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.

What’s in the Senate’s “historic” stimulus?

Upper chamber pushes through one of the largest pieces of legislation in modern history 

Below is a high level summary of the relief package that passed the Senate late last night by a vote of 96-0. The House is expected to take up the $2.2 trillion deal on Friday, and President Trump has indicated he’ll sign it shortly thereafter.

Summary of the Coronavirus Aid, Relief, and Economic Security (CARES) Act

KEEPING WORKERS PAID / EMPLOYED

Would provide $377 billion to help prevent workers from losing their jobs and small businesses from going under due to economic losses caused by the COVID-19 pandemic. The Paycheck Protection Program would provide 8 weeks of cash-flow assistance through 100% federally guaranteed loans to small employers who maintain their payroll during this emergency. If the employer maintains its payroll, then the portion of the loan used for covered payroll costs, interest on mortgage obligations, rent and utilities would be forgiven. This provision is retroactive to February 15, 2020 to help bring workers who may have already been laid off back onto payrolls.

ASSISTANCE FOR WORKERS, FAMILIES, AND BUSINESSES

This relief package includes a dramatic expansion and reform of the unemployment insurance (UI) program. The extended UI program in this agreement increases the maximum unemployment benefit by $600 per week and ensures that laid-off workers, on average, will receive their full pay for four months. It ensures that all workers are protected whether they work for businesses small, medium or large, along with self-employed and workers in the gig economy.

Rebate Checks

  • $1,200 for individual taxpayers; married couples who file a joint return are eligible for up to $2,400.
  • Those amounts increase by $500 for every child.
  • These checks begin phasing out after a single taxpayer has $75,000 in AGI and $150,000 for joint filers. The rebate amount is reduced by $5 for each $100 a taxpayer’s income exceeds the phase-out threshold.  The amount is completely phased-out for single taxpayers with incomes exceeding $99,000 and $198,000 for joint filers.  The IRS will base these amounts on the taxpayer’s 2018 tax return.

Retirement Funds – Consistent with previous disaster-related relief, this provision waives the 10% early withdrawal penalty for distributions up to $100,000 from qualified retirement accounts for coronavirus-related purposes.  In addition, income attributable to such distributions would be subject to tax over three years, and the taxpayer may re-contribute the funds to an eligible retirement plan within three years without regard to that year’s cap on contributions.  Further, the provision provides flexibility for loans from certain retirement plans for coronavirus-related relief.

 Charitable Contributions

  • 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.
  • 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%.

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.

Business Taxes

  • Estimated tax payments (corporations) – this provision allows corporations to postpone estimated tax payments due after the date of enactment until October 15, 2020.  There is no cap on the amount of tax payments postponed.
  • Employer payroll taxes – this provision allows employers and self-employed individuals to defer payment of their share of the Social Security tax they would otherwise be responsible for paying to the federal government with respect to their employees. It requires that the deferred employment tax be paid over the following two years, with half of the amount required to be paid by December 31, 2021 and the other half by December 31, 2022.

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 or a recommendation from the Advisory Committee on Immunization Practices.

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.

ACCOUNT BASED PLANS

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.”

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. Note: Unlike the telehealth provision (above), this does not have an expiration date.

 

IRS releases Q&A to clarify Coronavirus (COVID-19) relief

Today, the Internal Revenue Service (IRS) published a set of questions and answers (Q&A) regarding Notice 2020-18 which provided relief to taxpayers during the Coronavirus (COVID-19) pandemic. The Notice provided that all 2019 federal income tax returns and payments that were due April 15, 2020…are now to be received/paid on or before July 15, 2020.

The Q&A offers important new detail regarding the extensions, some of which are highlighted here:

  • Extensions – Form 4868 (relating to individuals) and Form 7004 (relating to businesses and trusts) can be filed by July 15th to qualify for an automatic extension through October 15, 2020.
  • Employee Contributions – The deadline for employees to make contributions to Individual Retirement Accounts (IRAs), Health Savings Accounts (HSAs) and Archer Medical Savings Accounts (MSAs) for 2019 has been extended as part of the filing deadline extension. The extension also affects the grace period for employers to contribute to workplace-based retirements plans for the 2019 tax year.
  • Estate & Gift Taxes – The normal filing and payment due dates apply for estate and gift tax purposes. Taxpayers seeking extensions must file Form 8892 or Form 4868 to qualify for an automatic extension through October 15, 2020.
  • Exempt Organizations – If a Form 990-T was originally due to be filed on April 15, then it has been postponed to July 15. Note: The due date remains unchanged for taxpayers whose Form 990-T is due on May 15.
  • Excise Taxes – The relief does not apply to the filing of any information returns or payment of any excise tax, because the Notice is limited to federal income tax returns and payments.

Notice 2020-18: https://www.irs.gov/pub/irs-drop/n-20-18.pdf

Q&As: https://www.irs.gov/newsroom/filing-and-payment-deadlines-questions-and-answers

 

COVID-19 relief package clears Senate hurdle

Earlier today, the Senate passed the Families First Coronavirus Response Act (HR 6201) by an overwhelming margin of 90-8. The package, also known as “phase two,” now heads to President Trump’s desk.

It’s important to point out that the legislation has been amended to modify / scale back key aspects of the FMLA and sick leave provisions. The revised bill text now provides as follows:

FMLA

Under the original bill, employers (with fewer than 500 EEs) were to provide up to 12 weeks of FMLA leave to an eligible employee for “a qualifying need related to a public health emergency.”  This “qualifying need” has now been limited to instances where an employee is unable to work – or telework – due to the need to care for a child if the child’s school or place of child care has been closed or the child care provider is unavailable, due to a public health emergency.

The original bill also provided for an initial 14 days of unpaid leave; however, in the amended version this number is reduced to 10 days.  As before, this first segment days of can be unpaid…and an employee can opt to substitute accrued vacation, personal, or sick leave.

The remaining FMLA leave must be paid at two-thirds of the employee’s regular rate, for the number of hours the employee would otherwise be scheduled to work. Notably though, this new iteration limits the amount of required pay for leave to no more than $200 per day and $10,000 total.

Sick Leave

Under the new language, employers (with fewer than 500 EEs) would be required to provide paid sick time to an employee who is unable to work – or telework – because:

  1. the employee is subject to a federal, state, or local quarantine or isolation order related to COVID-19;
  2. the employee has been advised by a health care provider to self-quarantine because of COVID-19;
  3. the employee is experiencing symptoms of COVID-19 and is seeking a medical diagnosis;
  4. the employee is caring for an individual subject to quarantine or isolation;
  5. the employee is caring for a son or daughter whose school or place of care is closed, or child care provider is unavailable, due to COVID-19 precautions; or
  6. the employee is experiencing substantially similar conditions as specified by the Secretary of Health and Human Services, in consultation with the Secretaries of Labor and Treasury.

The amendment limits an employer’s requirement of paid leave to $511 per day ($5,110 total) where leave is taken for reasons 1, 2, and 3 noted above (generally, an employee’s own illness or quarantine); and $200 per day ($2,000 total) where leave is taken for reasons 4, 5, or 6 (care for others or school closures).

Effective Date

The bill would take effect 15 days after enactment, and sunset on December 31, 2020.

Note: Small businesses (fewer than 50 EEs) are exempt if the required leave would jeopardize the viability of their business.

House passes Families First Coronavirus Response Act

Below is a high level summary of the emergency supplemental bill that passed the House late last week by a vote of 363-40. Speaker Pelosi, Leader McCarthy and Treasury Secretary Mnuchin spent the majority of Monday working through some “technical corrections” before sending the bill across the Capitol. Word now is that the Senate could take up the multi-billion dollar package as early as today.

Summary of HR 6201 – Families First Coronavirus Response Act (as passed by the House)

Paid Sick Leave: establishes a program to provide sick and quarantined workers with two weeks of emergency paid leave, including tax incentives to employers to provide additional sick days to their employees, and provides $1 billion in grant funding to help states manage and expand their unemployment insurance programs during the COVID-19 pandemic.

  • Sick Leave:
    • Requires all employers to grant full-time employees seven days of sick pay and an additional 14 days during the event of any public health emergency (including the current COVID-19 crisis). (Part-time employees are entitled to the typical number of hours that they work in a typical two-week period.)
    • Requires employees to be paid at two-thirds of the employee’s regular rate to care for a family member for such purposes or to care for a child whose school has closed, or if child care is unavailable, due to the coronavirus.
  • FMLA:
    • Provides employees of employers with fewer than 500 employees and government employers, who have been on the job for at least 30 days with the right take up to 12 weeks of job-protected leave under FMLA. After the two weeks of paid leave, employees will receive a benefit from their employers that will be no less than two-thirds of the employee’s usual pay.
  • Tax Incentives:
    • Establishes optional tax credits for employers for qualified sick leave wages and family medical leave wages and extends similar tax credits for these lost wages to individuals who are self-employed. The tax credits are available for wages paid during the period that begins within 15 days of enactment and ends Dec. 31, 2020.
    • Allows employers to receive a tax credit for wages they are required to pay under the Emergency Paid Sick Leave Act and the Emergency Family and Medical Leave Expansion Act (as provided for under the bill). The tax credit is optional.
    • Self-employed individuals would also receive a tax credit for sick leave and family medical leave, to be credited against their income tax.
  • Unemployment Insurance:
    • $1.0 billion in 2020 for emergency grants to states for activities related to processing and paying unemployment insurance (UI) benefits

Coverage: requires private health plans to cover diagnostic testing for COVID-19 at no cost to consumers.

  • Insurance Coverage:
    • Requires private health plans, Medicare Advantage Plans, TRICARE, veterans plans, federal workers’ health plans, and the Indian Health Service to cover, at no cost to the patient, the COVID-19 diagnostic test, and a provider, urgent care center, or emergency room visit in order to receive testing.
    • Permits states to extend Medicaid eligibility to their uninsured populations for the purpose of COVID-19 diagnostic testing.
    • State costs for medical and administrative costs would be matched by the federal government under the bill.
    • Appropriates $1 billion for HHS’ Public Health and Social Services Emergency Fund for diagnostic testing to be administered to the uninsured.
  • Federal Medical Assistance Percentages (FMAP):
    • Increases by 6.2% during the COVID-19 emergency the FMAP matching assistance the federal government provides to states during the emergency.
  • Respirators:
    • The measure also requires personal respiratory protective devices to be covered under the PREP Act during the COVID-19 emergency. The emergency declaration for respirators will expire on Oct. 1, 2024. Note: The Public Readiness and Emergency Preparedness (PREP) Act permits HHS to issue a declaration that provides immunity from tort liability for claims of loss caused by countermeasures (i.e. vaccines, drugs and products) against diseases or other threats of public health emergencies.

Food Assistance: appropriates $1.2 billion to the USDA and HHS to provide additional nutrition assistance to affected areas and populations, including low-income seniors and their caregivers, local food banks, pregnant and postpartum women, and students who lose access to school lunch programs as a result of COVID-19-related school closures. It also grants states additional flexibility in providing nutrition aid under Supplemental Nutrition Assistance Program (SNAP) and the Child Nutrition Program.

  • Authorizes the USDA to provide additional nutrition assistance to families with children who are eligible but unable to receive free or reduced-priced meals because their schools are closed for more than five days due to the COVID-19 emergency.
  • Authorizes USDA to provide additional funds to state agencies to make emergency allotments to households participating in SNAP.
  • Appropriates $500 million to the Supplemental Nutrition Program for Women, Infants, and Children (WIC).
  • Appropriates $400 million through FY 2021 to the USDA Commodity Assistance Program for emergency food assistance, which helps USDA purchase and provide foods to elderly and low-income individuals.
  • Provides $250 million to HHS for the Senior Nutrition Program.

Stay tuned; TASC Gov. Affairs will provide additional updates as developments warrant.

President signs spending bill to avoid government shutdown

This week Congress passed a bipartisan appropriations package that will keep the federal government running through the next year. Folded into the sweeping legislation is a full, and permanent, repeal of the Affordable Care Act’s (ACA) Cadillac Tax. The nearly $1.4 trillion, two-part spending deal was signed by President Donald Trump just before the midnight Friday deadline.

Delayed repeatedly by Congress, the Cadillac Tax would have slapped a 40% levy on the value of employer-provided health benefits that exceed $11,200 for individual coverage and $30,100 for family policies. The idea was to reduce soaring health-care costs by discouraging employers from offering such generous plans.

Repeal of the tax – which had been postponed until 2022 – is projected to cost the federal government nearly $200 billion over 10 years, according to the Congressional Budget Office (CBO).

This positive development is welcome news, and caps off years of efforts by a broad range of stakeholders…including TASC, ECFC and the American Benefits Council.

Other policy changes incorporated into the year-end Continuing Resolution:

  1. The ACA’s medical device tax and so-called HIT tax on health insurance premiums were also repealed.
  2. Reauthorized funding for the Patient-Centered Outcomes Research Institute (PCORI) for another 10 years, thus requiring self-insured group health plans and health insurers to continue to pay fees to fund this institute until 2029. Under the ACA, these fees were originally set to sunset as of September 30, 2019.
  3. Relief from a tax reform provision that applied to tax exempt entities. Per the Tax Cuts and Jobs Act of 2017, tax-exempt entities were required to pay an unrelated business income tax (UBIT) on any qualified transportation fringe benefit provided to employees for which employers are not permitted to take a deduction.

DC Debrief

IRS issues HDHP / HSA guidance; House votes to repeal Cadillac tax

The IRS rolled out new rules that could have major implications for people who have chronic diseases, but are also on the hook for thousands of dollars in medical bills. Notice 2019-45 expands the list of preventive care benefits that can be provided by a high deductible health plan (HDHP), on a no-deductible or low-deductible basis, without any adverse effect on HSA eligibility.

In general, “preventive” care does not include treatment for existing illnesses or conditions. Under the current HDHP/HSA rules, treatments of a non-preventive nature that are covered or reimbursed by a health plan without first satisfying HDHP conditions would generally disqualify a covered individual from HSA contribution eligibility.

However, the Administration now acknowledges that the cost barriers for care have resulted in some individuals who are diagnosed with certain chronic conditions failing to seek or utilize effective and necessary care that would prevent exacerbation of the chronic condition. Thus, these regulations are aimed at encouraging individuals to take more responsibility for their health care spending and become better health care consumers.

According to the notice, for services to be covered by an HDHP pre-deductible, they should be “low-cost” and demonstrate a high-impact. In addition, there must be strong evidence that the absence of the service will result in the condition worsening or the development of another serious medical issue. Those services and items, along with the conditions for which they must be prescribed to qualify as preventive care, are listed in an appendix to the guidance. The list includes 14 medical services or items for individuals with 11 specified chronic conditions (such as diabetes and high blood pressure).

While this new guidance is effective immediately, Treasury and HHS will periodically review the list to determine whether additional services or items should be added or removed. This exercise is expected to occur every five to ten years in an effort to promote stability and avoid confusion by participants in, or sponsors or providers of, HDHP arrangements.

Full text:  https://www.irs.gov/pub/irs-drop/n-19-45.pdf

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House Democrats and Republicans joined together in a rare show of unity last week, voting overwhelmingly (419-6) to repeal the ACA’s “Cadillac” tax on high cost health plans.

Delayed repeatedly by Congress, the tax would slap a 40% levy on the value of employer-provided health benefits that exceed $11,200 for individual coverage and $30,100 for family policies beginning in 2022. The idea was to reduce soaring health-care costs by discouraging employers from offering such generous plans.

Insurers and employers (like TASC) oppose the tax because they’d be the ones most exposed to its bite…shifting more costs to policyholders/employees as a result. About 160 million Americans are covered by workplace plans, still the largest source of coverage.

The House vote was aided by a new expedited procedure designed to force votes on measures that have wide bipartisan support (i.e. two-thirds majority). The 350+ cosponsors of HR 748 – titled the Middle Class Health Benefits Tax Repeal Act – not only include conservative Republicans, but members of the progressive wing of the Democratic Party as well…many of whom have championed replacing the current employer-based system with a “Medicare for All’ structure.

It’s unclear whether the Senate will tackle repeal, although a companion bill sponsored by Sen. Mike Rounds (R-SD) has collected 42 cosponsors.

White House seeks changes to HSA and FSA rules

In an Executive Order issued just before the Fourth of July holiday, President Trump directed several agencies to address a number of health care related matters through the rule making process (i.e. forthcoming regulations). Section #6 of the Executive Order is of particular interest to TASC since it takes aim at HSAs, health FSAs and medical expenses in general.

Health Savings Accounts

Within 120 days of the Executive Order, Treasury is directed “to expand the ability of patients to select high-deductible health plans that can be used alongside a HSA, and that cover low-cost preventive care (before the deductible) for medical care that helps maintain health status for individuals with chronic conditions.”

Health Flexible Spending Accounts

Within 180 days of the Executive Order, Treasury is directed “to increase the amount of funds that can carryover (currently $500) without penalty at the end of the year.”

Eligible Medical Expenses

Within 180 days of the Executive Order, Treasury is directed to propose rules to expand the definition of Section 213(d) ”to treat expenses related to certain types of arrangements, including direct primary care arrangements and healthcare sharing ministries, as eligible medical expenses.”

It’s important to note that the guidance issued must be permitted under current law, so Treasury may not have the authority to issue provisions as broad as is contemplated by the Executive Order.

Stay tuned!

Trump Administration Expands Use of HRAs to Individual Coverage

Today’s long awaited – and much anticipated – guidance is in response to the President’s October 2017 Executive Order meant to provide Americans (especially employees of small businesses) with more options for financing their healthcare needs.

If finalized, the proposed rule is to be effective for plan years beginning on/after January 1, 2020.

Developing story; more to follow.

Tax Reform puts the brakes on Section 132

 Tax Cuts & Jobs Act makes changes to transportation fringe benefits

Recently, additional clarification was released via IRS Publication 15-B that confirms the following:

  • Effective January 1, 2018, an employer may no longer take a tax deduction for the transit or parking benefit. This is regardless of whether the benefit is provided by the employer, through a reimbursement arrangement, or through a compensation reduction agreement.
  • Participants are not affected and may continue to make pre-tax contributions to the transit or parking benefit.
  • If an employer’s administration fees are itemized, the employer may not deduct the fees strictly for the transportation benefit; however, administration fees that are “all inclusive” (i.e. included with other benefits) may continue to be deducted. Please review your invoice for administration services.

Two other related provisions of note…

  • The qualified bicycle commuter benefit has been suspended as of January 1, 2018 (and continues until 2026). As such, bicycle benefit expenses are not excludable from a Participant’s income and are to be taxed as wages during this period. Unlike the expenses for transit and parking, the bicycle expenses may continue to be deducted by the employer.
  • Tax-exempt entities may have to pay an unrelated business income tax (UBIT) on any qualified transportation fringe benefit provided to employees for which employers are no longer permitted to take a deduction (i.e. parking and transit). As a result, those affected employers may simply decide to provide the benefit in the form of taxable wages going forward.

Since Participant’s may continue to receive the tax-free benefit, TASC’s administration of existing transit/parking plans does not change. Employers are urged to work with their tax professional(s) to review any potential reporting obligations.