There are two protective FICA refund claims available for all open payroll tax periods, but to preserve refund claims for 2009, a claim must be filed on or before April 15, 2013.
Imputed Income due to DOMA – If provide same sex spouse health coverage for non-dependent spouses.
Currently, nondependent same-sex spouses cannot receive health benefits on a tax-free basis unlike opposite-sex spouses because of the Defense of Marriage Act (DOMA) and its implications for the tax code. Consequently, employers must impute the value of employer-paid healthcare provided to an employee’s nondependent same-sex spouse as additional income to an employee. Employees are subject to payroll taxes on imputed income, commonly referred to as FICA taxes as well as federal and state income taxes. Employers are also subject to corresponding FICA payroll tax costs associated with the imputed income. If the U.S. Supreme Court holds that DOMA is unconstitutional (which is currently being considered in United States v. Windsor with a ruling anticipated in June 2013), it is likely that nondependent same-sex spouses could be eligible for tax-free employer-paid health benefits. Consequently, employers may be entitled to a refund of their share of any FICA taxes paid on imputed income since DOMA was enacted (employees may also be entitled to a refund of their share of both FICA taxes and income taxes).
SUB Severance Payments – If downsized or had other mass involuntary terminations
Employers have long paid FICA taxes on payments made to terminated employees under a supplemental unemployment plan (SUB payments). In United States v. Quality Stores, Inc., the court held that SUB payments paid to former employees pursuant to an involuntary reduction in force are not taxable “wages” for purposes of FICA taxes. Although this decision merely results in a split amongst the U.S. Courts of Appeals and is not settled law, employers may be entitled to a refund of any FICA taxes paid on SUB payments when the issue is fully resolved (employees may also be entitled to a refund of their share of FICA taxes and income taxes).
Protective FICA Refund Claims
A protective refund claim simply preserves the right to a refund and extends the statute of limitations for a minimum of two years. The process for filing a protective claim is simple.
The decision to file for a refund will depend upon the extent to which an employer has had to impute income to employees with same-sex partners or has paid SUB payments to involuntarily terminated employees. In many instances, employers may have insufficient imputed income and/or SUB payments at issue to spend the resources needed to file a FICA refund claim. ACTION MUST BE TAKEN NOW WITH REGARD TO THE 2009 TAX YEAR BECAUSE THE DEADLINE TO FILE A FICA REFUND CLAIM FOR 2009 IS APRIL 15, 2013.
Please contact Dannae Delano for more information about filing a protective FICA refund claim or any other benefits-related inquiries.
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