2014 Fringe Benefits Tax Guide
IRS Publication 15B, Employer’s Tax Guide to Fringe Benefits, has been updated for 2014.
Substantially similar to the 2013 version, Publication 15B for 2014 provides information on the employment tax treatment of various fringe benefits, including health coverage, HSAs, adoption assistance, dependent care assistance, educational assistance, employee discount programs, group term life insurance, company cars, commuter benefits and more. It also includes information on other employment taxes not directly related to fringe benefits, such as the additional Medicare tax withholding on wages in excess of $200,000.
The new Publication 15B reflects 2014 dollar amounts for various benefit limits and definitions, such as the monthly limits under qualified transportation plans, maximum out-of-pocket expenses for high-deductible health plans, maximum contributions permitted to HSAs, and the 2014 standard mileage rate. A “What’s New” section highlights recent decisions such as IRS guidance on same-sex marriage and changes to the use-or-lose rule for health FSAs, but does not discuss these in detail.
Agencies Propose Changes to
Certain Excepted Benefit Regulations
On December 24, the IRS, DOL, and HHS jointly published a proposed rule to change the standards under which coverage is considered to be an excepted benefit under HIPAA and health care reform. Three changes from previous regulations were proposed:
- Self-insured dental, vision, and long-term care coverage are currently excepted benefits only if employees can opt out of the coverage and have to pay an additional contribution if they do elect the coverage. The proposed rule keeps the separate election requirement but no longer requires the additional contribution. Doing away with the required employee contribution would allow employer-funded HRAs to offer this type of coverage as long as employees can opt out. Plans may rely on the new proposed rule through the end of 2014 or once final regulations are effective (no earlier than Jan. 1, 2015).
- "Wraparound coverage,” meant to wrap around non-grandfathered individual health coverage, is permitted under the proposed regulations. Wraparound coverage has several requirements, including that the employer must offer other minimum value group health coverage, and is proposed to take effect in 2015.
- Employee assistance programs are also specifically added as a type of excepted benefit under the proposed rule. Requirements include that the benefits must not provide "significant benefits in the nature of medical care.” Again, plans may rely on the new proposed rule through the end of 2014 or once final regulations are effective (no earlier than Jan. 1, 2015).
Other excepted benefit regulations remain unchanged. Click here to read the new proposed rule in detail. Comments are being accepted through Feb. 24, 2014.
Form 8839 Now Available for 2013
The 2013 version of Form 8839, Qualified Adoption Expense, is available for download from the IRS, along with instructions.
Taxpayers use Form 8839 to claim the adoption credit, an exclusion for employer-provided adoption benefits, or both. The 2013 version includes significant changes from 2012, including among others:
- The maximum adoption credit and exclusion amounts have been adjusted to $12,970 per eligible child for 2013. Both the credit and exclusion begin to be phased out for individuals with modified adjusted gross incomes greater than $194,580 and are phased out entirely for individuals with modified adjusted gross incomes of $234,580 or more.
- The 2013 form and instructions have been revised to reflect that taxpayers may have credit carry-forwards from 2012 or over-limit credit amounts that can be carried forward to 2014. The instructions include new worksheets for both situations.
Taxpayers using Form 8839 may now file their tax returns electronically. Previously, any return including Form 8839 had to be filed on paper.
Final Regulations Issued on
"High Earner" Additional Medicare Tax
The IRS issued final regulations on Nov. 26 which implement the ACA's Additional Medicare Tax on the wages and self-employment income of "high earners" (over $200,000 for single tax filers and $250,000 for married filing jointly). Employers are responsible for withholding the tax on wages but are not required to pay a matching amount.
The Additional Medicare Tax is 0.9 percent and is in addition to the current 1.45% Medicare tax on wages, tips and commissions.
If an employer does not deduct and withhold the Additional Medicare Tax as required, the employer is liable for the tax unless the amount not withheld from wages is paid by the employee.
This provision applies to all employers, regardless of size and regardless of whether or not they offer group health coverage. There are no exceptions for U.S. citizens living abroad or for nonresident aliens. The requirement to withhold the additional Medicare Tax was effective as of January 1, 2013, but employers are not actually required to start withholding the additional payroll tax until the first payroll period of the calendar year in which the employee’s compensation exceeds $200,000.
For more information, click here to view the final regulations.
DOL Issues FAQ XVIII on ACA Compliance
In its ongoing effort to clarify ACA implementation, the DOL continues to release a series of Frequently Asked Questions. Published on Jan. 9, FAQ XVIII addresses questions related to implementation of the ACA and the Mental Health Parity. Topics include, among others:
Coverage of Preventive Services for Breast Cancer
- For plan or policy years beginning on or after Sept. 24, 2014, non-grandfathered group health plans must cover, with no cost sharing, medications that reduce the risk of breast cancer (such as tamoxifen or raloxifene) when recommended for preventive purposes to women at increased risk of breast cancer and at low risk for adverse side effects from the medicines.
- For plan or policy years beginning in 2014, the annual out-of-pocket costs limitation for essential health benefits (EHB) provided under a non-grandfathered plan or policy is $6,350 for self-only coverage and $12,700 for coverage other than self-only. Non-EHB items are not subject to the dollar limits.
- For plan or policy years beginning on or after January 1, 2015, all essential health benefits (EHB) are subject to the individual and non-individual out-of-pocket limits, regardless of the number of service providers used.
- A wellness program is not required to provide an opportunity to avoid the tobacco surcharge to a participant who initially declines but later joins a tobacco cessation program, if the participant could have avoided the surcharge by joining the cessation program at the time of annual enrollment. The program may voluntarily provide the reward either in full or on a pro-rated basis to a participant that joins a tobacco cessation program mid-year.
- Fixed indemnity insurance in the individual market (such as hospital indemnity coverage) can pay benefits on a per-service basis, rather than the traditional per-period basis (e.g., per each day of hospitalization), and still qualify as “excepted benefits” that need not meet ACA market reform requirements. This will apply only in states where HHS has direct enforcement authority over the individual market, but the FAQ recommends that states with their own exchanges also treat fixed indemnity coverage meeting the same conditions as an excepted benefit.
ACA Effect on the
Mental Health Parity and Addiction Equity Act (MHPAEA)
EHB include mental health and substance use disorder services, and Section 1563 of the ACA extends mental health parity protections to the entire individual market, including both grandfathered and non-grandfathered coverage. As a result:
- Non-grandfathered individual market policies must provide mental health and substance use disorder benefits in accordance with interim final MHPAEA regulations for policy years beginning on or after Jan. 1, 2014. For policy years beginning on or after July 1, 2014 (Jan. 1, 2015 for calendar year policies), policies must comply with final MHPAEA regulations.
- Individual policies that were to be cancelled by insurers but were covered by the Nov. 14, 2013, HHS transition policy are excepted.
- Grandfathered individual market policies are not subject to EHB requirements and need not cover mental health or substance use disorder benefits. However beginning on or after July 1, 2014 (Jan. 1, 2015 for calendar year policies) coverage must comply with final MHPAEA regulations to the extent that mental health or substance use disorder benefits are provided voluntarily.
- Non-grandfathered small group coverage that is not subject to the cancellation transition policy must include coverage for mental health and substance use disorder benefits for plan years beginning on or after Jan. 1, 2014, and the coverage must comply with the interim final MHPAEA regulations from Feb. 2010. The coverage must comply with final MHPAEA regulations for plan years beginning on or after July 1, 2014 (Jan. 1, 2015 for calendar year plans.)
- Grandfathered small group market plans are not required to comply with either EHB or mental health parity rules.