The IRS recently issued Notice 2013-61 regarding the application of the Windsor decision and Rev. Rul. 2013-17 to Employment Taxes and Special Administrative Procedures for Employers to Make Adjustments or Claims for Refund or Credits or adjustments (referred to in this notice as corrections) of overpayments of Federal Insurance Contributions Act (FICA) taxes and Federal income tax withholding (employment taxes) with respect to certain benefits provided to same-sex spouses and remuneration paid to same-sex spouses resulting from the United States Supreme Court decision in United States v. Windsor, 570 U.S. 133 S.Ct. 2675 (2013) and the holdings of Rev. Rul. 2013-17, 2013-38 I.R.B. 201.

To reduce filing and reporting burdens associated with the optional retroactive application of the holdings of Rev. Rul. 2013-17, the IRS is providing special administrative procedures for employers to correct overpayments of employment taxes for 2013 and prior years with respect to certain same-sex spouse benefits and certain remuneration paid to same-sex spouses, including overpayments that result from a taxpayer’s retroactive application of the holdings of Rev. Rul. 2013-17. With respect to these overpayments for 2013, this notice provides two alternativespecial administrative procedures. The special administrative procedures provided in this notice are optional. Employers that prefer to use the regular procedures for correcting employment tax overpayments related to same-sex spouse benefits and remuneration paid to same-sex spouses, instead of the special administrative procedures, may do so.

First alternative: Employers may use the fourth quarter 2013 Form 941, Employer’s Quarterly Federal Tax Return, to correct these overpayments of employment taxes for the first three quarters of 2013.

Second alternative: employers may file one Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund, for the fourth quarter of 2013 to correct these overpayments of FICA taxes for all quarters of 2013. With respect to these overpayments of FICA taxes for years before 2013, employers can make a claim or adjustment for all four calendar quarters of a calendar year on one Form 941-X filed for the fourth quarter of such year if the period of limitations on refunds under Section 6511 of the Internal Revenue Code (IRC) has not expired and, in the case of adjustments, the period of limitations will not expire within 90 days of filing the adjusted return. Under normal procedures, employers are required to file a Form 941-X for each calendar quarter for which a refund claim or adjustment is made.

Procedures for Corrections of Overpayments of Employment Taxes

Generally, corrections of overpayments of FICA tax are made after an error has been ascertained using the adjustment process under S4ection 6413 or using the refund claim process under Section 6402. An error is ascertained when the employer has sufficient knowledge of the error to be able to correct it. Under Section 31.6413(a)-1(a) and Section 31.6413(a)-2(b) of the Employment Tax Regulations, before making an adjustment of an overpayment of FICA tax with respect to an employee, an employer generally must repay or reimburse the employee in the amount of the overcollection prior to the expiration of the period of limitations on credit or refund, and, for FICA tax overcollected in a prior year, must also secure the employee’s written statement confirming that the employee has not made any previous claims (or the claims were rejected) and will not make any future claims for refund or credit of the amount of the overcollected FICA tax. An employer repays the employee by direct payment to the employee; an employer reimburses an employee by applying the amount of the overcollection against the employee FICA tax which attaches to wages paid by the employer to the employee. Section 31.6413(a)-2(c)(2) provides that employers cannot adjust overpayments of withheld income tax after the end of the calendar year, except in the case of administrative errors. (An administrative error occurs if the amount the employer entered on Form 941 is not the amount the employer actually withheld.) Section 31.6413(a)-2(d)(2) provides that no adjustment in respect of an overpayment may be made if the overpayment relates to a return period for which the period of limitations on credit or refund of such overpayment will expire within 90 days of filing the adjusted return.

Section 31.6402(a)-2 provides rules under which a refund claim for an overpayment of FICA tax may be made. Pursuant to IRC Sec. 31.6402(a)-2(a), no refund or credit for FICA employer tax will be allowed unless the employer has first repaid or reimbursed its employee for the employee FICA tax or has secured the employee’s consent to the allowance of the claim for refund and includes a claim for the refund of such employee tax. However, this requirement does not apply to the extent that the employee FICA taxes were not withheld from the employee or, after the employer makes reasonable efforts to repay or reimburse the employee or secure the employee’s consent, the employer cannot locate the employee or the employee will not provide consent. Under IRC Sec 6414 and IRC Sec 31.6414-1, no refund to the employer is allowed for the overpayment of withheld income tax which the employer deducted or withheld from an employee.To make employment tax corrections for overpayments (that is, to make adjustments or to claim refunds), an employer uses the “X” form that corresponds to the return being corrected. Thus, an employer corrects overreported taxes on a previously filed Form 941 by filing Form 941-X. Generally, a separate X form must be filed for each taxable period. In determining whether there has been an overpayment of employment taxes

and the amount of any refund, credit, or adjustment, employers are required to take into account the applicable wage base under the social security tax portion of the FICA tax, and the tax rates in effect for the particular year. Section 31.6051-1(c) requires an employer adjusting a return filed for a prior year, or claiming a refund or credit of FICA taxes for a prior year, to file Forms W-2c,Corrected Wage and Tax Statement, for such year. Section 31.6051-1(c) provides that the employer must file Forms W-2c correcting Forms W-2, Wage and Tax Statement, if an amount of employee social security or Medicare tax shown on the Form W-2 is incorrect and is adjusted or refunded; the amount of social security wages or Medicare wages shown on the Form W-2 is incorrect; the amount shown in Box 1, Wages, tips, other compensation, is incorrect; or the amount of income tax actually withheld from the employee is incorrectly reported in Box 2, Federal income tax withheld.

Special Administrative Procedures for Employment Tax Adjustments and Claims for Refund

For purposes of this notice, “same-sex spouse benefits” refers to the benefits specified in Rev. Rul. 2013-17 for which amended income tax returns and adjusted employment tax returns or claims for refund or credit may be filed. These benefits are same-sex spouse employer-provided health coverage and fringe benefits that were provided by an employer to a same-sex spouse and are excludable from income under Sections 106, 117(d), 119, 129, or 132 based on an individual’s marital status. For purposes of the preceding sentence, if an employee made a pre-tax salary-reduction election for health coverage under a Section 125 cafeteria plan sponsored by an employer and also elected to provide health coverage for a same-sex spouse on an after-tax basis under a group health plan sponsored by that employer, an affected taxpayer may treat the amounts that were paid by the employee for the coverage of the same-sex spouse on an after-tax basis as pre-tax salary reductions amounts. Thus, for purposes of this notice, employment taxes paid on after-tax amounts that were used to purchase health coverage for an employee’s same-sex spouse under the circumstances described in the preceding sentence are treated as overpayments of employment taxes. In addition, for purposes of this notice, “same-sex spouse benefits” includes remuneration for services that is excepted from the definition of employment for FICA purposes under the holdings in Rev. Rul. 2013-17 because the services are within the exception of Section 3121(b)(3)(B. 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, ascertains the amount withheld on such benefits, 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 the third quarter 2013 Form 941. If the employer does not repay or reimburse the employee for the amount of the overcollection before filing the third quarter 2013 Form 941, the employer must report the amount of the overcollection on that return and can use one of the special administrative procedures for 2013 described below to make an adjustment or claim a refund for the overpayment.

Part 2 will discuss the procedures for refunds of taxes for the fourth quarter. Part 3 will discuss the procedures for refunds of taxes for prior years.

In accordance with Circular 230 Disclosure