Janet LeTourneau

It used to be simple to determine the amount of a qualified beneficiary’s benefit available and the COBRA premium required for healthcare flexible spending accounts (FSAs). However, starting in 2013, healthcare FSAs allowed a carryover of up to $500 of unused funds from one plan year to the following year. And, although COBRA does not apply to all healthcare FSAs because of special rules, many healthcare FSAs are subject to COBRA continuation of some duration upon a qualifying event.

Internal Revenue Service (IRS) Notice 2015-87, (https://www.irs.gov/pub/irs-drop/n-15-87.pdf) released December 16, 2015, takes the mystery of out offering COBRA continuation for healthcare FSAs that include carryover amounts. This is the third of three Compliance Alerts we are issuing on topics addressed in the Notice.

Background
Healthcare FSAs are considered group health plans and are subject to COBRA. However, a special limited COBRA responsibility may apply for employees who have “overspent” (been reimbursed more than contributed to date) their accounts. 

For employees who have not overspent their account, the limited COBRA coverage stops at the end of the plan year in which COBRA was first offered. If the healthcare FSA does not meet all the requirements to offer limited COBRA coverage then COBRA continuation must still be offered, but coverage would continue for 18 months or longer depending on the qualifying event.

COBRA and Carryover
In order to calculate COBRA eligibility and premiums, employers need to determine two things: 

• What is the maximum benefit employees are entitled to receive for the remainder of the year as a benefit under the healthcare FSA? The remaining balance in their account as of the day before the qualifying COBRA event, including carryover amounts; and 

• What is the cost of the premium needed to pay for COBRA continuation? The maximum amount required to be paid for COBRA does not include the unused amount carried over from prior years. This carryover amount is not part of the salary redirection for the current year. The applicable premium is based solely on the sum of the employee’s salary reduction election for the year and any non-elective (employer) contributions.

Let’s look at an example of each requirement. 

• Maximum benefit. Employee elects $2,500 for the current plan year and has $500 carried over from the previous plan year. In addition, she has been reimbursed $1,100 and contributed $1,250 as of the day prior to her termination of employment on July 1. The maximum benefit she is entitled to receive for the remainder of the plan year under the healthcare FSA, including the amounts carried over, is $1,900. (($2,500 + $500) – $1,100).

• COBRA premium. The maximum premium required for COBRA (that is, 102 percent of the applicable premium) does not include amounts carried over from previous plan years. The premium amount is $212.50 per month for the remaining six months of the plan year. (($2,500 – $1,250 / 6) X 1.02).

COBRA Continuation into New Plan Year
Healthcare FSAs are not required to allow COBRA beneficiaries to elect additional amounts at the beginning of a new plan year or access to any employer contributions following the plan year of COBRA eligibility. However, any funds (up to $500) remaining at the end of the plan year are carried over to the new plan year for an active COBRA beneficiary as of the last day of the qualifying-event plan year. The applicable premium for carryover funds for the new plan year is zero. The carryover is also limited to the appropriate, generally 18 month, COBRA continuation period. That could span more than one open enrollment for beneficiaries.

Example: During the healthcare FSA plan year an employee experiences a qualifying event as of June 1, 2016, elects COBRA continuation, and pays the required premiums for the rest of the plan year. At the end of the plan year, there is $500 of unused benefit remaining. 

The beneficiary can continue to submit expenses under the same terms as similarly situated non-COBRA beneficiaries in the next plan year up to $500. The premium for the carryover during the new plan year is zero; however, the available coverage period is 18 months and terminates at the end of November 2017. COBRA coverage ends and the healthcare FSA need not reimburse any expenses incurred after that date.  

Carryover Flexibility
Offering the carryover of unused healthcare FSA funds is at the employer’s option, but is quickly becoming a standard feature for healthcare FSAs. For the overwhelming majority of employers who offer the carryover provision, Notice 2015-87 allows some flexibility in features of carryover provisions.

A healthcare FSA may limit the availability of the carryover of unused amounts (subject to the $500 limit) to individuals who elect to participate in the healthcare FSA in the next year. Employers may even set a minimum amount of salary reduction elections to the healthcare FSA for the next year. For example, employers can condition the carryover of funds to employees electing at least $60 or more to the healthcare FSA. Therefore, only employees electing $60 or more for new plan years have their remaining funds (up to $500) carried over to the new plan year. Employees not electing the healthcare FSA would forfeit leftover funds as of the end of the plan year.

A healthcare FSA may also limit the timeframe that unused amounts may be used. For example, a healthcare FSA can limit the ability to carry over unused amounts to one year. If a participant carried over $30 and did not elect any additional amounts for the next year, the healthcare FSA may require forfeiture of any amount remaining at the end of that next year.

One final point—the healthcare FSA “footprint” rule has long been misunderstood and must be followed because of the Affordable Care Act market reform. When healthcare FSAs were overspent and employees did not have the offer of other group health coverage, some employers didn’t offer limited COBRA—ignoring the footprint rule. Employers need to “clean house” and assure that internal processes and procedures support current legislation.

Of course, certain COBRA events require both spouses and dependents be considered COBRA beneficiaries. Employers must decide now if they have the information and processes in place to determine COBRA benefits, premiums, and how to distribute beneficiary notifications. 

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. 

A repeat performance… An encore… Call it whatever you want. The Internal Revenue Service (IRS) is repeating and clarifying information detailed in IRS Notice 2013-54 because of questions, including certain business practices, in the flexible benefits arena addressed to the IRS and Treasury.

IRS Notice 2015-87, released December 16, 2015, discusses health reimbursement arrangements (HRAs) and health care flexible spending accounts (FSAs) integration and individual market coverage. This is the second of three Compliance Alerts we’re issuing in response to topics addressed in this Notice.

Health Reimbursement Arrangements (HRAs)

Retiree HRAs
An HRA that covers fewer than two participants who are current employees, commonly known as retiree or other former-employee plans, are not subject to market reforms, do not have to be integrated with employers’ group health plans, and may purchase individual market coverage. This includes retiree plans that determine coverage limits based on amounts credited to individuals’ accounts while they were current employees.

However, a participant in a retiree HRA, with available funds for any month, will not be eligible for a premium tax credit under Section 36B for that month. HRA plans must contain “opt out” language in order to give participants the option to forgo HRA coverage and obtain health insurance plans and premium tax credits at the Marketplace.

Current-Employee HRA
On the other hand, a current-employee HRA may not reimburse individual market coverage under any circumstances. A current-employee HRA that permits the purchase of individual market coverage constitutes a group health plan that fails to meet the market reforms because it is not integrated with another Affordable Care Act (ACA) compliant group health plan.

For example, Notice 2015-87 clarifies the intent of Notice 2013-54, Q&A-5, which allowed unused amounts credited to an HRA, while integrated with other group health plan coverage, to be used in accordance with the preexisting terms of a current-employee HRA that is still integrated with a group health plan. The answer to Q&A-5 assumed that those pre-existing terms would not provide a current employee the ability to purchase duplicative or substitute individual coverage. This is yet another clarification that current-employee HRA plans that include terms permitting the purchase of individual coverage constitutes a group health plan that fails to meet the market reforms because it is not integrated with another group health plan. 

However, the current-employee HRA can allow participants to purchase excepted benefits such as dental and vision coverage.

Previously Credited Amounts
After Notice 2013-54 took effect, some employers with HRAs, who did not offer employer-sponsored group health insurance, could no longer continue their HRA. A transition rule allowed the unused funds to be carried forward and used in subsequent years provided no further funds were added. 

As long as the HRA was in effect as of January 1, 2013, and no additional funds were added as of January 1, 2014, the HRA can be spent down by reimbursing health care expenses and even reimbursement of individually-owned health insurance policy premiums without violating the prohibition against the annual dollar limit prohibition or the preventive services requirements. 

Self-Only/Family HRAs
An HRA may only reimburse the medical expenses of spouses or children of HRA participants if both the participant and their dependents have group health insurance coverage through either the participant’s, the spouse’s, or dependent child’s employer.

IRS officials informally confirmed that a certification by the participant assuring eligible coverage elsewhere would suffice, but further guidance would be welcome on this point.

The good news—plan sponsors have until January 1, 2017, to comply or for the IRS to issue further clarifications. 

Excepted Benefits
An HRA or employer payment plan may reimburse participants or pay directly for premiums of individual market coverage if the coverage is only for excepted benefits. This includes benefits such as individual dental and vision coverage.

However, individual health insurance market coverage, not considered an excepted benefit, may not be reimbursed or paid from an HRA or employer payment plan under any circumstances.

This clarification does not merely look at whether HRAs reimburse or pay for individual insurance coverage, but also the type of individual insurance coverage HRAs purchase.

Cafeteria Plans
Even if an employer payment plan (EPP) is offered through a cafeteria plan under IRS Code Section 125, whether with employee salary redirection or employer contributions, the cafeteria plan cannot be integrated with the individual market coverage purchased through this type of EPP. Individual coverage cannot be offered through a cafeteria plan under any circumstances because it fails to satisfy market reforms.

In closing, unless the employer’s HRA is considered a retiree or former-employee plan or a legacy HRA, premiums for individual marketplace health insurance coverage may not be reimbursed or paid on a tax-free basis from the employer through an HRA. In addition, cafeteria plans cannot be used to purchase individual market coverage.

Help your employers review their flexible benefits plans to ensure compliance with integration and payment rules.

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.

Gathering information for Forms 1094-C and 1095-C filings and statements is a tedious job. Making sure you have all the moving parts and that they fit together…almost impossible. That’s why the Internal Revenue Service (IRS) provided additional guidance on calculating affordability of employer-sponsored health coverage and governmental entities as controlled groups. Also included in this potpourri of weighty subject matters is advice for health savings account (HSA) beneficiaries seeking Veterans Affairs (VA) health care. 

IRS Notice 2015-87, (https://www.irs.gov/pub/irs-drop/n-15-87.pdf) released December 16, 2015, discusses issues associated with determining the affordability of coverage offered by employers, government entity reporting, and how VA benefits integrate with health savings accounts (HSAs). This is the first of three Compliance Alerts we will issue to address the various topics covered by the Notice.

Affordability of Employer-Sponsored Health Coverage

An applicable large employer (ALE) may be subject to an assessable payment for any month in which a full-time employee has received a premium tax credit in connection with enrollment in a qualified health plan through the Marketplace. However, an employee is not eligible for the premium tax credit if the employee is eligible for coverage under an eligible employer-sponsored plan that provides minimum value (MV) and is affordable, or if the employee enrolls in an eligible employer-sponsored plan, regardless of whether the plan is affordable or provides minimum value.

Affordability calculations must be performed for each employee to determine if an offer of coverage is affordable. The employee’s required contribution for self-only coverage can be no more than 9.66 percent (2016 indexed figure) of the employee’s household income. Required contribution calculations may include or exclude funds from other benefits as discussed below.

Health Reimbursement Arrangements

The employee’s required contributions may be offset by amounts made available for the current plan year from an HRA. If the HRA is integrated, can be used to pay premiums for eligible employer-sponsored health plans, or used for cost-sharing and other health benefits not covered by that plan, those funds can be used to reduce the employee’s required contributions to get under the 9.66 percent of household income threshold. The contribution level and terms of the HRA plan must be provided to employees within a reasonable time before enrollment for overall health care coverage decisions. 

Here’s an example: Assume employees’ contributions to the employer’s major medical group health plan is $200 per month for self-only coverage and the HRA makes $1,200 available annually for major medical coverage, cost-sharing, or vision and dental expenses. In this example, the $1,200 annual employer contribution to the HRA reduces employees’ required contributions for the major medical plan to $100. ($200 – $1,200/12 = $100.) This is true whether or not employees use the HRA funds for the employer’s major medical coverage. 

Flex Credits to a Cafeteria Plan

Employer flex credits to a cafeteria plan can also offset the affordability calculation if the employee may:

• Not opt out to receive the amount as a taxable benefit; 

• Use the amount to pay for minimum essential coverage; and

• Use the amount exclusively to pay for eligible medical care.

If employers’ flex credits can be used for other expenses such as day care, dental, or group term life insurance, it is not appropriate to assume that the employee would use the flex credits to pay for health coverage. Employees might choose to use employer flex credits for other, non-health benefits. If flex credits are available in cash or for other benefits, then they cannot be used as health benefits and used for reducing employees’ obligations for premium payments. However, if an employer’s plan is structured, as an example, to provide $1,200 in medical flex credits and $500 in non-medical flex credits, $100 ($1,200/12) can be used to reduce the employee’s affordability calculation.

Opt Out Employer Payments Count Against Affordability 

Plans that provide funds to employees who decline coverage under an eligible employer-sponsored plan must take into account the amount of the opt out for purposes of determining whether an ALE has made an offer of affordable minimum value coverage and whether employees’ required contributions exceed the applicable 9.66 percent (2016) of household income. An opt out plan obligates employees to forgo the opt out amount offered in order to pay for and receive health insurance coverage. 

As an example:  Employees who must reduce their compensation by $100 per month to pay for employer-provided health coverage have a choice much like employees who receive employer-pay-all health insurance, but who would receive an additional $100 per month in compensation only if they declined coverage. In either case, the price for obtaining employer-provided health coverage is forgoing $100 each month in compensation that otherwise would be available to the employees.

An opt-out payment has the effect of increasing employees’ contributions for health coverage. In the example above, employees choosing health insurance coverage lose the right to an additional $100 per month in compensation, plus they must pay $100 per month for the coverage. The net effect? Employees are deemed to pay $200 per month for health care coverage going toward the affordability calculation. 

Applicable Large Employers and Controlled Groups

IRS Regulations do not specifically address the application of controlled groups, common control, or affiliated service groups as they apply to government entities. Therefore, governmental entities may apply a reasonable, good faith interpretation of the employer aggregation rules for purposes of determining whether they are an ALE and subject to the employer shared responsibility. 

In addition, each separate employer entity (not applying any aggregation rules) that is an ALE or provides self-insured health coverage to its employees, must use its own employer identification number (EIN) for purposes of the applicable Form 1094/1095 reporting requirements. 

Veterans and HSAs

There has been an on-going discussion surrounding veterans receiving medical benefits from the VA and the resulting ineligibility to contribute to HSAs. This Notice simplifies previous instructions for veterans. 

Previously, an individual actually receiving medical benefits from the VA at any time in the previous three months generally was not eligible to contribute to an HSA, unless the medical benefits consisted solely of disregarded coverage or preventive care.

The “Surface Transportation Act” modified the rules further by stating that an individual actually receiving medical benefits from the VA is not disallowed from making HSA contributions if the medical benefits consist solely of disregarded coverage, preventive care, or hospital and medical services for service-connected disability. As a practical matter, distinguishing between services at the VA is complex and onerous for veterans. Notice 2015-87 simplifies the modified rules by affirming that any hospital care or medical services received from the VA by a veteran with a disability rating from the VA is considered for service-connected disability. Thus, any veteran with a disability rating and who receives hospital care or medical services from the VA is no longer ineligible from making HSA contributions.

Forms 1094/1095 Filings

It might have been a wild ride for employers sending out their first Forms 1094-C and 1095-C for the 2015 year. Concerns arise about accuracy and completeness, but forms went out the door to the applicable recipients. In a nod to the complexity involved with these filings, The IRS provided limited relief from penalties under IRS Code Sections 6721 and 6722 to ALEs filing Forms 1094-C and 1095-C for 2015.

If ALEs show they exercised good faith efforts to comply with the information reporting requirements and filed a timely return, relief is provided for incorrect returns and statements filed and furnished in 2016 to report offers of coverage in 2015. The relief also includes minimum essential coverage (MEC) filings.

A review of all employee health and welfare benefits is a key component of determining affordability of coverage offered to employees; which in turn assures compliance with current ACA reporting requirements. 

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.

Here’s a “Top Ten” list of reasons why employers and employees should establish Heath 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 2017 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.

Compliance is on everyone’s to-do list—even if it often gets pushed down the list. Especially now, as employers scramble to comply with the Affordable Care Act, they’re often asking themselves what new form needs to be filled out or how to count their employees? In the rush and confusion to comply with new rules, it’s easy to forget old ones. This is a refresher course on just two compliance requirements for Internal Revenue Code Section 125 cafeteria plans that haven’t changed but are catching many by surprise.

The IRS issued Regulations in 2007 to ensure that cafeteria plans do not unfairly provide benefits to employees who are considered “highly compensated” or “key.” It’s not within the scope of this article to define highly compensated or key employees or to provide a finite listing of all compliance laws. This is a short “cheat sheet” reminder of two employer concerns: nondiscrimination testing and Form 5500 filing obligations.

What are the Nondiscrimination Tests?
The overall “25% Concentration test” compares all the pre-tax benefits elected by key employees with all the pre-tax benefits elected by non-key employees. Not more than 25 percent of the total benefits elected by all employees may be attributed to key employees.

Here’s an example. All elections to the cafeteria plan add up to $35,000. Of those total elections, key employee elections equal $5,000. Key employee elections are about 14 percent of the total elections to the plan ($5,000/$35,000). In this example, the FSA plan passes the 25 percent concentration test.

The “55% Average Benefits test” involves just the dependent care portion of the cafeteria plan. The average dollar amount of benefits elected by non-highly compensated employees must be at least 55 percent of the average dollar amount of benefits elected by highly compensated employees.

In this example, let’s assume that highly compensated employees’ elections are $10,000 to the dependent care portion of the plan and there are 5 highly compensated employees in the company. Non-highly compensated employees elect $19,500 to the dependent care portion of the plan and there are 13 non-highly compensated employees. The highly compensated average dollar amount is $2,000 ($10,000/5). The non-highly compensated average dollar amount is $1,500 ($19,500/13). The average dollar amount of benefits elected by non-highly compensated employees is 75 percent of the average dollar amount of benefits elected by highly compensated employees ($1,500/$2,000). In this example, the dependent portion of the FSA plan passes the 55 percent average benefits test.

The “25% Owner test” compares the dependent care benefits elected by more-than-five-percent owners of a company with dependent care benefits elected by non-owners. Not more than 25 percent of the total dependent care benefits elected by everyone in the dependent care benefit may be attributed to more-than-five-percent owners.

An example of this test would consist of a $5,000 election to the dependent care portion of the plan by a more-than-five-percent owner and elections in the amount of $19,500 made by all non-owners. The more-than-five-percent owner’s election is 20 percent of the total benefits elected to the dependent care portion of the plan ($5,000 + $19,500 = $24,500)($5,000/$24,500). In this example, the dependent care portion of the plan passes the 25 percent owner test because only 20 percent of the dependent care benefits were elected by the more-than-five-percent owner.

Eligibility, benefits available and contribution and benefits tests. These tests ensure that employers offer all benefits to an adequate number of employees and benefits do not discriminate in favor of highly compensated or key employees.

In the event the cafeteria plan does not meet all the nondiscrimination requirements, employers may need to change benefit elections and payroll amounts to bring the plan into compliance. And, it is important to test prior to the end of the cafeteria plan year. If testing is completed after the end of the plan year, it’s too late to take corrective action. Instead of reducing key or highly compensated elections in order to pass the nondiscrimination test(s), the affected employees would be taxed on their total election amount.  

Form 5500 Obligation
A frequently overlooked responsibility for cafeteria plan sponsors is Form 5500 filings under certain circumstances. In fact, IRS Notice 2002-24 suspended the filing requirement imposed on cafeteria and fringe benefit plans in 2002. However, don’t be misled! The filing requirement for welfare benefit plans remains unchanged.

What is a welfare benefit plan?
Welfare benefit plans provide benefits such as medical, dental, life insurance, apprenticeship and training, scholarship funds, severance pay, and disability. Healthcare Flexible Spending Accounts (FSAs) contained inside cafeteria plans and Health Reimbursement Arrangements (HRAs) qualify as welfare benefit plans.

Who must file a Form 5500?
Employers that sponsor welfare benefit plans covered by Title I of the Employee Retirement Income Security Act (ERISA), with 100 or more participants at the beginning of the plan year, are required to file a Form 5500 for those plans. However, there are a couple of exceptions that apply, depending on the type of employer sponsoring the plan. A general exception applies to:

• A governmental plan; or

• A church plan under ERISA section 3(33).

The plan may not be exempt from filing if: 

• it is deemed to have plan assets; 

• plan funds are separated from the employer’s general assets; 

• plan funds are held in trust; or 

• plan funds are forwarded to a Third Party Administrator.

Most non-exempt employer plans will complete all questions on Form 5500. Depending on the funding arrangement or payments from the plan, attaching Schedules may be applicable.

However, since 2009 the “Instructions for Form 5500” were modified to make clear that plans that are paid from the general assets of the employer need not file Schedule C.

When does a welfare benefit need to file a Form 5500?
Forms must be filed by the last day of the 7th calendar month after the end of the plan year. A plan may obtain a one-time extension of time to file. Form 5558 must be sent by the original due date in order to gain a 2 ½ month extension of time in which to complete and file the Form 5500.

Compliance becomes clearer for employers through knowledge. It’s as easy as suggesting they contact their plan administrators or their own accounting or legal sources for more information and guidance. 

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.

The Internal Revenue Service (IRS) has been busy this year with releases coming out practically every week. It’s hard for employers to keep up on the latest IRS deliberations, so this article consolidates a few of the most recent published directives. 

Notice 2016 -1
Distributed December 18, 2015, this Notice provides the optional 2016 standard mileage rates for computing the deductible costs of operating an automobile for business, charitable, medical or moving expense purposes. It also provides the amount used in calculating reductions to basis for depreciation taken under the business standard mileage rate.

Revenue Procedure 2010-51 provided rules for computing the deductible costs of operating a car for determining business, charitable, medical or moving rates and Notice 2016-1 describes an alternative method for substantiation of actual allowable expense amounts for those that maintain adequate records.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates. Although employees generally deduct an amount equal to the business standard mileage rate times the number of business miles traveled, some prefer to use actual fixed and variable costs. Variable costs include gasoline and oil used by the automobile that are allocable to traveling those business miles (subject to some limitations). Standard mileage rates for 2016 business travel is 54 cents per mile, charitable travel is 14 cents, and medical and moving travel is 19 cents. 

Costs for items such as depreciation or lease payments, insurance, and license and registration fees are not deductible for these purposes and are not included in the charitable or medical and moving standard mileage rates. 

Revenue Procedure 2016-14
This Procedure provides some 2016 inflation adjustments and also provides additional items adjusted for inflation due to the enactment of the “Protecting Americans from Tax Hikes Act (PATH Act) of 2015. Although these rates were distributed earlier, this Revenue Procedure officially amends the original Rev. Proc. 2015-53 (October 21, 2015). 

Expenses paid or incurred by eligible educators in connection with the purchase of books, supplies, computer equipment and other equipment, and supplementary materials used in the classroom (some special rules apply to this list) may be tax deductible. For taxable years beginning after December 31, 2015 the deduction cannot exceed $250.

Qualified transportation fringe benefits, excludable from income, for taxable years beginning in 2016 for commuter highway vehicles and transit passes, combined, is $255. Section 105 of the PATH Act creates parity between transit benefit exclusions and the exclusion for qualified parking.

Section 124 of the PATH Act provides the dollar limitation for the aggregate cost of Internal Revenue Code Section 179 property, that a taxpayer may elect to expense, at $500,000, with limitations. For taxable years beginning in 2016 these amounts are adjusted for inflation.

Fact Sheet 2016-8
Distributed February 2016, an IRS Fact Sheet (FS) is just that—a condensed listing of previous legislation of interest to individuals and employers.

• New, tax-favored, ABLE accounts can now be offered by states to people who became disabled before age 26. Contributions totaling up to $14,000, in both 2015 and 2016, can generally be made to an ABLE account each year to enable families raising children with disabilities to save and pay for disability-related expenses. Though contributions are not tax deductible, disbursements are tax-free to pay qualified disability expenses.

• New Starter retirement accounts are available free from the Treasury Department through the “myRA” program. For details, go to www.myRA.gov.   

• Individuals may have already received new year-end health coverage information. While the information on these forms may assist in preparing a return, they are not required. The individual shared responsibility payment has increased from last year and will apply to taxpayers who did not have qualifying coverage or an exemption for each month during 2015. A special interactive tool is available on www.IRS.gov to determine whether an exemption is available.

• A bonus of a few more days to file tax returns is available to individuals this year. Taxpayers have until April 18, 2016 to file their 2015 individual tax returns. Emancipation Day falls on Friday, April 15 and is treated the same as a federal holiday—giving all of us an extra weekend to crunch numbers. 

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. 

Valuable information for your employers and it doesn’t cost you anything. Internal Revenue Service (IRS) Publication 15-B, “Employer’s Tax Guide to Fringe Benefits,” contains lots of information for employers on the employment tax treatment of fringe benefits. Included in the guide are changes for 2016 that employers need to be aware of and important reminders. Publication 15-B is a great resource for all employers and available at: www.irs.gov.

What’s New
Standard Business Mileage Rate
The business mileage rate for 2016 is 54 cents per mile down from the 2015 rate of 57.5 cents. Employers must use this new rate to reimburse employees for business use of a personal vehicle or a vehicle (including vans, pickups, or panel trucks) provided to an employee under certain conditions.  For more information, see “Cents-Per-Mile Rule” on page 22.

Retroactive Increase in Excludable Transit Benefits
Good news was given to employers in December about permanent parking and transit parity and the retroactive increase in the 2015 monthly transit limit to $250.

The Protecting Americans from Tax Hikes (PATH) Act provided for permanent parity of monthly limits for transit passes and commuter highway vehicle transportation so that it matches the maximum monthly amount for qualified parking benefits—which was $250 for 2015.  The parity for transit expenses applies retroactively for participating employees beginning January 1, 2015 thru December 31, 2015. 

The IRS provided employer instructions on how to correct the social security and Medicare taxes on the 2015 excess transit benefits. Notice 2016-6 delivered a rundown of processes and forms handling.  

For 2016 the monthly limit excluded from an employee’s income on a pre-tax basis for transit is $255.  For more information see “Qualified Transportation Benefits” on page 19 of IRS Publication 15-B. 

Qualified Parking Exclusion
For 2016 the monthly exclusion for qualified parking is $255.

Contribution Limit on Health FSA
Under “Revenue Procedure 2015-53,” the IRS announced the 2016 health care FSA pre-tax plan year deduction limit will remain at $2,550, the same as in 2015.  For more information see “Cafeteria Plans” on page 3 of IRS Publication 15-B.

It’s free and informative. Everything from accident and health benefits to W-2 reporting of fringe benefits, and how to get tax help are included in this publication for employers.

Services Provided to Data Breach Victims
Something not mentioned in Publication 15-B is in response to data breaches. The IRS’s “Announcement 2015-22” assures individuals that the value of identity protection services provided, after a breach is discovered, are not included in individuals’ gross incomes.

“Announcement 2016-02,” released by the IRS on December 20, 2015, expanded on the previous Announcement. The value of identity protection services, provided to individuals not compromised by a data breach, also are not included in individuals’ gross incomes. 

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. 

This is a rundown on a few compliance issues from 2015 that I haven’t covered in previous columns.

Fixed Indemnity Insurance Plans
Fixed indemnity insurance plans pay a set amount of money for certain injuries or conditions as set forth in the insurance policy. For instance, an indemnity insurance plan might pay policyholders $200 for every day they are hospitalized in an intensive care unit. 

While most fixed indemnity plans do not meet the requirements of the Affordable Care Act (ACA) rules, there is a lot to be said about receiving cash when injured or sick. Generally speaking, most people wouldn’t consider an indemnity plan to be all the health insurance they would ever need. However, the Department of Health and Human Services (HHS) stepped in to apply penalties for selling indemnity plans to people without other ACA-compliant health insurance.

In September 2015, a federal judge ruled in favor of insurance carriers selling fixed indemnity plans. The ruling scrapped the ACA requirement for additional health insurance prior to purchasing indemnity plans. More to come from the courts on this—I will keep you updated as events unfold.

New Form 5500 Filing Extended Deadlines—Repealed
Tucked into federal funding legislation, signed into law by President Obama on July 31, 2015, were filing extension deadlines that provided for changes to the Form 5500 for plan years beginning in 2016. All extensions afforded by this law were repealed in the Fixing America’s Surface Transportation (Fast) Act enacted December 4, 2015. The Fast Act restores the extension of time to file Form 5500s to 2 ½ months. For calendar year plans, the extended due date is October 15.

Cost Sharing under the ACA and Embedded Individual Maximum Out-of-Pocket Cost Sharing
The 2016 annual maximum on cost sharing, or out-of-pocket (MOOP), under the ACA for self-only coverage is $6,850. For other than self-only coverage, the 2016 annual MOOP is $13,700. 

In conjunction with the MOOP limitations, embedded individual out-of-pocket maximums apply to all health plans in 2016. What does this mean? For health insurance that is other than self-only coverage, the self-only MOOP will apply to each individual covered within the plan. For instance, if a family of four is covered by health insurance with a maximum out-of-pocket of $10,000, the maximum out-of-pocket for any individual covered by this family plan could not exceed $6,850. 

Employers should review their Health Savings Account (HSA) compliant health plans to be sure the policy is compliant with HSA deductible rules, MOOP limitations, and the embedded deductible rule for family policies.

This applies to all non-grandfathered small group and large group health plans, including self-insured plans, for plan or policy years beginning on or after January 1, 2016.

Same-Sex Marriage
There’s still cleanup of the federal tax code following the Supreme Court Windsor decision. 

Notice 2014-1 provided guidance on the application of rules under section 125 (cafeteria plans) and amplified the previous guidance in Revenue Ruling 2013-17. We now have proposed regulations that will strengthen the previous Notices and Regulations, plus make Revenue Ruling 2013-17 obsolete.

This “Notice of Proposed Rulemaking” is an amendment to regulations incorporating the holdings of Windsor, Obergefell, and Revenue Ruling 2013-17.

In general, for federal tax purposes, the terms spouse, husband, and wife mean an individual lawfully married to another individual. The term husband and wife means two individuals lawfully married to each other and persons who are married for federal tax purposes.

For federal tax purposes, the term “marriage” does not include registered domestic partnerships, civil unions, or other similar relationships recognized under state law that are not denominated as a marriage under that state’s law, and the terms “spouse,” “husband and wife,” “husband,” and “wife” do not include individuals who have entered into such a relationship.

Check with your employers to ensure that their plan documents use the definition of spouses, husbands, and wives to assure they correspond with the definition for federal tax purposes.

Small Group Expansion
The Centers for Medicare and Medicaid Services (CMS) published an FAQ on the Pace Act which revises the definition of small employer for purposes of the market reforms under the ACA. The Pace Act defines a small employer as an employer who employed an average of 1-50 employees on business days during the preceding calendar year. The act also provides states the option of extending the definition of small employer to include employers with up to 100 employees.

There are myriad definitions and employee counts that employers must know. For the definition of “Small Group” for group insurance purposes and state marketplace Small Business Health Options Program (SHOP) offerings, check with an agent or broker in your state to determine employee counts.

Services Provided to Data Breach Victims
In response to data breaches, organizations often provide credit reporting and monitoring services, identity theft insurance policies, identity restoration services, or other identity protection services. In “Announcement 2015-22” the IRS assures individuals that the value of the identity protection services should not be included in individuals’ gross incomes.

This announcement does not apply to cash in lieu of these services or proceeds received under an identity theft policy 

Veterans’ Health Coverage
Eligibility to contribute to a Health Savings Account (HSA) is based on the account holder having a qualified high-deductible health plan that does not pay for benefits, with a few exceptions, until the statutory deductible is met. Veteran’s care sometimes provides more than the types of eligible health care allowed prior to meeting the statutory deductible. 

After 2015, the new law provides that after receipt of VA hospital care or medical services “for a service-connected disability” a person’s ability to make HSA contributions will not be affected. Still applicable is the rule that an individual is not eligible to make HSA contributions for a month if he has received VA medical benefits at any time during the previous three months.

New Permitted Election Changes for Cafeteria Plans
If your employers allowed for the two new election changes during 2015 outlined in IRS Notice 2014-55, your cafeteria plan must have been amended by December 31, 2015. 

And Last, But Certainly Not Least
Employers can amend their plan documents to take advantage of the Carryover Option. Employees’ unused funds from their health care FSA at the end of the plan year may be carried over into the next plan year instead of “losing it.” This gives employees less risk and worry. Employers will get higher employee satisfaction, enrollment and overall tax savings by implementing the carryover option.

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. 

A Summary of Benefits and Coverage (SBC) is required for all group health plans, including Health Reimbursement Accounts (HRAs).  The existing rules published February 2012, were amended with proposed rules published December 30, 20141 and final regulations published June 16, 2015.2

Background
The SBC requirement requires group health plans and health issuers to compile and provide an SBC that “accurately describes the benefits and coverage under the applicable plan and coverage.” The requirement applies to insured and self-funded ERISA group health plans, including grandfathered plans, as well as to non-ERISA group health plans and individual health insurance coverage.3

Keep in mind that the new template and associated documents (instructions, uniform glossary, and supplementary information) will be finalized by January 2016 and will apply to coverage that would renew or begin on the first day of the first plan or policy year that begins on or after January 1, 2017. This includes the open enrollment period occurring in the fall of 2016.

This Alert provides key components of the changes as it relates to a group health plan, however, you may view all changes at: http://www.dol.gov/ebsa/healthreform/regulations/summaryofbenefits.html

Summary of Proposed Changes Impacting Group Health Plans and Plan Sponsors Include:

• Providing SBC at Application or Enrollment
  

The SBC must be provided within specified timeframes when a participant enrolls for coverage.  The proposed regulations clarify that, if an SBC was provided prior to the enrollment event, no new SBC is required to be provided upon enrollment unless information changed in the SBC.  

• Modified Content Requirements– Delayed until fall of 2016
  

The SBC will be required to include statements regarding minimum value (MV) in addition to minimum essential coverage (MEC). The Agencies also propose to require a Qualified Health Plan (QHP) to disclose whether abortion services are covered or excluded and whether coverage is limited to services for which federal funding is allowed. The draft instruction guide for individual health insurance indicates that coverage of abortion services must be described in the “services your plan does not cover” or “other covered services” section. Plans and insurers will continue to be required to provide contact information for questions, but insurers would be required to include an Internet address for obtaining a copy of the policy or group certificate. It appears that the SBC for a self-insured group health plan would not be required to provide an Internet address for obtaining a copy of the plan. Of course, ERISA group health plans must provide a copy of the plan document upon written request by a plan participant or beneficiary under ERISA section 104(b).  We assume that future regulations will address this issue.

The Agencies also propose to add a Coverage Example for a foot fracture with an emergency room visit. The Agencies are publishing updated claims and pricing data, underlying the two existing coverage examples, and propose to add a narrative description and claims pricing data for the third proposed coverage example. Perhaps most importantly for group health plan sponsors, the Agencies propose that the coverage example calculator be authorized for continued use.

• Reduce Unnecessary Duplication of SBC Disbursement
  

For a group health plan that uses two or more insurance products provided by separate issuers, the group health plan administrator is responsible for providing complete SBCs with respect to the plan. 

The group health plan administrator may contract with one of its issuers (or other service provider) to provide SBCs.  If plan administrators do so, they must monitor the other party’s performance and correct any noncompliance determined to have occurred. If the plan administrator does not have information necessary to correct the noncompliance, it must communicate with participants about the noncompliance and take steps as soon as practicable to avoid future violations.

Currently there is a an enforcement safe harbor for a group health plan that uses two or more insurance products provided by separate issuers with respect to a single group health plan. Under this enforcement safe harbor, the group health plan administrator may synthesize the information into a single SBC or provide multiple partial SBCs that, together, provide all the relevant information to meet the SBC content requirements. In such circumstances, the plan administrator should take steps (such as a cover letter or a notation on the SBCs themselves) to indicate that the plan provides coverage using multiple insurance products and that individuals may contact the plan administrator for more information (and provide the contact information).

• SBC Format–Delayed until fall of 2016
  

Under the proposed rule the SBC would be shortened to two-and-a-half double-sided pages. This is primarily due to the elimination of the last page (which is currently Q&As about the Coverage Examples), moving many definitions to the uniform glossary, as well as eliminating some of the required information. Specific font types are encouraged (Arial and Garamond) as the result of consumer focus group feedback. Finally, the Agencies propose to retain the requirement that SBCs provided in connection with group health plan coverage be provided either as a standalone document or in combination with other summary materials (for example, an SPD). The SBC information is to remain intact and prominently displayed at the beginning of the materials and in accordance with the timing requirements for providing an SBC. 

• On Line Access
  

Issuers must include an internet web address where a copy of the actual individual coverage policy or group certificate of coverage can be reviewed and obtained. The final regulations require these documents to be easily available to individuals, plan sponsors, and participants and beneficiaries shopping for coverage prior to submitting an application for coverage. 

For group coverage, the actual certificate of coverage must be made available after it is executed.

1 The Departments of Health and Human Services, Labor and Treasury jointly published the Proposed Rule. See 79 Fed. Reg. 78578.

2 Summary of Benefits and Coverage and Uniform Glossary, 26 CFR Part 54, 29 CFR Part 2590, 45 CFR Part 147, 80 Fed. Reg. 34292, 34293 (June 16, 2015).

3 On August 22, 2011, the Agencies issued proposed regulations.  See 76 Fed. Reg. 52442 and 76 Fed. Reg. 52475. The final regulations were published in the Federal Register on February 14, 2012 and were effective on April 16, 2012.

The Internal Revenue Service (IRS) and Social Security Administration have released the cost-of-living (COLA) and inflation adjustments that apply to dollar limitations set forth in certain IRS Code Sections. The Consumer Price Index did not increase since the third quarter of last year and warranted no increase in most indexed figures for 2016.

Social Security and Medicare Wage Base
For 2016, the Social Security wage base is $118,500. 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, starting with the 2013 taxable year, 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 2016 the maximum for elective deferrals is $18,000 and the catch-up contribution for those 50 or older is $6,000. That means if you are age 50 or over during the 2016 taxable year, you may generally defer up to $24,000 into your 401(k) plan.

Health Care FSA
We started tracking an additional indexed figure in 2013 for the annual limit for participant salary reductions for the health care flexible spending account (FSA). For plan years starting on or after January 1, 2016, the participant salary reduction amount to the cafeteria plan’s health care FSA portion of the plan may not exceed $2,550. However, this does not preclude employer contributions (as long as they are not convertible to cash) from being added to participants’ health care FSAs.

Adoption Credit 
For 2016 this tax credit is $13,460. The credit starts to phase out at $201,920 of modified adjusted gross income (AGI) levels, and is completely phased out when modified AGI reaches $241,920.

The exclusion from income provided through an employer or a Section 125 cafeteria plan for adoption assistance also has a $13,460 limit for the 2016 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 the same at $1,300 for self-only coverage and $2,600 for family coverage for 2016. Maximums for the HDHP out-of-pocket expenses increased to $6,550 for self-only coverage and $13,100 for family coverage for 2016.

Maximum contribution levels to an HSA for 2016 are $3,350 for self-only coverage and $6,750 for family coverage. The catch-up contribution allowed for those 55 and over is set at $1,000 for 2016. Remember, there are two 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 health care flexible spending account 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 $2,250 but not more than $3,350 for 2016. Total out-of-pocket expenses under plans that provide self only coverage cannot exceed $4,450. For plans that provide family coverage in 2016, the annual deductible amount must be at least $4,450 but not more than $6,700, with out-of-pocket expenses that do not exceed $8,150.

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.

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 2441and 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 single parent 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 2016 the monthly parking amount is $255. The 2016 monthly limit for transit remains the same at $130.

Long Term Care 
For a qualified long term care insurance policy, the maximum non-taxable payment increases to $340 per day for 2016.

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.