New 125 Plan Election Change Addresses Key ACA Concern
|
09/29/2014
|
By: Jason Lacey
|
Employers
considering
the
look-back
measurement
method
to
identify
full-time
employees
for
purposes
of
the
ACA’s
employer
shared
responsibility
mandate
have
expressed
concern
about
the
impact
on
employees
who
are
treated
as
full-time
for
a
stability
period
but
experience
a
reduction
in
actual
hours
of
service.
Locked-In
Status.
Employers
recognize
that
these
employees
may
prefer
to
drop
employer-sponsored
coverage
upon
the
reduction
in
hours.
But
employers
that
want
to
avoid
penalty
exposure
under
the
ACA
must
continue
to
make
these
employees
eligible
for
coverage,
because
they
are
recognized
as
full-time.
And
because
there
is
no
loss
of
eligibility,
the
employees
cannot
make
a
voluntary
decision
to
drop
coverage
in
the
middle
of
the
year.
There
is
no
change
in
status
that
will
support
an
election
change
under
the
existing
125
plan
regulations.
The
employees
are
locked-in.
New
Election
Change.
A
recent
notice
from
the
IRS
provides
important
relief
from
this
problem
by
adding
a
new
election-change
event
to
the
cafeteria-plan
rules.
An
employee
can
now
make
a
mid-year
election
to
revoke
health
plan
coverage
(not
including
health
FSA
coverage)
upon
a
reduction
in
hours
of
service,
if
the
following
conditions
are
satisfied:
- The
employee
has
been
in
a
full-time
position
and
changes
to
a
position
that
is
reasonably
expected
to
average
less
than
30
hours
of
service
per
week,
even
if
that
change
does
not
result
in
a
loss
of
health
plan
eligibility.
- The
employee
represents
to
the
employer
that
the
employee
Continue Reading...
|
|
IRS Clarifies Impact of Health FSA Carryover on HSA Eligibility
|
04/10/2014
|
By: Jason Lacey
|
An
internal
IRS memorandum
has
provided
much-needed
clarification
on
the
interaction
between
the
new
$500
carryover
rule
for
health
FSA
plans
and
eligibility
to
make
contributions
to
a
health
savings
account
(HSA).
The
conclusions
in
the
memo
are
generally
favorable,
but
employers
wanting
to
both
offer
the
carryover
rule
in
a
health
FSA
and
allow
employees
to
be
HSA-eligible
will
need
to
carefully
design
their
health
FSA
plans
to
take
advantage.
Background.
In
guidance
issued
last
year,
the
IRS
provided
limited
relief
from
the
use-it-or-lose-it
rule
that
applies
to
health
FSA
plans
by
allowing
for
a
carryover
of
up
to
$500
of
unused
amounts
each
year.
(See
my
post
here.)
Among
the
open
questions
was
how
this
carryover
would
affect
an
individual's
eligibility
to
make
HSA
contributions
and
what
steps,
if
any,
could
be
taken
to
ensure
an
individual
would
be
HSA-eligible
if
the
individual
had
a
carryover
amount.
In
general,
to
be
HSA-eligible,
an
individual
cannot
have
any
low-deductible
health
coverage,
including
coverage
under
a
general-purpose
health
FSA.
Carryover
Affects
HSA Eligibility
for
Entire
Year.
In
this
recent
memorandum,
the
IRS
confirmed
that
an
individual
who
has
a
carryover
amount
in
a
general-purpose
health
FSA
is
ineligible
to
contribute
to
an
HSA
for
the
entire
carryover
year,
even
after
the
individual
exhausts
the
balance
in
the
health
FSA.
For
example,
if
at
the
end
of
2014
an
individual
has
$400
remaining
in
a
general-purpose
health
FSA
and
that
amount
carries
over
to
a
general
purpose
health
FSA
for
2015,
the
individual
will
Continue Reading...
|
|
IRS Modifies Health FSA Use-It-or-Lose-It Rule
|
11/04/2013
|
By: Jason Lacey
|
In
new
guidance
issued
late
last
week
(here),
the
IRS
tackled
a
long-standing
issue
with
cafeteria
plans:
the
requirement
that
all
dollars
be
used
by
the
end
of
the
plan
year
or
be
forfeited.
Employees
can
now
be
allowed
to
carryover
up
to
$500
remaining
in
a
health
FSA
account
at
the
end
of
the
year
and
use
it
at
any
time
during
the
following
year.
But
there
are
some
conditions
and
limitations,
and
it's
not
clear
that
this
approach
will
be
ideal
for
all
plans.
Here's
what
you
need
to
know.
Optional.
Employers
are
not
required
to
add
the
carryover
option
to
their
health
FSA
plans.
But
if
they
do
want
to
add
the
option,
they
must
timely
amend
their
plans
and
make
sure
they
meet
the
other
conditions
for
offering
the
carryover.
Also,
employers
are
not
required
to
allow
carryover
of
the
full
$500.
They
could
specify
a
lower
carryover
amount.
Relationship
to
$2,500
Cap.
Amounts
carried
over
from
one
plan
year
to
the
next
under
this
guidance
do
not
count
against
the
$2,500
cap
on
salary
reduction
contributions
for
the
carryover
year.
So,
for
example,
an
employee
could
carryover
$500
from
the
2014
plan
year
into
the
2015
plan
year
and
make
a
$2,500
salary
reduction
election
for
the
2015
plan
year,
giving
the
employee
a
total
of
$3,000
available
during
the
2015
plan
year.
Grace
Period.
A
plan
cannot
offer
both
the
carryover
option
and
a
grace
period
option.
It
must
be
one
or
the
other.
This
leads
Continue Reading...
|
|
IRS Releases 2014 COLAs for Benefit Plans
|
11/02/2013
|
By: Jason Lacey
|
The
IRS
has
released
the
annual
cost
of
living
adjustments
for
various
tax-related
items,
including
benefit
plan
limits
(see
here, here,
and
here).
The
adjusted
amounts
will
apply
for
2014.
For
the
most
part
they
reflect
no
increase
or
only
a
modest
increase
over
2013
levels.
Here
are
the
highlights:
- Retirement
plan
elective
deferrals
(402(g)
limit)
-
$17,500
(unchanged)
- Retirement
plan
catch-up
contributions
-
$5,500
(unchanged)
- Annual
additions
to
a
defined
contribution
plan
(415
limit)
-
$52,000
($1,000
increase)
- Definition
of
highly
compensated
employee
-
$115,000
(unchanged)
- Annual
compensation
limit
(401(a)(17)
limit)
-
$260,000
($5,000
increase)
- Social
security
taxable
wage
base
-
$117,000
($3,300
increase)
Inflation-adjusted
amounts
for
high
deductible
health
plans
(HDHPs)
and
health
savings
accounts
(HSAs)
were
released
earlier
this
year
(see
prior
post here).
|
|
Post-Windsor Guidance Addresses Employment Tax Refunds
|
09/25/2013
|
By: Jason Lacey
|
In
another
round
of
post-Windsor
guidance
(here),
the
IRS
has
provided
some
alternative
processes
for
obtaining
refunds
of
employment
taxes
(FICA
tax
and
withheld
income
tax)
paid
with
respect
to
same-sex
spouses
prior
to
the
Supreme
Court's
decision
in
Windsor (e.g.,
for
coverage
under
a
cafeteria
or
health
plan).
Overpayments
for
2013.
With
respect
to
taxes
paid
in
2013,
there
are
two
alternative
procedures
for
claiming
a
refund:
(1)
the
employer
may
true-up
the
entire
year's
withholding
on
its
fourth
quarter
2013
employment
tax
return
(Form
941);
or
(2)
the
employer
may
file
a
single
amended
employment
tax
return
(Form
941-X)
for
the
fourth
quarter
of
2013
to
reflect
the
correct
withholding
amounts
for
the
entire
year.
Both
of
these
approaches
allow
employers
to
avoid
filing
amended
returns
for
each
quarter
of
the
year
to
correct
the
withholding
for
that
quarter.
For
the
third
quarter
of
2013
(July-September),
employers
should
report
on
the
employment
tax
return
for
that
quarter
the
amount
of
taxes
actually
withheld
and
not
refunded
by
the
end
of
the
quarter.
For
example,
if
an
employer
adjusted
its
withholding
system
effective
August
1,
2013
and
also
refunded
any
taxes
withheld
in
July
2013,
then
it
would
not
report
any
of
those
withheld
amounts
on
its
Form
941
for
the
third
quarter.
But
if
it
did
not
refund
the
July
taxes
by
the
end
of
the
third
quarter,
then
those
taxes
should
be
reported
on
the
third
quarter
return
and
a
refund
claimed
by
way
of
one
of
the
methods
Continue Reading...
|
|
IRS Releases Initial Guidance on Same-Sex Spouses
|
08/29/2013
|
By: Jason Lacey
|
We
have
been
anticipating
guidance
from
the
IRS
on
the
treatment
of
same-sex
spouses
for
tax
and
benefit
purposes
in
light
of
the
Supreme
Court's
overturning
of
DOMA,
and
here
it
is.
Married
Anywhere.
Rev.
Rul.
2013-17
(here)
says
that
a same-sex
couple
validly
married
anywhere
(including
in
a
foreign
country)
will
be
recognized
as
married
for
federal
tax
purposes,
even
if
their
marriage
is
not
recognized
under
the
law
of
their
home
state.
In
other
words,
it’s
a
state-of-celebration
rule,
not
a
state-of-residence
rule.
All
Tax
Purposes.
The
rule
applies
for
all
tax
purposes,
including
employee
benefits.
So
in
addition
to
filing
joint
tax
returns,
same-sex
spouses
may
obtain
tax-free
coverage
for
each
other
under
health
or
cafeteria
plans
and
are
entitled
to
spousal
rights
under
401(k)
and
other
qualified
retirement
plans.
Also,
medical
expenses
incurred
by
one
spouse
in
a
same-sex
marriage
will
qualify
for
reimbursement
from
a
flexible
spending
account
or
health
savings
account
maintained
by
the
other
spouse.
Recognition
of
the
same-sex
marriage
may
present
an
issue
for
participants
in
dependent
care
assistance
plans,
because
the
spouse's
income
and
employment
must
now
be
taken
into
account.
Retroactivity.
Individuals
in
existing same-sex
marriages
may
go
back
and
claim
a
refund
for
taxes
on
any
imputed
income
that
resulted
from
coverage
of
a
same-sex
spouse
or
children
of
a
same-sex
spouse
under
a
health
or
cafeteria
plan.
Employers
may
also
be
able
to
obtain
refunds
of
employment
taxes
imposed
on
imputed
income.
The
refunds
are
limited
to
years
for
which
the
statute
Continue Reading...
|
|
Supreme Court Invalidates DOMA
|
06/26/2013
|
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...
|
|
On Facial Hair and Flexible Spending Accounts
|
05/12/2013
|
By: Jason Lacey
|
I
have
worn
a
beard
for
most
of
my
adult
life,
and
I
appreciate
a
solid
stand
of
men's
facial
hair.
So
I
couldn't
help
noticing
an
article
last
week
touting
a
growing
industry
in
Turkey:
Turkish
mustache
transplants.
For
a
mere
$5,000,
the
"follicly
challenged"
can
have
a
cosmetic
surgeon
enhance
their
mustache
or
beard.
The
procedure
is
done
under
local
anesthetic
and
takes
only
a
few
hours.
In
true
medical
tourism
style,
the
procedures
are
being
offered
as
part
of
"transplant
packages"
that
may
include
additional
amenities
such
as
a
beachside
vacation
on
Turkey's
Mediterranean
coast.
If
you're
looking
to
boost
your
masculinity
and
catch
a
few
rays
in
the
process,
this
might
just
be
the
thing
you've
been
waiting
for.
That
got
me
to
thinking:
This
is
bound
to
become
wildly
popular
because
-
let's
face
it
-
who
could
resist
a
shot
at
the
mustache
of
their
dreams.
Which
means
it's
only
a
matter
of
time
before
we
find
an
employee
or
two
claiming
reimbursement
under
a
health
FSA,
HRA,
or
HSA for
the
cost
of
the
procedure.
It's
medical,
so
it's
covered
-
right?
Well,
not
so
fast.
To
be
reimbursed
from
a
health
FSA,
HRA,
or
HSA,
expenses
generally
must
be
for
"medical
care,"
and
the
tax
code
specifically
excludes
cosmetic
surgery
from
the
definition
of
medical
care.
What
counts
as
cosmetic
surgery?
Any
procedure
that
"is
directed
at
improving
the
patient's
appearance
and
does
not
meaningfully
promote
the
proper
function
of
the
body
or
prevent
or
treat
illness
Continue Reading...
|
|
Health FSA Use-It-or-Lose-It Rule to Remain for 2012
|
10/15/2012
|
By: Jason Lacey
|
As
we
have
reported
previously
on
this
blog
(see
here),
the
IRS
is
considering
modifying
or
eliminating
the
so-called
use-it-or-lose-it
rule
for
health
FSAs,
which
is
the
rule
that
requires
participants
to
spend
down
their
entire
account
balances
during
the
plan
year
(and
any
related
grace
period)
or
else
forfeit
the
money.
Legislative
repeal
of
the
rule
has
also
been
proposed.
Tax
Analysts,
which
publishes
tax-industry
news,
is
reporting
today
that
leading
Treasury
and
IRS
officials
have
said
nothing
will
happen
on
this
issue
for
2012,
at
least
as
an
administrative
matter.
(Congress
theoretically
could
still
act
during
the
post-election
lame-duck
session,
but
that
seems
unlikely
too.)
However,
the
government
did
receive
"a
tsunami"
of
letters
and
comments
in
support
of
eliminating
the
rule,
so
we
may
see
further
movement
on
the
issue
in
the
near
future.
With
the
cap
on
health
FSA
contributions
reduced
to
$2,500
for
plan
years
beginning
on
or
after
January
1,
2013,
there
is
very
limited
opportunity
for
tax
avoidance
or
deferral
through
health
FSAs.
So
there
is
a
sense
that
the
use-it-or-lose-it
rule
may
no
longer
serve
a
meaningful
regulatory
function.
|
|
It's No Joke: Al Franken Backs Bill to Repeal FSA Use-It-or-Lose-It Rule
|
06/08/2012
|
By: Jason Lacey
|
The
U.S.
House
of
Representatives approved
a
bill late
last
week that
would partially
repeal
the
use-it-or-lose-it
rule
for
flexible
spending
account
plans.
The change
would
allow
for
a
taxable
distribution
of
up
to
$500
in unspent
employee
contributions remaining
at the
end
of
the
plan
year.
Legislative
attention
to
this
somewhat
obscure
provision
of
the
cafeteria-plan
rules
comes
just
days
after
the
IRS
separately
announced
it
was
evaluating
whether
the limitation
should
continue.
The
bill would
also
repeal
the
PPACA
restriction
on
reimbursement
of
over-the-counter drugs
through
health
FSAs
and
HSAs.
The
Senate
has
yet
to
vote,
but
there
appears
to
be
some
bipartisan
support
for
the
bill, primarily
among
senators
--
including
Democrat
Al
Franken
of
Minnesota
--
who
favor
a
separate
provision
that
would
repeal
a
tax
on
medical-device
manufacturers.
|
|
Federal Appeals Court Rules Against Defense of Marriage Act
|
06/04/2012
|
By: Jason Lacey
|
A
federal
appeals
court
in
Boston
ruled
late
last
week
that
a
portion
of
the
Defense
of
Marriage
Act
(DOMA)
is
unconstitutional
because
it
violates
the
rights
of
same-sex
couples
who
are
validly
married
under Massachusetts
law.
At
issue
in
the
case
was
a
provision
of
DOMA that
says
only
opposite-sex
spouses
may
be
recognized
as
spouses
for
purposes
of
federal
law.
This
has
important
implications
for
employee-benefit
plans
because
several
provisions
of
federal
law
grant
spouses
special
rights.
For
example,
spouses
have
survivor
rights
under
retirement
plans,
and
spouses
can
receive
tax-free
coverage
and
have
special-enrollment
and
COBRA
rights
under
group
health
plans.
Under
DOMA,
these
rights
do
not
apply
to
same-sex
spouses,
but
that
could
change
if
DOMA is
struck
down.
The
case
does
not
disturb
existing
state
statutes
and
constitutional
provisions
that
prohibit
the
recognition
of
same-sex
marriages.
But
difficult
questions
may
arise
if
a
same-sex
couple
that
is
validly
married
in
one
state
seeks
to
enforce
rights
under
federal
law
against
an
employer
or
employee-benefit
plan
in
a
state
that
does
not
recognize
same-sex
marriage.
Ultimately,
this
is
an
issue
that
will
be
addressed
by
the
Supreme
Court,
and
now
that
a
federal
appeals
court
has
ruled,
review
by
the
Supreme
Court
could
come
as
early
as
next
year.
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IRS Provides Guidance on $2,500 Health FSA Cap
|
05/31/2012
|
By: Donald Berner
|
The
IRS issued
Notice
2012-40
yesterday
(click
here
for
the
notice),
providing
a
number
of
important
clarifications
regarding
the
$2,500
cap
on
health
FSA contributions
that
applies
beginning
in
2013.
The
most
surprising
development
is
the
IRS's
interpretation
that
the
cap
applies
on
a
plan-year
basis,
rather
than
a
calendar-year
basis.
This
is
important
for
employers
with
fiscal-year
plans. They
will
be
able
to
wait
until
the
first
plan
year
beginning
after
December
31,
2012,
to
implement
the
cap,
rather
than
using
the
transition
rule
or
early
implementation
of
the
cap
to
ensure
contributions
during
the
2013
calendar
year
do
not
exceed
the
cap,
as
was
previously
thought
necessary.
Other
key
guidance
points
include:
- Clarification
that
unspent
amounts
carried
over
during
a
grace
period
will
not
count
against
the
cap
for
the
plan
year
in
which
the
grace
period
occurs.
- Confirmation
that
the
cap
only
applies
to
employee
salary-reduction
contributions
to
a
health
FSA.
Employer
contributions (e.g.,
flex
credits)
and
salary-reduction
contributions
to
dependent-care
FSAs
do
not
count,
nor
do
amounts
credited
to
HSAs
or
HRAs.
In
addition
to
interpretive
guidance,
the
Notice
provides
a
limited
correction
rule
that
will
allow
fixing
some
good-faith
mistakes.
If
a
mistaken
election
to
contribute
more
than
$2,500
to
a
health
FSA
in
a
year
is
properly
corrected,
the
error
will
not
jeopardize
the
plan's
status
as
a
qualifying
cafeteria
plan.
Of
academic
interest,
the
Notice
also
requests
comments
on
the
use-it-or-lose-it
rule.
The
implication
is
that
the
$2,500
cap
may
be
low
enough
Continue Reading...
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|
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Editors
Don Berner, the Labor Law, OSHA, & Immigration Law Guy
Boyd Byers, the General Employment Law Guy
Jason Lacey, the Employee Benefits Guy
Additional Sources

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