) as if the participant experienced a change in legal marital status, and accept election changes due to that change in status, at any time during the plan year that includes June 26 or December 16, 2013. For calendar-year cafeteria plans, this is of little help going forward, as there are few days left in the plan year anyway, although the Notice goes on to say that if a plan allowed an election change on this theory from June 26 to December 31, 2013 in the absence of IRS guidance, the IRS will consider it as permissible.

Cost of Group Health Coverage for Same-Sex Spouses

The amount that a participant pays for group health coverage for his or her spouse is excluded from the participant’s gross income and is not subject to Federal income or employment taxes, but what if a participant has been paying for the cost of coverage for his or her same-sex spouse on an after-tax basis? The Notice provides that if an employer knows or is notified by the end of a cafeteria plan year that includes December 16, 2013, that a participant is married to a same-sex spouse and is paying for that coverage on an after-tax basis, it must permit the participant to pay for the cost of coverage for that spouse on a pre-tax basis no later than the later of (1) the date an employer would be required to implement a new income tax withholding election due to a change in marital status of an employee, or (2) a reasonable time after December 16, 2013. A participant may choose to pay for the same-sex spouse’s group health coverage on a pre-tax basis through the end of the current cafeteria plan year, or continue paying for these benefits on an after-tax basis, and may seek a refund of Federal income or employment taxes paid on the amount of that spousal coverage for any prior open tax years. The participant may also exclude these amounts from gross income when he or she files an income tax return.

FSA Reimbursements

Calendar-year FSAs may permit a participant’s account to reimburse covered expenses incurred by a same-sex spouse as early as January 1, 2013, assuming the participant was married to the same-sex spouse at the time the expense was incurred. This guidance applies to health, dependent care and adoption assistance FSAs. This may be welcome news to participants who need to zero out FSAs by year-end and have unreimbursed eligible expenses incurred by a same-sex spouse.

Non-calendar year FSAs may permit such reimbursement for expenses incurred as the beginning of the plan year that includes June 26, 2013, assuming the participant was married to the same-sex spouse at the time the expense was incurred.

Interestingly, the IRS uses permissive language here (may permit rather than must permit such reimbursement), which is consistent with the fact that neither ERISA nor the tax code requires coverage for spouses in welfare plans. That said, in choosing to exclude same-sex spouses from coverage, employers should consider the impact of potential Title VII claims, as well as potential state law discrimination claims (particularly for dependent care and adoption assistance FSAs, where ERISA preemption does not apply).

Contribution Limits

Not surprisingly, the HSA contribution limit for married couples (for 2013, $6,450) applies to same-sex married couples as it does for opposite-sex couples, starting with the 2013 taxable year. Same-sex couples who go over the limit will need to get excess contributions out of one or both HSAs by the due date of the applicable taxpayer’s 2013 income tax return. Similarly, the contribution limit for dependent care FSAs (currently $5,000 for married couples) applies to same-sex married couples beginning with 2013. To the extent that remaining contributions cannot be reduced before the end of the tax year to avoid exceeding the limit, any excess contributions will be includable in the spouses’ gross income for the year.


If a cafeteria plan already permitted a change in election upon a change in legal marital status, the Notice provides that the plan will generally not be required to be amended to permit such change with respect to a same-sex marriage. Although not stated in the Notice, presumably if the language of the cafeteria plan restricted the definition of spouse for such purposes as an opposite-sex spouse, the plan should be amended, although it is not known by when. The Notice also provides that if a plan sponsor choses to permit election changes that were not previously provided for the in the plan document, it must amend no later than the last day of the first plan year beginning on or after December 16, 2013 (December 31, 2014 for calendar-year plans). This amendment should be retroactive, even though generally retroactive amendments to cafeteria plans are not allowed. Perhaps this amendment deadline would also apply to amending the definition of same-sex spouse or marriage in cafeteria plans that define marriage in relation to DOMA, although the IRS does not say.