Qualified transportation plan rules offer flexibility

Employers may wish to revisit their plan docs and make adjustments

This week, the IRS released an information letter (responding to an inquiry from a Member of Congress) in which the agency addresses options for minimizing benefit losses by participants who are no longer commuting, are commuting less frequently, or have changed their method of commuting due to the COVID-19 pandemic.

While the letter cautions that the regulations do not allow a refund of qualified transportation fringe benefits, it goes on to explain that:

• an employee is not precluded from rolling over unused transit benefit amounts to subsequent periods for future commuting expenses – so long as the participant has made a valid salary reduction election; and

• an employee may apply unused transit benefit amounts to another qualified transportation fringe benefit – to the extent that the other benefit is offered under the plan and the maximum monthly amount ($270 for 2020) for that benefit is not exceeded.

Note: An information letter provides general statements of well-defined law without applying them to a specific set of facts. They are furnished by the IRS in response to requests for general information by taxpayers, by Congress (on behalf of constituents), or by Congress (on their own behalf).

2021 EMPLOYEE BENEFIT PLAN LIMITS

The Internal Revenue Service (IRS) recently announced the cost-of-living adjustments to the contribution and benefit limits for various employer-sponsored plans for 2021. Nearly all the dollar limits currently in effect for 2020 will remain the same, with only a few amounts experiencing minor increases for 2021.

The table below compares the dollar limits for certain employee benefit programs for 2020 and 2021.

RETIREMENT PLAN LIMITS20202021
401(k), 403(b) & 457(b) contributions$19,500$19,500
Catch-up contributions (age 50+)$6,500$6,500
Defined contribution plan (annual contributions)$57,000$58,000
    
HEALTH AND WELFARE PLAN LIMITS   
Health FSA salary reduction$2,750$2,750
Health FSA carryover$500$550
    
Dependent Care FSA – married filing jointly or single parent$5,000$5,000
Dependent Care FSA – married filing separately$2,500$2,500
    
Excepted Benefit HRA$1,800$1,800
Qualified Small Employer HRA (QSEHRA) – self only $5,250$5,300
Qualified Small Employer HRA (QSEHRA) – family$10,600$10,700
    
HDHP: max. annual out-of-pocket (self only)$6,900$7,000
HDHP: max. annual out-of-pocket (family)$13,800$14,000
HDHP: min. annual deductible (self only)$1,400$1,400
HDHP: min. annual deductible (family)$2,800$2,800
    
HSA: annual contributions (self only)$3,550$3,600
HSA: annual contributions (family)$7,100$7,200
HSA: catch-up contributions (age 55+)$1,000$1,000
    
Qualified Transit and Parking – monthly$270$270

Details on these and other cost-of-living adjustments can be found in IRS Revenue Procedure 2020-45 and IRS Notice 2020-79.

Proposed regs. address primary care and health sharing ministries

Yesterday, the IRS released proposed regulations addressing the treatment of certain medical care arrangements under Section 213 of the Internal Revenue Code.

Specifically, Section 213(d) of the Code allows individuals to take an itemized deduction for expenses for medical care, including insurance.

The proposed regulations address direct primary care (DPC) arrangements and health care sharing ministry (HCSM) memberships, and provide the following guidance:

  • Payments for DPC arrangements are expenses for medical care under section 213(d) of the Code. Because these payments are for medical care, an HRA provided by an employer generally may reimburse an employee for DPC arrangement payments.
  •  Payments for membership in a HCSM are expenses for medical care under section 213(d) of the Code. Because these payments are for medical care, an HRA provided by an employer generally may reimburse an employee for HCSM membership payments.

These proposed regulations are in direct response to Executive Order 13877, which directed the Secretary of the Treasury to “propose regulations to treat expenses related to certain types of arrangements as eligible medical expenses.”

PPP Flexibility Act heads to President’s desk

In rare show of bipartisanship, Congress overwhelmingly supports relief effort

On Wednesday, the Senate cleared legislation to modify and ease restrictions on the emergency small business loans intended to avert mass layoffs during the COVID-19 pandemic. Included as part of the $2.2 trillion CARES Act* enacted back in March, the popular Paycheck Protection Program (PPP)** has approved more than $510 billion in loans to date despite a rocky roll out.

In recognition that the Coronavirus has kept businesses sidelined longer than expected, H.R 7010 aims to address concerns surrounding a handful of burdensome rules under the program. The key aspects likely to help ease fears among many businesses are:

  1. Currently, a business must spend the PPP money in eight weeks and keep all staff employed for the government to fully forgive the loan. The new bill proposes an extension to 24 weeks from receipt of the loan or Dec. 31, 2020 (whichever is earlier) to use the proceeds.
  2. Greater flexibility in expenditures by lowering the amount spent on payroll in order to qualify for full loan forgiveness to 60% (instead of the original 75% benchmark)…leaving 40% for non-payroll costs like rent, utilities, etc.
  3. Borrowers whose loans are forgiven would be eligible for the deferral of the employer’s portion of Social Security taxes provided by the CARES Act.
  4. Workforce reductions will no longer necessarily result in a proportional reduction of loan forgiveness. An employer may be exempt from the associated loan forgiveness reduction if they a) rehire terminated employees; b) hire similarly qualified employees for unfilled positions before Dec. 31, 2020; or c) have an inability to return to pre-COVID levels due to compliance with health and safety standards.
  5. Finally, the forgiveness rules are further relaxed with a provision stretching the amount of time employers have to repay their debt. A minimum five-year maturity now replaces the original restrictions that limited the term to two years.

*Coronavirus Aid, Relief, and Economic Security Act

* *Provides companies with forgivable loans that act like grants as long as the majority of the funds are used pay employees

BREAKING NEWS – FSA Relief

Notices address unanticipated changes in expenses because of the COVID-19 pandemic.

The IRS just released guidance to allow temporary changes to Sec. 125 cafeteria plans. These changes extend the claims period for health FSAs and dependent care assistance programs, allow mid-year changes and adjust carryover to reflect inflation.

Notice 2020-29 provides for increased flexibility with respect to mid-year elections made under a § 125 cafeteria plan during calendar year 2020 related to employer-sponsored health coverage, health FSAs, and dependent care assistance programs. The notice also provides increased flexibility with respect to grace periods to apply unused health FSA and dependent care amounts toward expenses incurred through December 31, 2020. It also applies earlier relief for HDHPs to cover expenses related to COVID-19 (and a temporary exemption for telehealth services) retroactively to January 1, 2020. 

Notice 2020-33 increases the $500 limit for unused amounts remaining in a health FSA that may be carried over into the following year by making the carryover amount 20% of the maximum salary reduction amount under § 125(i), which is indexed for inflation. Thus, for 2020, the carryover amount will increase to $550.  Additionally, the notice cross references Notice 2020-29 for guidance on how a § 125 cafeteria plan may be amended to allow prospective health FSA election changes for the 2020 calendar year…providing relief that, among other things, permits employers to amend § 125 cafeteria plans to provide participants flexibility to change health FSA contribution elections.

Note: Individual Coverage HRAs – this guidance also provides clarification regarding reimbursement for premium expenses occurring prior to the beginning of the plan year. 

TASC Governmental Affairs is reviewing these developments and will provide further analysis in the near future.

Guidance and Relief for Employee Benefit Plans Due to COVID-19

Recognizing the impact of the COVID-19 Pandemic, the Dept. of Labor’s (DOL) Employee Benefit Security Administration (EBSA) – in conjunction with Treasury and the IRS – have released a number of documents* announcing the timing extensions for a host of deadlines so that plan participants, beneficiaries and employers have additional time to make critical coverage decisions affecting their benefits during the coronavirus outbreak.

Notice 2020-01 allows for the delay of certain notices, disclosures or other documents due between March 1, 2020, and 60 days after the announced end of the COVID-19 national emergency “if the plan acts in good faith and furnishes the notice, disclosure, or document as soon as practicable under the circumstances.” Such “good faith” efforts include electronic disclosures like emails, text messages, website access, etc.

Meanwhile, the new final regulations broadly extend numerous plan deadlines applicable to participants and beneficiaries of group health plans, benefit plans and pension plans. Specifically:

  • the election period for COBRA continuation coverage;
  • the date for making COBRA premium payments
  • the date that individuals can make a benefits claim (essentially extending the run-out period for reimbursement by health FSAs and HRAs); and
  • the date a plan sponsor/administrator has to provide a COBRA election notice.

The guidance acknowledges the uncertain duration of the COVID-19 pandemic and notes that additional guidance will be provided, if necessary. TASC Governmental Affairs is currently reviewing the new guidance and will provide a full summary and further analysis at a later time.

*EBSA Disaster Relief Notice 2020-01; DOL COVID-19 FAQs; Notification of Relief (final regulations)

ICYMI – some Form 5500 due dates extended

IRS Notice 2020-23 extends the Form 5500 filing deadline for ERISA-covered retirement and welfare plans that have an original or extended filing deadline on or after April 1, 2020, and before July 15, 2020. With this extension, these plans now have until July 15, 2020, to file their Forms 5500.

Plan Year End Original Due Date Normal Extension Request Due Date Relief Due Date
June 30, 2019 N/A April 15, 2020 July 15, 2020
July 31, 2019 N/A May 15, 2020 July 15, 2020
Aug. 31, 2019 N/A June 15, 2020 July 15, 2020
Sept. 30, 2019 April 30, 2020 N/A July 15, 2020
Oct. 31, 2019 May 31, 2020 N/A July 15, 2020
Nov. 30, 2019 June 30, 2020 N/A July 15, 2020

This deadline extension is automatic, which means that plan sponsors do not have to have to call the IRS, file extension forms, or submit other documents to receive this relief. Additional filing extensions must be requested by using Form 5558 by July 15, 2020.

The guidance does not extend the filing deadline for 2019 Form 5500 filings for plans with a December end date, which are still due on July 31, 2020. Employers with such calendar year plans should be prepared to comply with their reporting requirement – or request an extension – by July 31, 2020.

Note: IRS Rev. Proc. 2018-58 provides that any postponement of the Form 5500 filing due date by the IRS (under §7508A) will also be permitted by the Department of Labor and Pension Benefit Guaranty Corporation for similarly situated plan administrators.

Not our first rodeo

Global pandemic = qualifying event

The Coronavirus (COVID-19) has caused upheaval in many aspects of everyday life, including the effect it has had on employee benefits…particularly pre-tax accounts. The question is, can employers/employees make benefit changes because of COVID-19? It depends on who you ask, but here’s a few things you need to know about TASC and our position.

TASC Participates in the Process. In addition to monitoring the thousands of pieces of legislation and regulations that are drafted every session, our Government Affairs team (which consists of both in-house and contract lobbyists) has spent years on the Hill developing relationships with key government stakeholders. It’s this direct “pipeline” into DC that leaves us confident as to our sight line toward these issues.

TASC is a Pioneer. Had we listened every time the naysayers challenged us, then sole proprietors, farmers and small businesses would have been denied from saving billions in tax dollars through the adoption of health reimbursement arrangements (AgriPlan/BizPlan).

TASC is Pro-Client and Pro-Participant. For more than 40 years, we have been a leader, an innovator, and a partner of employers committed to ensuring the health, wealth and well-being of our customers, employees and community. This philosophy falls in line with the spirit and intent of both the Families First and CARES Acts by providing relief to help employers/employees in the face of economic hardships due to COVID-19.

Generally, TASC will back this qualifying event determination by providing an Audit Guarantee to all enrolled employers and participants. The final decision in all Plan issues remain with the employer; those uncomfortable with this agile mindset are welcome to opt for the more conservative approach.

One thing is clear – TASC doesn’t react, TASC responds!

COVID-19 Paid Leave Tax Credit

The Families First Coronavirus Response Act (FFCRA) provides small and midsize employers – with fewer than 500 employees – refundable tax credits that reimburse them for the cost of providing paid sick and family leave to their employees as the result of COVID-19. Workers may receive up to 80 hours of paid sick leave for their own health needs or to care for others, and up to an additional ten weeks of paid family leave to care for a child whose school or place of care is closed or unavailable.

The Internal Revenue Service (IRS) recently released a series of frequently asked questions (FAQs) focusing on how businesses should calculate and claim the credit – including how to determine the amount of wages which can be reimbursed. Of particular interest is how health coverage (including FSA/HRA/HSA contributions) is reflected in determining the amount of wages subject to this credit. Qualified health plan expenses provided to employees are included in the amount of the credit, but only to the extent that these expenses were excluded from the employee’s gross income as employer-provided coverage under a group health plan.

Q&As 31, 32, 35 and 36 are highlighted below…

Question #31 – Does the amount of qualified health plan expenses include both the portion of the cost paid by the Eligible Employer and the portion of the cost paid by the employee?

Answer: The amount of qualified health plan expenses taken into account in determining the credits generally includes both the portion of the cost paid by the Eligible Employer and the portion of the cost paid by the employee with pre-tax salary reduction contributions. However, the qualified health plan expenses should not include amounts that the employee paid for with after-tax contributions.

Question #32 – For an Eligible Employer that sponsors more than one plan for its employees (i.e. both a group health plan and a health FSA), or more than one plan covering different employees, how are the qualified health plan expenses for each employee determined?

Answer: The qualified health plan expenses are determined separately for each plan.  Then, for each plan, those expenses are allocated to the employees who participate in that plan. In the case of an employee who participates in more than one plan, the allocated expenses of each plan in which the employee participates are aggregated for that employee.

Question #35 – For an Eligible Employer who sponsors a HSA or Archer MSA and a high deductible health plan (HDHP), are contributions to the HSA or Archer MSA included in the qualified health plan expenses?

Answer: The amount of qualified health plan expenses does not include Eligible Employer contributions to HSAs or Archer MSAs. Eligible Employers who sponsor an HDHP should calculate the amount of qualified expenses in the same manner as an insured group health plan, or a self-insured plan, as applicable.

Question #36 – For an Eligible Employer who sponsors a HRA, a health FSA or a qualified small employer health reimbursement arrangement (QSEHRA), are contributions to the HRA, health FSA, or QSEHRA included in the qualified health plan expenses?

Answer: The amount of qualified health plan expenses may include contributions to an HRA (including an individual coverage HRA), or a health FSA, but does not include contributions to a QSEHRA. To allocate contributions to an HRA or a health FSA, Eligible Employers should use the amount of contributions made on behalf of the particular employee.

These FAQs will be updated to address changes in the law or additional questions as they are raised.

COVID-19-Paid Leave Tax Credit FAQs                 https://www.irs.gov/newsroom/covid-19-related-tax-credits-for-required-paid-leave-provided-by-small-and-midsize-businesses-faqs#allocable_qualified_health_plan_expenses

President signs largest rescue package in American history

President Trump signed the $2.2 trillion Coronavirus stimulus package into law on Friday shortly after the House passed the bill via voice vote.

A few of the significant highlights include:

ACCOUNT BASED PLANS

Over-the-Counter Drugs and Menstrual Care Products – Provides that HSAs, FSAs and HRAs will again be able to pay for or reimburse for OTC drugs and medicines. In addition, expenses for menstrual care products will be treated as qualified medical expenses. This provision is effective for amounts paid and for reimbursements of expenses incurred after December 31, 2019.

Telehealth – Provides that payments for “telehealth and other remote care services” below the deductible will be permitted in an HSA-compatible HDHP. This provision is effective immediately and will last until December 31, 2021. Note: The bill does not define “telehealth and other remote care services.”

CHARITABLE CONTRIBUTIONS 

Allowance of partial above the line deduction – this provision encourages Americans to contribute to charitable organizations by permitting them to deduct up to $300 of cash contributions, whether they itemize their deductions or not.

Modification of limitations – this provision increases the limitations on deductions for charitable contributions by individuals who itemize, as well as corporations.  For individuals, the 50% of AGI limitation is suspended for 2020. For corporations, the 10% limitation is increased to 25% of taxable income.  This provision also increases the limitation on deductions for contributions of food inventory from 15% to 25%.

EDUCATION

Student Loans – The Dept. of Education will allow federal student loan borrowers to suspend payments through September 30, 2020 without penalty as the country battles the Coronavirus pandemic. Interest due on loans during the national emergency will not capitalize at any time during the emergency. The Secretary of Education will ensure that consumer reporting agencies treat loans during this period as if the borrowers were making on time, regularly scheduled payments.

Student Loans (Employer Payments) – This provision will exclude up to $5,250 in qualifying student loan repayments paid by the employer on behalf of the employee from income for income tax purposes.

HEALTH CARE

COVID-19 vaccine – Requires individual and group health plans to cover any preventative vaccine and any drugs to treat COVID-19 at zero cost-sharing within 15 days of receiving a rating by United States Preventive Services Task Force (USPSTF) or a recommendation from the Advisory Committee on Immunization Practices (ACIP).

For additional details on this topic, please see our previous post:

What’s in the Senate’s “historic” stimulus? (March 26) https://tasccapitalconnection.com/2020/03/26/whats-in-the-senates-historic-stimulus/

The Governmental Affairs team continues to review the bill text and subsequent agency guidance; TASC will communicate further on this topic in the near future.