On December 16, 2013, the Internal Revenue Service (the “IRS”) issued Notice 2014-1 (the “Notice”), which provides guidance on the application of the Supreme Court’s DOMA decision to cafeteria plans, health flexible spending arrangements and dependent care assistance programs (“FSAs”), and health savings accounts (“HSAs”). See previous SGR client alerts for background on the Supreme Court’s DOMA decision and subsequent guidance issued by the IRS.

Important highlights from the Notice are as follows:

• If a cafeteria plan participant was lawfully married to a same-sex spouse as of the date of the Supreme Court’s DOMA decision (i.e., June 26, 2013), an employer may permit the participant to make a mid-year election change on the basis that the participant has experienced a change in legal marital status.
• A cafeteria plan containing written terms permitting a change in election upon a change in legal marital status is not required to be amended to permit a change in status election with regard to a same-sex spouse in connection with the Supreme Court’s DOMA decision. However, if a cafeteria plan sponsor chooses to permit election changes that were not previously provided under the cafeteria plan, the cafeteria plan must be amended to permit such election changes on or before the last day of the first plan year beginning on or after December 16, 2013 (i.e., December 31, 2014 for calendar year plans).
• The Notice also addresses the tax treatment of contributions for medical coverage for a same-sex spouse.  It addresses situations where an employee elected to pay for the cost of his or her medical coverage on a pre-tax basis through salary reduction under a cafeteria plan, but was paying the cost of medical coverage for his or her same-sex spouse on an after-tax basis.  Now, if an employer receives notice before the end of the cafeteria plan year including December 16, 2013 (i.e., December 31, 2013 for calendar year plans) that a participant in its cafeteria plan is married to a same-sex spouse who is receiving medical coverage, then such employer must begin treating the amounts that the participant was paying for same-sex spousal medical coverage on a pre-tax basis.  This must be done no later than (1) the date that a change in legal marital status would be required to be reflected from income tax withholding purposes, or (2) a reasonable period of time after December 16, 2013. 
• In the case of a cafeteria plan participant who elected to pay for the cost of health coverage for his or her same-sex spouse on an after-tax basis, the participant’s salary reduction election under the cafeteria plan is deemed to include the employee’s cost of spousal coverage, even if the employer reports the amounts as taxable income and wages to the participant. Therefore, the amount that the participant pays for spousal coverage is excluded from the gross income of the participant and is not subject to federal income or employment taxes.
• A participant’s FSA may be used to reimburse covered expenses incurred by his or her same-sex spouse during a period beginning on a date that is no earlier than (1) the beginning of the cafeteria plan year that includes the date of the Supreme Court’s DOMA decision (i.e., January 1, 2013 for calendar year plans), or (2) the date of marriage, if later.
• Same-sex married couples are subject to the joint deduction limit for contributions to an HSA. For 2013, the maximum annual deductible contribution to one or more HSAs for a married couple (either of whom elects family coverage under a high deductible health plan) is $6,450.

Stay tuned – we will keep you updated as we receive additional guidance from the agencies as they interpret how the Supreme Court’s DOMA decision will impact employers and employee benefit plans (e.g., qualified retirement plans). For more information, please contact your Executive Compensation and Employee Benefits Counsel at Smith, Gambrell & Russell.