SAVE THE DATE
DataPath Connections 2014
June 19-20 • The James Hotel • Chicago
Please plan to join us as we celebrate DataPath's 30th anniversary on the Magnificent Mile! Mark your calendars now for what promises to be a truly memorable event. More details will be provided soon, including links for both conference and hotel registration. Hope to see you there!
Employer Mandate Delayed Again, for Some;
Final Regulations Provide
Transition Relief, More
The IRS issued final regulations for employer shared responsibility under IRC § 4980H, commonly known as the employer mandate or “Play or Pay," on Feb. 11. A summary fact sheet was also released, as was an updated Q&A on this section of the Affordable Care Act. Highlights of the final regulations include:
- While the employer responsibility provisions generally apply starting in 2015, they will not apply until 2016 for employers with 50-99 full-time employees who certify that they (a) have not fired employees in order to get below the 100-employee threshold and (b) will not drop health plans they already offer.
- Employers that are subject to the employer responsibility provisions in 2015 must offer coverage to at least 70 percent of full-time employees as one of the conditions for avoiding an assessable payment, rather than 95 percent which will begin in 2016.
- In addition to the two forms of 2015 transition relief just listed, a package of limited transition rules that applied to 2014 under the proposed regulations is extended to 2015 under the final regulations. These are outlined in the fact sheet and in the final regulations.
- The final regulations provide clarifications (many in response to public comment received on the proposed regulations) regarding whether employees of certain types or in certain occupations are considered full-time, including:
- Volunteers: Bona fide volunteers for a government or tax-exempt entity, such as volunteer firefighters and emergency responders, will not be considered full-time employees.
- Seasonal employees: Those in positions for which the customary annual employment is six months or less generally will not be considered full-time employees.
- Student work-study programs: Service performed by students under federal or state-sponsored work-study programs will not be counted in determining whether they are full-time employees.
- Adjunct faculty: As a general rule, until further guidance is issued, employers of adjunct faculty are to use a method of crediting hours of service for those employees that is reasonable in the circumstances and consistent with the employer responsibility provisions. However, the final regulations expressly allow crediting an adjunct faculty member with 2 ¼ hours of service per week for each hour of teaching or classroom time as a reasonable method for this purpose.
- Educational employees: Teachers and other educational employees will not be treated as part-time for the year simply because their school is closed or operating on a limited schedule during the summer.
- Like the Dec. 2012 proposed regulations, the final rules allow employers to use an optional look-back measurement method to make it easier to determine whether employees with varying hours and seasonal employees are full-time. Responding to comments, the final regulations also clarify the application of this method and the alternative monthly method of determining full-time status.
- Like the proposed regulations, the final rules provide safe harbors that make it easy for employers to determine whether the coverage they offer is affordable to employees. These safe harbors permit employers to use the wages they pay, their employees’ hourly rates, or the federal poverty level in determining whether employer coverage is affordable under the ACA.
For complete details, please refer to the fact sheet, updated Q&A, and final regulations.
Many comments on the proposed regulations for employer information reporting have urged that those final rules, when issued, provide streamlined ways to comply, especially for employers that offer highly affordable coverage to all or virtually all of their full-time employees. Others have asked for a single form for employer and insurer reporting provisions when possible. Treasury and the IRS have indicated they will issue final regulations shortly with the goal of simplifying and streamlining employer reporting requirements.
Proposed Regs Address Individual Mandate,
HRAs and Wellness Incentives
Last year, the IRS issued final regulations on the ACA’s “individual mandate” that did not address how HRA contributions and wellness incentives should be treated for purposes of the affordability exemption for individuals eligible for employer-provided coverage. Proposed rules published Jan. 27 address these topics, among others, and if adopted will apply retroactively to Jan. 1.
For this purpose, affordability is based on whether a required contribution for the coverage would cost more than 8 percent of household income. This is different from the separate test for purposes of premium tax credit eligibility and employer shared responsibility, which applies a 9.5 percent of income test on employer-sponsored coverage.
Highlights of the proposed rules include:
HRA Contributions and Affordability. Amounts made newly available for the current plan year under an integrated HRA would reduce an employee’s or related individual’s required contributions if the amounts can be used to pay premiums. In contrast, HRA amounts that may be used only for cost-sharing would not be taken into account when determining affordability, because these amounts do not affect the cost of acquiring minimum essential coverage.
Wellness Incentives and Affordability. Incentives under a nondiscriminatory wellness program that affect premiums would be treated as “earned” in determining an employee’s or related individual’s required contributions to the employer-provided plan if they relate to tobacco use. Incentives that do not relate to tobacco use would be treated as not earned for this purpose.
Excepted Benefits and Other Topics. Minimum essential coverage would exclude any coverage, through insurance or otherwise, that consists solely of HIPAA excepted benefits (for example, many health FSAs, certain dental and vision plans, and certain EAPs). The regulations would also expand the list of government-sponsored programs that are treated as not providing minimum essential coverage; make changes to the rules for claiming a hardship exemption from the mandate; and, clarify how the monthly penalty amount is computed.
Public comments are being accepted through April 28, 2014, and a public hearing is currently scheduled for May 21.
Taxable Fringe Benefit Guide Updated,
Gets Publication Number
The Fringe Benefit Guide for federal, state, and local government employers (previously called the “Taxable Fringe Benefit Guide”) has been updated for 2014 and formally designated by the IRS for the first time with a reference number – Publication 5137.
The Guide was created to provide government employers with a basic understanding of the federal tax treatment and reporting rules for a wide variety of fringe benefits. Like its predecessors, the latest version summarizes many different types of fringe benefits, including employer-provided health plans, dependent care assistance, group term life insurance, qualified educational assistance programs, de minimis and working condition fringe benefits, qualified transportation benefits, travel expenses, meals and lodging, employer-provided vehicles, awards and prizes, and moving expenses.
Changes from 2013 include updates to indexed thresholds and limits, including mileage reimbursement rates, the threshold for “control employee" determination, and the limits for qualified transportation plans. Other additions include new examples in the discussion of employer-provided lodging, a reminder that actual vehicle expense reimbursements cannot be excluded from employee wages if a standard mileage rate reimbursement is also being provided, a new explanation of wage re-characterization, and revisions to the discussion of job-related education.
Click here to download the 95-page guide in PDF format.
HSAs Reach $19.3 Billion
HSAs had grown to an estimated $19.3 billion in assets nationwide over 10.7 million accounts by the end of December, a year-over-year increase of 25 percent for assets and 30 percent for accounts, according to the 2013 Devenir year-end HSA survey and research report.
The average funded HSA account balance at the end of December in the US was $2,356, up 3.2 percent over the end of 2012.
Based on preliminary figures, Devinir estimates total assets had already exceeded $20 billion nationally by the end of January 2014.
Also in December 2013, HSA investment assets reached an estimated $2.3 billion nationwide, up 30 percent from the end of 2012. The average investment account holder had an average total balance of $11,350, counting both investments and non-invested deposits.
Survey data was collected during January and February, primarily from the top 50 providers in the HSA market throughout the US.
IRS Updates Essential Tax Publications
The Internal Revenue Service (IRS) recently has issued updated versions of more essential tax publications, all for use beginning with the 2013 tax year and for preparing 2013 returns. These include:
Publications 502 and 503 are similar to their prior versions with revisions to relevant dollar amounts to reflect 2013 inflation-adjusted values. Additionally, Publication 502 now reflects that beginning Jan. 1, 2013, taxpayers can deduct only the portion of their medical expenses that exceeds 10 percent of adjusted gross income (7.5 percent if the taxpayer or spouse was born before January 2, 1949). Previously, the 7.5 percent threshold applied to all taxpayers. Recent IRS guidance on same-sex marriage and changes to the use-or-lose rule for health FSAs are discussed.
Publication 969 is compiled to help taxpayers take advantage of the tax benefits of HSAs, Archer medical savings accounts (MSAs), health flexible spending accounts (FSAs), and health reimbursement arrangements (HRAs).