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Coronavirus: Tax and Employee Benefit Considerations – Part 2
By: Jason Lacey

Employer-sponsored group health plans have drawn attention regarding coverage for certain coronavirus-related costs.

Under the FFCRA, all group health plans are now required to provide coverage for COVID-19 testing without imposing deductibles, copayments, or other cost sharing — and without requiring prior authorization or imposing other medical management standards. This coverage must include both the cost of the test and related services, such as charges for office, telehealth, urgent care, or ER visits and charges for the collection of testing samples. The testing mandate applies to all types of group health plans, including fully insured plans, self-insured plans, high deductible health plans (HDHPs), and plans that are otherwise “grandfathered” from certain ACA requirements. The mandate also applies to fully insured plans sold in the individual insurance market.

This mandate only applies to coverage of COVID-19 testing and related services. Coverage of treatment for COVID-19 remains subject to the terms of each plan, including applicable cost sharing requirements.

IRS Notice 2020-15 clarifies that an HDHP may provide benefits for COVID-19 testing or treatment prior to satisfaction of the minimum deductible without jeopardizing the plan’s status as an HDHP. Individuals covered under an HDHP may receive no-deductible or low-deductible coverage for these costs and remain eligible to contribute to a health savings account (HSA).

A new package of proposed federal legislation, currently called the CARES Act, would provide additional flexibility with respect to HDHPs and HSAs:

  • An HDHP could provide for coverage of telemedicine visits even if the HDHP deductible has not been      Continue Reading...
Coronavirus: Tax and Employee Benefit Considerations – Part 1
By: Jason Lacey

The Families First Coronavirus Response Act (FFCRA), which was enacted on March 18, 2020, established two new categories of paid leave to assist workers needing time off for certain coronavirus-related purposes: (1) up to two weeks of paid sick leave, and (2) up to ten weeks of paid FMLA leave. These paid leave mandates apply to private sector employers with fewer than 500 employees and public sector employers of any size.

Although the FFCRA requires covered employers to provide these new types of paid leave to qualifying employees, it establishes a process for eligible employers to obtain reimbursement from the federal government for the cost of the paid leave through refundable credits against Social Security payroll taxes. The tax credit is available to all private sector employers that are subject to the FFCRA paid leave mandates, regardless of the type of entity (C corporation, S corporation, partnership, LLC, or sole proprietorship). Public sector employers are expressly excluded from eligibility for the tax credit, although they are subject to the paid leave mandates. Private sector employers with 500 or more employees also are not eligible for the credit, even if they voluntarily provide paid leave that mirrors the FFCRA requirements.

An eligible employer’s payroll tax credit for each calendar quarter is an amount equal to 100% of the qualified sick leave wages and 100% of the qualified family leave wages paid by such employer for the quarter. The credit is limited to the maximum amount of the paid leave required to be paid      Continue Reading...

Is the ACA Back on the Endangered Species List?
By: Jason Lacey

The early years of the ACA were fraught with existential threats. Plans were laid to repeal or defund it. Litigation challenged the validity of various aspects of the law, going all the way to the Supreme Court in a couple of cases. And yet it has survived, more or less intact.

But then something curious happened late last year. Buried within a massive package of federal tax reform legislation was a short provision that eliminated the tax penalty associated with the ACA’s “individual mandate” but left the mandate itself on the books. It was effectively a repeal of the mandate (would anyone obey speed limits if the police said they would never issue speeding tickets?), but for reasons related to legislative procedure, the mandate technically remained.
Why does this matter?
In 2012, the Supreme Court was asked to rule on the constitutionality of the ACA’s individual mandate. The challengers argued that Congress did not have the authority under the U.S. Constitution to require Americans to purchase health insurance coverage. The Supreme Court agreed with them but went on to say that the mandate was still okay, because Congress does have the authority to impose taxes, and the individual mandate was a type of tax.
But now there’s no longer any tax. Just the mandate.
See the problem?
A number of states saw the problem too and have brought yet another lawsuit challenging the validity of the individual mandate. They might have a good argument.
But what does it matter if a toothless provision of the ACA is      Continue Reading...
An Employee by Any Other Name: Nail Technicians Misclassified a Independent Contractors
By: Travis Hanson

Recently, the Kansas Court of Appeals affirmed the district court and the Kansas Department of Labor’s (KDOL) finding that nail technicians at a salon were employees rather than independent contractors for unemployment-tax contribution purposes. This case has important tips for handling classification issues in any industry.

Review of the Record
In 2014, Leander and Hongmin (Amy) Fisher began doing business as Amy’s Spa Services, LLC (the Spa). The Spa classified all of its nail technicians as independent contractors. The KDOL audited the business to determine whether the Spa properly classified the technicians for unemployment-tax withholdings. For unemployment-tax contributions in Kansas, an individual is an employee if the employer has the right to control the manner and means of the work performed; whether the employer exercises that right is inconsequential.
The auditor reviewed the Spa’s independent contractor agreement, interviewed three nail technicians and Leander Fisher, and reviewed some of the Spa’s financial documents. The auditor’s review of the independent contractor agreement stated that the parties intended to form an independent contractor relationship. Under the agreement, the Spa purported to require the technicians to clean their workstations, supply the tools necessary to complete their jobs, and gave the technicians discretion to set their own prices, as long as they did not undermine the Spa’s prices. The agreement also provided that the Spa would receive all payments that were later distributed to the technicians, and that      Continue Reading...
Supreme Court Confirms Severance Payments are Subject to FICA Tax
By: Jason Lacey

The Supreme Court released its decision today in the Quality Stores case, confirming that severance payments are subject to FICA taxes. 

The payments at issue in the case were fairly typical. A significant reduction-in-force occurred. The employer had two severance plans in place. Officers and managers received between 6 and 18 months of severance payments. Rank-and-file employees received one week of severance pay for each year of service. Payments were reported on W-2s, and taxes were withheld, but the employer later had a change of heart and sued the IRS for a refund of the FICA taxes. Lower courts were sympathetic to the employer's arguments, but the Supreme Court was not persuaded. The decision was unanimous, with one justice not participating.

I don't think the decision itself was a big surprise. Severance payments have generally been viewed as an extension of wage payments and, therefore, subject to the same tax treatment as wages. But if the court had reached a different conclusion, that certainly would have been big news. 

The court's opinion is here.

Supreme Court Invalidates DOMA
By: Jason Lacey

In a closely watched and sharply divided opinion today, the Supreme Court invalidated the federal Defense of Marriage Act (DOMA) and its directive that only opposite-sex spouses may be recognized as spouses for purposes of federal law. Although the details and impact of the decision are still being parsed and evaluated, the bottom line is that same-sex couples who are recognized as validly married under state law are entitled to be recognized as spouses for purposes of federal law.

Brief Background. The case involved a same-sex couple, Edith Windsor and Thea Spyer, who had been married in Canada and whose marriage was recognized as valid under New York law, where they lived. Ms. Spyer died and left her estate to Ms. Windsor, who was required to pay federal estate tax because, under DOMA, she could not rely on an estate tax exception that allows for tax-free transfers of property between spouses at death. She sued for a refund of the taxes, claiming DOMA was unconstitutional.

The Court’s Analysis. Five of the nine Supreme Court justices agreed that DOMA was unconstitutional because it violated the equal protection rights of same-sex individuals who were recognized under state law as validly married. The Court essentially said that if a same-sex couple and an opposite-sex couple are treated the same under state law, they are constitutionally entitled to equal treatment under federal law.

Implication for Employee Benefit Plans. The case has many implications for employee benefit plans. For health plans, qualifying same-sex spouses that are covered under      Continue Reading...

Should You Let Employees Buy and Sell PTO?
By: Boyd Byers

School is out, summer is upon us, and many workers soon will be taking vacations. With visions of sandy beaches, national parks, and Wally World (Chevy Chase's destination in the movie Vacation) dancing in our heads, now is a good time to take stock of your vacation or paid time off (PTO) policy.

More employers are allowing workers to buy and sell vacation time, according to a Society for Human Resource Management study. The study shows that 52 percent of employers (up from 42 percent in 2009) now offer PTO plans that combine vacation time, sick leave, and personal days into one comprehensive plan, to give employees more flexibility in managing their time off. Of these, almost 20 percent offered a cash-out option. And five percent of all employers are taking the more-novel approach of letting workers buy more vacation time through a payroll deduction. 

Could such a policy provide a low-cost perk to help with employee recruitment and retention, and improve more morale and productivity, at your organization? Give it some thought. But be sure to work with an experienced employment lawyer to help develop such a program before you roll it out, to ensure you don’t run afoul of some tricky wage payment law and tax law issues these policies present (“constructive receipt” and “condition subsequent” anyone?).

Fiscal Cliff: Taxing Employer-Sponsored Health Coverage
By: Jason Lacey

Almost as soon as the Affordable Care Act passed in March 2010, the emails began coming, and they all said something like this: Obamacare increases your taxes by making your employer-provided health coverage taxable to you. Some even referenced a specific provision of the Affordable Care Act as authority.

True or false?

False. Or at least mostly so.

The kernel of truth was a reference to the provision of the Affordable Care Act that requires employers to report the value of employer-provided health coverage on the employees' W-2s. But it is only an information-reporting requirement. There is no increase in taxable income as a result.

Fast-forward 2-1/2 years, however, and we find ourselves in the midst of frantic politicking to attempt to avert the so-called fiscal cliff. Desperate times lead to desperate measures, and it seems that even the most sacred of sacred cows are now being considered for slaughter.

Today's news brings a report that this includes the long-standing tax exclusion for employer-provided health coverage.

It is an enormous tax expenditure for the federal government. Eliminating it would reportedly raise as much as $150 billion in additional revenue in one year.

But it has also been a linchpin of the employment-based health-care-financing scheme in this country. To encourage employers to provide health coverage to their employees, we allow the employers to claim a tax deduction for the cost of that coverage, but we do not tax the employees on it. We also allow employees to pay their share of the cost of coverage with pre-tax      Continue Reading...

IRS Authorizes Leave-Based Donation Programs to Benefit Hurricane Sandy Victims
By: Jason Lacey

In new guidance, the IRS has provided tax relief for leave-based donation programs established to aid victims of Hurricane Sandy. Similar guidance was provided after the September 11, 2001 terrorist attacks and after Hurricane Katrina in 2005.

Under a leave-based donation program, an employer allows employees to elect to forego paid leave time (e.g., vacation, sick, or personal leave), and the employer then donates the value of the foregone leave to a charitable organization.

The guidance clarifies that employees will not have taxable wage income solely because they make, or have the right to make, an election to donate leave under a qualifying leave-based donation program. Employers are allowed a full deduction for the donations, without regard to the percentage limitations on charitable contributions.

To qualify for this treatment, payments of foregone leave time must be made:

  • To a qualifying charitable organization.
  • For the relief of victims of Hurricane Sandy.
  • Before January 1, 2014.

Employees who elect to participate in a leave-based donation program may not claim a charitable contribution deduction for the value of the foregone leave.


IRS Posts FAQs on New Medicare-Tax Withholding
By: Jason Lacey

The IRS has posted a set of FAQs to its website that provide guidance on withholding the new 0.9% Medicare tax that will apply beginning in 2013.

The new tax was enacted as part of health care reform and goes into effect with respect to wages paid on or after January 1, 2013. The tax is an additional 0.9% on all wages received in excess of a threshold amount. The threshold amount is $200,000 in the case of a single individual and $250,000 in the case of a married individual who files a joint tax return. But regardless of an employee's marital status or household income, employers are required to begin withholding the tax once they have paid an employee $200,000 in wages during a year.

Example. An employee has received $180,000 in wages during 2013 and then receives a bonus of $50,000 in December 2013. In addition to all other required tax  withholding, the employer must withhold the new 0.9% Medicare tax on $30,000 of the bonus.

Some of the clarifications provided in the FAQs:

  • The obligation to withhold the new tax only applies once an employee has received $200,000 in wages and only to the extent wages for the year exceed $200,000. 
  • Non-cash taxable fringe benefits provided to an employee who has received at least $200,000 in other taxable wages are subject to the new tax, even though not paid in cash.
  • The withholding requirement does apply to tipped employees who      Continue Reading...
IRS Updates Guidance on FICA Taxes and Employee Tips
By: Jason Lacey

The IRS recently released Revenue Ruling 2012-18, which provides updated guidance for employers on the treatment of employee tips for FICA-tax purposes.

Tips are subject to both the employer's and the employee's share of the FICA tax, even though they are not paid directly from the employer to the employee. Special procedures govern how employees report tips to employers and when employers must withhold and pay the required FICA taxes on those tips.

Among other things, the new guidance clarifies the distinction between tips and service charges. Service charges, such as automatic gratuities added to a bill for large parties, are not tips for FICA purposes and may not be reported using the special procedures that apply to tips. They must be treated like other wages paid by the employer. This means, for example, that they are subject to FICA-tax withholding at the time they are paid to the employee.

In a related announcement, the IRS has released a memorandum to field agents providing instruction on audits of businesses where tipping of employees is customary. The memorandum says that, in general, the principles in Revenue Ruling 2012-18 are retroactively effective. But in certain cases it may be appropriate for auditors to apply the new guidance on service charges prospectively from January 1, 2013, "in order to allow businesses not currently in compliance additional time to amend their business practices and make needed system changes."

Although this announcement indicates the possibility of some relief for employers that have not handled service charges in the      Continue Reading...

Colorado Latest to Join DOL in Worker Misclassification Efforts
By: Donald Berner

The U.S. Department of Labor (DOL) continues its efforts to combat the misclassification of employees as independent contractors.  Last week, the DOL entered into a partnership agreement with the state of Colorado.  This agreement expands the number of states cooperating with the DOL to eleven, including our neighbors to the east and west (Missouri and Colorado).  Stay tuned as the DOL continues to turn up the heat on independent contractor classification issues.  To keep tabs on the DOL's efforts click here.

IRS Calls 'Olly Olly Oxen Free' to Employers Who Voluntarily Reclassify Contractors as Employees
By: Boyd Byers

Olly olly oxen free!

Do you remember this chant as the “all clear” signal when playing tag, hide-and-seek, and similar childhood games?  (In case you’re wondering, linguists think the phrase probably evolved from “all ye, all ye, ‘outs’ in free” as it was passed down over generations of schoolchildren.)

On September 21, the Internal Revenue Service announced the Voluntary Classification Settlement Program (VCSP). It’s sort of like an “olly olly oxen free” for employers who have misclassified employees as independent contractors.  Sort of. It’s not entirely free, of course.  But the program does offer employers substantial relief from past federal employment tax liability if they agree to get into compliance going forward. 

The VCSP is available to employers who are currently treating a class or group of workers as independent contractors, but want to treat the workers as employees prospectively.  In exchange for agreeing to treat the workers as employees for future tax periods, employers participating in the VCSP get the following relief: 
  • pay only 10 percent of the employment tax liability that may have been due on compensation paid to the workers for the most recent tax year;
  • no liability for any interest and penalties on the amount; and
  • not subject to an employment tax audit with respect      Continue Reading...

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Don Berner, the Labor Law, OSHA, & Immigration Law Guy
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Boyd Byers, the General Employment Law Guy
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Jason Lacey, the Employee Benefits Guy
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