How to Treat Same-Sex Spouse Health Premiums Erroneously Included in W-2 Income

The IRS has recently provided guidance on how an employee should treat amounts erroneously included in W-2 income for the premiums paid by the employer for a same-sex spouse’s health insurance. The IRS advises the employee to request a corrected W-2 from the employer or, if unable to obtain a corrected W-2, to take specific steps to report the correct amount of taxable income.

The IRS generally provides that a same-sex spouse will be treated as a spouse for federal tax purposes provided that the couple is lawfully married under state law. The gross income of an employee does not include contributions that his or her employer makes to an accident or health plan for the employee, the employee’s spouse and dependents. If the employer offers the health coverage through a cafeteria plan that permits employees to pay the employee portion of the cost of coverage through pre-tax salary reduction, and if the taxpayer paid for the cost of her own health coverage on a pre-tax basis, then any amounts paid on an after-tax basis for spousal coverage would also be excludable from the taxpayer’s income.

If the value of the spousal health coverage was incorrectly reported as taxable wages to the taxpayer on Form W-2, the taxpayer should first contact the employer and request a corrected Form W-2 that does not include the value of any excludable spousal health coverage.

If the employer does not issue a corrected Form W-2, the taxpayer should file their income tax return, Form 1040, using the original Form W-2 from the employer and attach a completed Form 4852, Substitute for Form W-2, Wage and Tax Statement to report the excludable amount of wages.

The taxpayer may also be entitled to a refund of federal employment taxes (social security and Medicare) paid on the value of excludable spousal health coverage. The taxpayer might wish to contact the employer to determine if the employer will seek a refund of these amounts on the taxpayer’s behalf. If the employer will not seek a refund, the taxpayer may file Form 843, Claim for Refund and Request for Abatement.

Should you have any questions, please contact your Marcum Tax Professional.