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Janet LeTourneau

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Janet LeTourneau, ACFCI, is the director of compliance services at WageWorks. She draws upon more than 25 years of experience with flexible benefits plans and tax laws to perform consulting services and monitor quality control. LeTourneau is a frequent speaker to employer groups and conferences and was formerly on the board of directors for the Employers Council on Flexible Compensation (ECFC) and is a current member of the ECFC Technical Advisory Committee (TAC). She is the lead instructor for the Section 125 administrators training workshop. LeTourneau was one of the first people in the country to earn the Advanced Certification in Flexible Compensation Instruction designation sponsored by the Employers Council on Flexible Compensation. She is a certified trainer in the ACFCI program. LeTourneau can be reached by telephone at 262-236-3021 or by email at jan.letourneau@wageworks.com.

HSA—The Smartest Benefit For Employers And Employees

Health Savings Accounts (HSAs) are individually owned healthcare reimbursement accounts that allow tax-free dollars to fund the account. Interest or dividends accumulate tax free, and payment of qualified medical expenses are tax free. And, to make it the grand slam of all benefits, there is no limit on the amount of money that may accumulate in the HSA. That’s why an HSA is a healthcare benefit that can be used now and for future medical needs.

Requirements for setting up and contributing to an HSA

  • Must be covered by a qualified high-deductible health plan (HDHP). The HDHP must satisfy minimum deductible amounts and certain out-of-pocket maximums.
  • May not be covered by any other insurance plan that is not an HDHP or that covers benefits provided by the HDHP.
  • May obtain “permitted insurance” or “permitted coverage” products such as policies that provide dental, vision, accident, disability, and long term care benefits.
  • The HDHP may also provide preventive care that is below the minimum deductible amount or with a deductible.
  • Cannot be covered by health plans that provide co-payments or first dollar coverage for prescriptions.

An individual setting up an HSA must be eligible to establish the account on the first day of any month. For instance, if she is covered by an HDHP on June 15, the HSA could be established on or after July 1. She also does not have to decide before the beginning of the plan year what to contribute for the entire plan year. Generally, changes to HSA elections do not require a change in status and may be changed as often as monthly if the plan document supports this option.
Easy set up and pre-tax contributions transferred to the HSA makes saving money easy.

Reimbursements/payments from an HSA
Individuals do not have to be covered by an HDHP for any month. In other words, although participants may not be able to contribute to their HSA, the funds are still available to pay for qualified medical expenses—including COBRA continuation premiums.

Qualified medical expenses include COBRA or Uniformed Services Employment and Reemployment Rights Act (USERRA) continuation coverage, long term care insurance and services, prescribed drugs and medicines, any health plan premium while the individual is receiving unemployment, and, after age 65, any qualified health insurance other than a Medicare supplemental policy.
Add a debit card for accessing the funds and here’s a benefit that everyone will want.

Putting HSA money to work
HSAs are personally owned savings vehicles. They earn interest and can be invested. Just like a 401(k) plan, investment options are available. Remember, interest and earnings are not taxed and the HSA balance is not limited.

HSAs are powerful retirement planning tools. A financial adviser can illustrate how funds from an HSA, when used for eligible medical expenses, will go a lot further than from a 401(k) plan. That’s because the HSA money is not taxed if withdrawn for eligible medical expenses.

Medical expenses continue to rise. It is estimated that couples retiring right now might expect to spend about $250,000 on medical expenses during their retirement. Funding in an HSA now can be there to pay medical expenses in the future. In fact, contributing the maximum limits every year to an HSA may reap more benefits at retirement. Qualified medical bills paid from an HSA are not taxable and this preserves money in the 401(k) account. And HSAs do not require any obligatory withdrawals.

Young or old, large or small medical bills —everyone benefits.

Two New Types Of HRAs Expand Heath Reimbursement Arrangements

On October 12, 2017, President Trump issued Executive Order 13813 promoting Healthcare Choice and Competition across the United States. This took the form of a Notice to expand the flexibility and use of HRAs to provide more Americans with additional options to obtain quality, affordable, healthcare.

The proposed rules of this Notice created two new types of Health Reimbursement Arrangements (HRAs). An Individual Coverage HRA and an Excepted Benefit HRA. Both reverse the previous Administration’s position on HRAs. The rules are only proposed at this point and the IRS requested comments. WageWorks submitted comments on all aspects of the new HSAs and changes to some of the proposed rules are inevitable. Therefore, employers should not rely on these proposed regulations; and in any event, the rules would be effective for plan years starting on or after January 1, 2020.

Departments of Health and Human Services (HHS), the Treasury Department, and Labor Department proposed new rules on October 23, 2018, that would provide employers with significant new flexibility in how they fund health coverage through HRAs. If finalized, this flexibility would empower individuals to take greater control over what health insurance benefits they receive. The Treasury estimates that more than 10 million employees would benefit from this change within the next decade.

The proposed regulations remove the current prohibition on using HRA funds to purchase individual health insurance coverage; however, an array of stipulations apply to assure these new HRAs do not create an unstable individual market and that they coordinate with current Affordable Care Act premium subsidies. Both HRAs include nondiscrimination rules that limit their use. The proposed nondiscrimination rules are designed to prevent negative consequences against older and sicker individuals and to prevent employers from incenting employees who may be unhealthy or more costly to be removed from the employer’s plan.

Individual Coverage Health Reimbursement Arrangement (ICHRA)
The proposed regulations would permit the ICHRA to be integrated with individual health plan coverage in order to reimburse individual coverage premiums and qualified medical out-of-pocket expenses, provided that the ICHRA meets a few conditions.

First, the employer cannot offer any employee a choice between an ICHRA and employer-sponsored group health plan coverage. Plus, the participants and their dependents must be enrolled in individual health insurance coverage purchased in the individual market. Substantiation of individual coverage must take place at enrollment and with each reimbursement request. WageWorks submitted comments suggesting that existing guidance regarding debit cards be used to create a methodology to allow auto-substantiation of coverage.

The employer must offer the ICHRA on the same terms to all employees in a “class” and employees must have the ability to opt-out of receiving the ICHRA so that they may receive a premium tax credit for coverage purchased in the individual marketplace.

Permissible “classes” of employees are full-time, part-time, seasonal, collectively bargained, under age 25, employees within a 90-day waiting period, foreign and work abroad, and working in the same rating area. There are certain exceptions for age, family size, and former employees. WageWorks’ comments included a request that classes be expanded to include salaried and hourly employees.

And finally, employers must provide a detailed written notice to employees at least 90 days before the beginning of each plan year. WageWorks’ comments asked that a model notice or model language be provided for employers to use.

Additionally, since the ICHRA is integrated with individual coverage, it is not subject ERISA provided five requirements are met:

  • Participation in the ICHRA is voluntary;
  • The employer has no role in the selection or endorsement of any individual coverage products;
  • There are limits on reimbursements;
  • The employer receives no consideration from coverage providers; and,
  • Annual notification is provided.

A section 125 cafeteria premium plan can be offered with an ICHRA for “excess contributions” to cover the premium cost over and above the benefit offered by the employer through the ICHRA. As a reminder, a cafeteria plan cannot be used for exchange coverage premiums.

Excepted Benefit Health Reimbursement Arrangement (EBHRA)
This HRA reverses the previous Administration’s stance by allowing a new type of HIPAA–excepted benefit in addition to current HRAs that offer excepted benefits such as vision and dental.

This new status as an excepted benefit means that the employee who is covered under the EBHRA is not considered enrolled in “minimum essential coverage” and would not be precluded from receiving a premium tax credit on an Exchange. There are five requirements that must be met in order to offer EBHRAs:

  1. The employer must offer other major medical health coverage. However, participants in the EBHRA do not have to be enrolled in the health coverage, they just simply must be offered the coverage;
  2. The HRA is limited to $1,800 annually (not including rollovers from year to year), subject to annual indexing (WageWorks comment letter requested that a higher annual election be considered);
  3. The HRA can reimburse eligible health care expenses and COBRA premiums or contributions, excepted benefit coverage such as dental and vision, and short-term limited-duration insurance (list is not exhaustive);
  4. The HRA may not be used to reimburse premiums or contributions for other medical coverage (individual or group); and
  5. The HRA must be provided on a uniform basis to all similarly situated employees.

With the EBHRA, the employer might want to offer an additional separate HRA that only provides vision and/or dental benefits. This would allow participants to utilize the $1,800 EBHRA limit plus have additional funds available for vision and dental expenses.

HHS also proposes rules that would provide a special enrollment period in the individual market for individuals who gain access to an HRA integrated with individual health insurance coverage or who are provided a QSEHRA.

Plan years for both an ICHRA and EBHRA are generally 12 months. However, they do not have to be on a calendar year and may be a short plan year. Short plan years would need to prorate any annual limits for just the months covered by the short plan year. Note that an employer cannot offer both an ICHRA and an EBHRA to the same class of employees.

WageWorks sought clarification and changes to these proposed rules and anticipates final regulations sometime in 2019 with the proposed rules allowing employers to offer these coverage options beginning on or after January 1, 2020.

The information contained in this article is not intended to be legal, accounting, or other professional advice. We assume no liability whatsoever in connection with its use, nor are these comments directed to specific situations.

Deductibility Of Qualified Parking Expenses

IRS issued Notice 2018-99 regarding tax-exempt organizations and nondeductible parking fringe expenses paid or incurred after December 31, 2017. The new rules respond to questions from taxpayers about calculating the amount of parking expenses, which are no longer tax deductible and, for some entities, must be reported. The notice also helps tax-exempt organizations to determine how these nondeductible parking expenses create or increase unrelated business taxable income (UBTI).

Background
The Tax Cuts and Jobs Act, signed into law December 22, 2017, delivered historic tax relief for workers, families, and job creators. It also made several changes to the Tax Code, and among them provided that employers could no longer deduct costs for subsidized or paid commuter benefits such as parking and transit programs.

Notice 2018-99
A key part of this guidance is a special rule enabling many employers to retroactively reduce the amount of their nondeductible parking expenses. The proposed regulations include guidance on the determination of nondeductible parking expenses and other expenses for qualified transportation fringes and the calculation of increased UBTI. Employers will have until March 31, 2019, to change their parking arrangements to reduce or eliminate the number of parking spots they reserve for their employees.

How a taxpayer determines the nondeductible amount depends on whether the taxpayer pays a third party to provide parking for its employees or owns or leases all or a portion of a parking facility where its employees park. In the first instance, the disallowance amount is based on the amount paid to the third party by the taxpayer; and, in the second, a taxpayer may use any reasonable method in determining the disallowance amount.

As a safe harbor, the notice describes a four-step method that will be considered reasonable to calculate the portion of parking expenses that are subject to UBTI. The notice also states that using the value of employee parking to determine expenses allocable to employee parking in a parking facility owned or leased by the taxpayer is not a reasonable method, because a deduction is disallowed for expenses of providing qualified transportation fringes regardless of its value.

In addition, for tax years beginning on or after January 1, 2019, a method that fails to allocate expenses to reserved employee spots cannot be a reasonable method.

Notice 2018-100
Provides tax penalty relief in 2018 to tax-exempt organizations that offer these benefits and were not required to file a Form 990-T (Exempt Organization Business Income Tax Return) last filing season.

Note that a tax-exempt organization that has less than $1,000 in unrelated business income is not required to file a Form 990-T and thus is not required to pay the unrelated business income tax.

Conclusion
By retroactively reducing the amount of their nondeductible parking expense, many churches, schools, hospitals, and other tax-exempt organizations may be able to reduce their associated UBIT. Such a change made in parking arrangements may apply retroactively to January 1, 2018.

The information contained in this article is not intended to be legal, accounting, or other professional advice. We assume no liability whatsoever in connection with its use, nor are these comments directed to specific situations.

New Indexed Figures For 2019

The Internal Revenue Service (IRS) and Social Security Administration have released the cost-of-living (COLA) inflation adjustments that apply to dollar limitations set forth in certain IRS Code Sections. The Consumer Price Index rose and therefore warranted increases in most indexed figures for 2019.

Social Security and Medicare Wage Base
For 2019, the Social Security wage base is $132,900. The Social Security rate of 6.2 percent is applied to wages up to the maximum taxable amount for the year; the Medicare portion of 1.45 percent applies to all wages.

In addition, individuals are liable for a 0.9 percent “Additional Medicare Tax” on all wages exceeding specific threshold amounts.

Indexed Compensation Levels
Highly compensated and key employee definitions:

401(k) Plans
In 2019 the maximum for elective deferrals is $19,000 and the catch-up contribution for those 50 or older is $6,000. That means if you are age 50 or over during the 2019 taxable year, you may generally defer up to $25,000 into your 401(k) plan.

Healthcare FSA
The annual limit for participant salary reductions for the healthcare flexible spending account (FSA) for plan years starting on or after January 1, 2019, may not exceed $2,700. However, this does not preclude employer contributions (as long as they are not convertible to cash) from being added to participants’ healthcare FSAs.

Adoption Credit
For 2019 this tax credit is $14,080. The credit starts to phase out at $211,160 of modified adjusted gross income (AGI) levels, and is completely phased out when modified AGI reaches $251,160.

The exclusion from income provided through an employer or a Section 125 cafeteria plan for adoption assistance also has a $14,080 limit for the 2019 taxable year. And remember—a participant may take the exclusion from income and the tax credit if enough expenses are incurred to support both programs separately.

Health Savings Account (HSA)
Minimum deductible amounts for the qualifying high-deductible health plan (HDHP) remained at $1,350 for self-only coverage and $2,700 for family coverage for 2019. Maximums for the HDHP out-of-pocket expenses increased to $6,750 for self-only coverage and $13,500 for family coverage for 2019.

Maximum contribution levels to an HSA for 2019 are increased to $3,500 for self-only coverage and $7,000 for family coverage. The catch-up contribution allowed for those 55 and over is set at $1,000 for 2019. Remember, there are two general requirements in order to fund an HSA: You must have qualifying HDHP coverage and no other impermissible coverage (such as coverage under another employer’s plan or from a healthcare FSA that is not specifically compatible with an HSA).

Archer Medical Savings Account (MSA)
For high-deductible insurance plans that provide self-only coverage, the annual deductible amount must be at least $2,350 but not more than $3,500 for 2019. Total out-of-pocket expenses under plans that provide self-only coverage cannot exceed $4,650. For plans that provide family coverage in 2019, the annual deductible amount must be at least $4,650 but not more than $7,000, with out-of-pocket expenses that do not exceed $8,550.

Although new MSAs are not allowed, maximum contributions to existing MSAs that are attributable to single-coverage plans is 65 percent of the deductible amount. Maximum contributions for family-coverage plans are limited to 75 percent of the deductible amount. MSA contributions must be coordinated with any HSA contributions for the taxable year and cannot exceed the HSA maximums.

Qualified Small Employer Health Reimbursement Arrangement (QSEHRA)
The annual limit for employer-sponsored QSEHRAs is $5,150 for those with single coverage and $10,450 with family coverage for 2019.

Dependent and/or Child Daycare Expenses
Just a reminder that although the daycare expense limit associated with a cafeteria plan is not indexed, the tax credit available through a participant’s tax filing was raised in 2003. The daycare credit must be filed on Form 2441 and attached to the 1040 tax filing form. Limits for daycare credit expenses are $3,000 of expenses covering one child and $6,000 for families with two or more children. If one of the parents is going to school full time or is incapable of self-care, the non-working spouse would be “deemed” as earning $250 per month for one qualifying child and $500 for two or more qualifying children. This “deemed” earned income is used whether a person is using the employer’s cafeteria plan or taking the daycare credit.

The cafeteria plan daycare contribution limit is $5,000 for a married couple filing a joint return, or for a participant filing a single return, or filing as “Head of Household.” For a married couple filing separate returns, the limit is $2,500 each. The daycare credit is reduced dollar for dollar by contributions to or benefits received from an employer’s cafeteria plan. An employee may participate in their employer’s cafeteria plan and take a portion of the daycare expenses through the credit if they have sufficient expenses in excess of their cafeteria plan annual election, but within the tax credit limits.

Commuter Accounts
For 2019 the monthly parking limit is $265 and the 2019 monthly limit for transit also increases to $265.

Long Term Care
For a qualified long term care insurance policy, the maximum non-taxable payment increases to $370 per day for 2019.

Finally, by participating in a cafeteria plan, the participant will be lowering their income for the Earned Income Tax Credit (EITC). Check out the new limits in IRS Publication 596 “Earned Income Credit” and for more information about this tax credit.

The information contained in this article is not intended to be legal, accounting, or other professional advice. We assume no liability whatsoever in connection with its use, nor are these comments directed to specific situations.

Changes To Short-Term, Limited- Duration Insurance Coverage

On August 1, 2018, the department of Health and Human Services (HHS), Labor (DOL) and the Treasury issued a final rule that allows for the sale and renewal of short-term, limited-duration health insurance plans that cover longer periods than previously permitted. For background, see my column from May 2017, New Guidelines for Excepted Benefits and Annual and Lifetime Limits. An executive order by President Trump called for expanding this type of insurance to create a more affordable option of health insurance with longer coverage periods and renewals.

Originally, short-term insurance was coverage of less than three months in duration. The plan also had to contain an expiration date specified in the contract that was less than three months after the first effective date of the contract and provide prominent information concerning the plan. These final rules amend the definition of short-term, limited-duration insurance while continuing to maintain its non-compliance with the insurance mandates contained in the Affordable Care Act (ACA).

Maximum Short-Term and Limited-Duration Extensions Periods
Such insurance may have an initial maximum coverage period of less than 12 months after the original effective date of the contract, taking into account any extensions that may be elected by the policyholder without the issuer’s consent. The limited-duration time period allows renewal or extensions for up to a total of 36 months.

There are no rules concerning the purchase of more than one policy as long as each policy is separate and does not extend the maximum short-term or limited-duration extension periods.

Required Notice to Participants
“This coverage is not required to comply with certain federal market requirements for health insurance, principally those contained in the Affordable Care Act. Be sure to check your policy carefully to make sure you are aware of any exclusions or limitations regarding coverage of preexisting conditions or health benefits (such as hospitalization, emergency services, maternity care, preventive care, prescription drugs, and mental health and substance use disorder services). Your policy might also have lifetime and/or annual dollar limits on health benefits. If this coverage expires or you lose eligibility for this coverage, you might have to wait until an open enrollment period to get other health insurance coverage. Also, this coverage is not ‘‘minimum essential coverage.’’ If you don’t have minimum essential coverage for any month in 2018, you may have to make a payment when you file your tax return unless you qualify for an exemption from the requirement that you have health coverage for that month.”

As under the proposed rule, the last two sentences of the notice are only required for policies sold on or after the applicability date of this final rule that have a coverage start date before January 1, 2019.

Late Breaking News
The Senate was unsuccessful in their efforts to overturn the Trump Administration’s final rule on short-term health plans this week after a vote on the resolution failed. It would have blocked the Trump Administration’s move to expand the use of short-term health plans.

It is worth noting that even if the measure did pass in the Senate, it most certainly would have failed in the House.

The information contained in this article is not intended to be legal, accounting, or other professional advice. We assume no liability whatsoever in connection with its use, nor are these comments directed to specific situations.

Boost Enrollment With Employer Flex Credits

Flexible Spending Accounts (FSAs) can be a great way to engage employees in employer benefits while saving on taxes. To boost participation, employer flex credits are just the ticket to enhance savings for both employers and employees—plus the rules are pretty simple.

Employer credits may be available for any benefit within a flexible benefits plan such as reducing the employees’ portion of insurance premiums, for the dependent care account, or used in the healthcare FSA. This “seed” money doesn’t have to be extravagant, it could be as little as $50 per employee just to get them started in the plan. The easiest course of action for most employers is to drop the flex credits into the healthcare FSA. A great way to get all employees engaged in the flex plan.

How Can Employers Offer Flex Credits?
There are just two rules to follow in order to offer employer flex credits to healthcare FSAs. First, employees must be eligible for the employer-sponsored Affordable Care Act-compliant group health insurance coverage. If the employer has a healthcare FSA now, be sure they are following this rule. Second, employer contributions to the healthcare FSA are limited to $500 or, if more than $500, equal to the participant’s election.

Here’s an example of employer contributions to the health FSA that meet the Maximum Benefit condition:

  • A one-for-one employer match. (Employer $600, employee $600.)
  • An employer contribution of $500 or less. (Employer $500, employee $200.)

These scenarios do not meet the Maximum Benefit condition:

  • Employer contributes more than $500, if employee contributes $500 or less. (Employee election $400 and employer contributions $600.)
  • Employer contribution in excess of one-to-one match, if employee contributes more than $500. (Employer contributes $700, employee contributes $600.)

Certainly, flex credits can be offered to all employees. Those making no healthcare FSA election, or making an election up to $500, could receive $500 in employer flex credits. In addition the employer can match election amounts for employees making more than a $500 election.

If employers want to maximize the annual election that employees may take, the employer flex credits cannot be available to employees in cash—a taxable event. This means employees electing the statutory maximum limit for healthcare FSAs, $2,650 for 2018, could receive an additional $2,650 from employer flex credits for a total election of $5,300 for eligible healthcare expenses.

Another reason for not offering employer flex credits as cash? If any portion of the employer flex credits is available as cash to participants, the entire employer flex credit amount would be counted as part of all participants’ regular rate of pay for overtime purposes. This includes all participants who were offered employer flex credits whether they took cash or used the employer credits for nontaxable benefits.*

If your employers want to offer flex credits, it must be detailed in the flex plan documents and Summary Plan Descriptions (SPDs). How much and whether to offer a flat dollar amount or match elections is up to the employers and their objectives for offering flex credits.

*The Fair Labor Standards Act (FLSA) – regulated by the Department of Labor (DOL) – would likely obligate employers to include all cashable employer contributions as part of the employee’s “regular rate.”
The information contained in this article is not intended to be legal, accounting, or other professional advice. We assume no liability whatsoever in connection with its use, nor are these comments directed to specific situations.

Congress Delivers More Relief From Burdensome Taxes – Cadillac Tax Delayed Again Until 2022!

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Benefits were the real winners in the stopgap government funding Bill H.R. 195. On January 22, 2018, President Trump signed into law a Continuing Resolution (CR) that included major healthcare priorities. The bill that was passed and signed into law addresses many healthcare issues. One, in particular, that WageWorks has been working on as one of our top advocacy priorities.

Cadillac Tax
The so-called “Cadillac Tax” will levy a 40 percent tax on the value of employer-sponsored insurance that exceeds a certain threshold. Unfortunately, the calculation of the threshold includes employee contributions to Health Flexible Spending Accounts (FSAs) and Health Savings Accounts (HSAs).

It also hands over the onerous task to employers of calculating overages, on a per-employee basis, for all benefits offered, and then allocating and collecting the taxes from their various benefits providers and administrators.

Originally slated to begin operation in 2018, previous legislation delayed this tax until 2020. H.R. 195 provides relief for an additional two years, delaying implementation of this excise tax until 2022.  

WageWorks applauds the delay afforded to employers and employees alike. Nevertheless, despite the four-year respite, WageWorks continues to lobby for full and permanent repeal of this burdensome and expensive provision—or at the very least an exclusion from the threshold of employee contributions to health FSAs and HSAs.

Children’s Health Insurance Plans (CHIP)
The CHIP program helps families with children who are caught between Medicaid and unaffordable private insurance.  This much-needed safety net has been funded for the next six years, providing certainty to state CHIP programs and peace of mind for CHIP families. Congress then added another four years of funding in a February budget deal. 

A rescissions bill that targeted the CHIP funding was rejected by the Senate earlier this year.

Health Insurance Tax
The tax levied on health insurance is paid by insurance providers and drove up monthly premiums while making health insurance more expensive for everyone. The health insurance tax will not be applicable for 2019. It is set to reappear in 2020.

Medical Device Tax
The manufacturers of medical devices, such as pacemakers, also paid a tax on their products. This tax drives up the cost of medical devices and perhaps hinders development of new products. Again, as with the Cadillac and health insurance tax, this 2.3 percent tax on medical devices was delayed until 2020 but not eliminated.

This summer the House passed a permanent repeal of the medical device tax and the Senate is expected to take up the bill before the end of the year. The Senate’s August recess was shortened—which gives them more time with their backlog of appropriations bills.

The information contained in this article is not intended to be legal, accounting, or other professional advice. We assume no liability whatsoever in connection with its use, nor are these comments directed to specific situations.

Suspension Of Miscellaneous Itemized Deductions

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Notice 2018-03, released December 14, 2017, provided the optional 2018 standard mileage rates for taxpayers to use in computing the deductible costs of operating an automobile for business, charitable, medical, or moving expenses. The standard mileage rates include a rate of 54.5 cents per mile for business use and 18 cents per mile for eligible moving expenses. Those rates haven’t changed, but the ability to deduct business and moving mileage has changed.

Recently-released Notice 2018-42 modifies Notice 2018-03 by drawing attention to a suspension of miscellaneous itemized deductions outlined in the Tax Cuts and Jobs Act (TCJA). 

TCJA suspended all miscellaneous itemized deductions that are subject to the two-percent of adjusted gross income floor, including unreimbursed employee travel and moving expenses. This TCJA suspension applies to taxable years beginning after December 31, 2017, and before January 1, 2026.

The business standard mileage rate cannot be used to claim an itemized deduction on an individual’s tax filing for unreimbursed employee travel expenses during the suspension. There are certain exceptions to the unreimbursed mileage deduction.

For example, members of a reserve component of the Armed Forces of the United States, state or local government officials paid on a fee basis, and certain performing artists are still entitled to deduct unreimbursed employee travel expenses from their total income.

Moving expenses also may be deductible at the rate of 18 cents per mile under IRC Section 217 for use of an employee’s or person’s car as part of an applicable move. However the suspension of the tax deduction applies for tax years beginning after December 31, 2017, and before January 1, 2026. The moving expense suspension does not apply to members of the Armed Forces of the United States on active duty who move because of a military order or permanent change of station. 

TCJA affects other miscellaneous itemized deductions that are subject to the two percent of adjusted gross income floor, such as unreimbursed employee expenses for uniforms, union dues, the deduction for business-related meals, entertainment, and travel.

The good news? Mileage for qualified medical travel may be reimbursed, at a rate of 18 cents (2018) per mile from taxpayers’ healthcare flexible spending accounts (FSAs), Health Reimburse Arrangements (HRAs), and Health Savings Accounts (HSAs). Check the relevant plan documents to ensure medical mileage is included as an eligible claims expense.  

The information contained in this article is not intended to be legal, accounting, or other professional advice. We assume no liability whatsoever in connection with its use, nor are these comments directed to specific situations.

Hot Tips For HSAs

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Here’s a “Top Ten” list of reasons why employers and employees should establish Health Savings Accounts (HSAs). 

10. HSA-eligible high-deductible health plans can save premiums for both employers and employees.

9.  HSAs belong to the account holder and are retained by the participant when changing jobs.

8.  HSA contributions are non-taxable.

7.  HSA growth through interest and dividends is non-taxable.

6.  Disbursements for qualified medical expenses are non-taxable.

5.  There is no dollar limit to the amount that may accumulate in an HSA.

4.  The maximum annual contribution may be deposited into an HSA even if it is established mid-year.

3.  HSAs roll forward from year to year. Funds can accumulate for expenses incurred during retirement.

2.  Anyone, including both the employer and the employee, can contribute to an individual’s HSA during the year.

1.  HSA’s indexed figures are released earlier than any other benefits’. Here are the 2019 HSA limits:

Congress mandates that cost-of-living adjustments for HSAs must be released by June 1 of every year. The early release of HSA minimums and maximums each calendar year ensures that plan sponsors and their employees have ample time to review plan design options and prepare brochures and educational materials ahead of open enrollment.

Find out more information on HSAs at: https://www.wageworks.com/employer/health-care/Health_Savings_Account/default.htm

The information contained in this article is not intended to be legal, accounting, or other professional advice. We assume no liability whatsoever in connection with its use, nor are these comments directed to specific situations.

Updated Guidance From IRS: HSA Contributions Limits May Remain At $6,900 For 2018

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The maximum family coverage contribution to a Health Savings Account (HSA) for 2018, announced on May 4, 2017, was originally $6,900. On March 5, 2018, however, the $6,900 figure was reduced to $6,850 due to changes to the indexing provisions of the Internal Revenue Code made by the Tax Cuts and Jobs Act.  Dollar amounts in the Internal Revenue Code, including annual limits for HSA contributions that were previously indexed using Consumer Price Index for all Urban Consumers (CPI-U) were indexed for 2018 and beyond using the Chained Consumer Price Index for All Urban Consumers (C-CPI-U).

As a result of the changes in the Tax Cut and Jobs Act, the Internal Revenue Service (IRS) recalculated the indexing of HSA amounts for 2018.  This re-calculation resulted in a lower HSA contribution level for those with family coverage for 2018. A large number of HSA beneficiaries fully funded their accounts at the beginning of the year, only to find they had over-contributed through no fault of their own. The rules to remove excess contributions and earnings are complicated, and annual limits and per paycheck amounts needed to be changed for millions of participants.

WageWorks wrote a comment letter and participated in a meeting with the IRS and Treasury Department concerning the onerous task of dealing with the new, lower, limits. 

On April 26, 2018, the IRS released Revenue Procedure 2018-27 with great news for all HSA beneficiaries who elected the maximum family coverage contribution amount of $6,900. For 2018, taxpayers may treat $6,900 as the annual limitation on contributions for those with family coverage. 

Individuals who received a distribution from an HSA of an excess contribution (with earnings) based on the $6,850 deduction limit may repay the distribution to their HSA and treat the distribution as the result of mistake in fact due to reasonable cause. Mistaken distributions that are repaid to an HSA are not required to be reported on Form 1099-SA or Form 8889 and are not required to be reported as additional HSA contributions. Individuals who already had the $50 returned may choose to repay the amount into their HSA.  

Two methods of funding HSAs   
Keep in mind that contributions may be added to taxpayers’ HSAs on either a post-tax or pre-tax basis. If the taxpayer does not pay back the mistaken distribution, as described above, the tax consequences are different depending on how the HSAs are funded.

The post-tax approach means that taxpayers sent contributions directly to the HSA custodian or through payroll with post-tax dollars. They will generally be taking the contributions as an above-the-line deduction on their tax filing.

Contributions through a cafeteria plan election or otherwise made by an employer are generally made on a pre-tax basis.

Why does this matter? If taxpayers removed their HSA annual contributions (with earnings), and did not repay the distribution, this could trigger a taxable event.

Under Revenue Procedure 2018-27 individuals who fund their HSAs with post-tax dollars are given the option to leave or return the extra $50 to their HSAs and will not suffer any negative tax consequences regardless of their decision.  If, however, the HSA is funded with pre-tax dollars the extra $50 needs to be returned in a timely manner or kept in the HSA and used for qualified medical expense in order to avoid negative tax consequences. 

No information contained herein is intended to be legal, accounting or other professional advice. We assume no liability whatsoever in connection with your use or reliance upon this information. This information does not address specific situations. If you have questions about your specific situation, we recommend that you obtain independent professional advice.