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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...

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?).

IRS Provides Guidance on New Medicare Taxes
By: Jason Lacey

The IRS has released several guidance items on the new Medicare taxes that take effect beginning January 1, 2013:

  • Proposed regulations on 0.9% additional Medicare tax on earned income (here).
  • Updated Questions and Answers for the Additional Medicare Tax (here).
  • Proposed regulations on the new 3.8% Medicare tax on net investment income (here). 
  • Net Investment Income Tax FAQs (here).

There is considerable detail in all of this, but here are a few highlights:

Additional Medicare Tax on Wages

  • The employer must begin withholding the 0.9% after $200,000 in taxable wages paid. The employee may not opt out of withholding, even if the employee will not owe the tax.
  • Withholding by an employer may not be sufficient to cover all tax actually due by an employee, so the employee may be required to make estimated-tax payments. This can occur when, for example, two married individuals have combined wages that exceed the threshold amount, but neither individual's wages exceed $200,000.
  • If an employer employs two married individuals, the employer is not required to withhold the additional tax from either employee unless and until that employee's wages exceed $200,000. This is the case even if the combined wages paid to the two employees exceed $250,000 (meaning the employees will be subject to the tax).
  • If wages are paid to a single employee by two or more related      Continue Reading...
Accountable Plans Cannot Recharacterize Wages as Tax-Free Benefits
By: Jason Lacey

A recent IRS ruling addresses compensation arrangements that purport to provide employees with tax-free expense reimbursements but, in fact, merely recharacterize taxable wages as tax-free income. The IRS treats these arrangements as failing to satisfy the requirements of an "accountable plan," making the expense reimbursements taxable to the employees. 

The ruling describes three examples of invalid accountable plans:

  1. Tool Expense. A cable installation company requires its installers to purchase their own tools. Each year the installers tell the employer how much they expect to spend on tools for the year. The employer divides this amount over the total number of hours the installers are expected to work and then treats a portion of the wages paid for each hour worked as a tax-free reimbursement of this tool expense. For example, if the installers would otherwise make $10 per hour and are treated as incurring $1 of tool expense for every hour worked, the installers are paid $9 in taxable wages and $1 in tax-free tool reimbursement for every hour worked.
  2. Meals and Lodging. A staffing service that places temporary nurses in hospitals pays those nurses a set hourly wage, regardless of where the nurses are working. But for nurses who must travel away from home for an assignment, the contractor treats a portion of the hourly wages they would otherwise receive as a tax-free per diem allowance for food and lodging.
  3. Mileage Allowance. A construction contractor that builds commercial buildings in various locations      Continue Reading...
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...

Facing the Music at Facebook: When the Tax Bill Comes for Equity Compensation
By: Donald Berner

Facebook's pre-IPO regulatory filings (click here) with the Securities and Exchange Commission (SEC) highlight a common issue with equity compensation programs -- the tax bill can be very large and trigger a burdensome withholding obligation.  Facebook reports that its employees and contractors hold about 378.5 million restricted stock units (RSUs).  Each RSU represents a right to receive one share of Facebook stock when the RSU vests.  The RSUs will vest approximately six months after the IPO.  Facebook is estimating a median IPO price of $36 per share.  If that valuation holds up, the RSU holders will vest in equity compensation worth approximately $13.6 billion.  Assuming a combined state and federal tax rate of 40%, that will produce a tax bill of about $5.5 billion.

A big tax bill can be a nice problem to have; however, employers are required to withhold taxes with respect to equity compensation as it vests, and the IRS wants to be paid in cash, not shares.  So where does the money come from?  In Facebook's case, it looks like they are planning to use a good chunk of the money they will receive from selling shares to the public in the IPO for business purposes; however, Facebook will likely hold back a percentage of the shares each employee would receive upon vesting of the RSUs and then use some of the cash from the IPO to make the required tax payments.  This is sometimes referred to as "netting down" the shares the employees receive.  It is convenient for employees, but requires the      Continue Reading...


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