ALERT: IRS delays some ACA reporting

Following consultation with stakeholders, the agency has determined that a substantial number of employers, insurers, and other coverage providers may need additional time to prepare 2016 Forms 1095-B and 1095-C. As a result, the deadline for furnishing this information (to individuals) has been extended from January 31, 2017, to March 2, 2017.

Because some individuals may not receive a Form 1095-B or Form 1095-C by the time they are ready to file their 2016 tax return, taxpayers may rely on other information received from their employer or coverage provider for the purposes of determining eligibility for premium tax credits and confirming that they had minimum essential coverage. Taxpayers do not need to wait to receive Forms 1095-B and 1095-C before filing their returns.

Note: This guidance does not extend the timeframe for submitting 2016 Forms 1094-B, 1095-B, 1094-C, or 1095-C to the IRS…those dates remain the same (February 28, 2017 or March 31, 2017, if filing electronically.)

Notice 2016-70: https://www.irs.gov/pub/irs-drop/n-16-70.pdf

Form 5500 Regs. released

Agency also publishes changes to annual reporting under ERISA

Last week, the Department of Labor (DOL) issued a proposal to modernize and improve the Form 5500 Annual Return / Report filed by private-sector employee benefit plans in order to keep pace with market developments and changes to the legal requirements governing employee benefit plans.

Under Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code, pension and other employee benefit plans are generally required to file annual documentation concerning, among other things, the financial condition and operations of the plan…and the 5500 is the primary source of that information. In addition to serving as an essential compliance and research tool for federal agencies, Congress and the private sector also rely on the 5500 as an important source of information for assessing employee benefits, taxes, economic trends and policies.

Most notably, the revisions appear to require reporting by ALL group health plans covered by Title I of ERISA. This includes eliminating the current exemption from Form 5500 reporting for small insured and self-insured welfare benefit plans.

Implementation of the new forms could begin as early as the 2019 Plan Year.

The Governmental Affairs team continues to review the language of this latest guidance in order to determine if any additional changes have been made, and whether or not TASC will submit public comments by the Oct. 4 deadline. We will communicate further on this topic in the future.

Stand-alone HRAs making a comeback?

Pending bill responds to agency action

Since its introduction, TASC has been actively monitoring a piece of legislation known as the Small Business Healthcare Relief Act with great interest. Last week the House of Representatives passed H.R. 5447 on a voice vote.

Sponsored by Rep. Boustany (R-LA) and Rep. Thompson (D-CA), this measure would greatly improve small business access to competitive health benefits by restoring the use of stand-alone HRAs that could be used to reimburse employees for qualified medical expenses and/or individual health insurance premiums. It is specifically aimed at those entities not subject to the ACA’s Employer Mandate (i.e. those with fewer than 50 full-time employees) and who do not offer a group health plan to their employees. To qualify, the maximum benefit provided under the plan would be capped at $5,130…or $10,260 if the HRA includes reimbursements for family members.* Employees covered under these arrangements would be prohibited from receiving a subsidies for health insurance purchased under the public marketplaces.**

For eligible employers, this bill would overturn guidance issued by the Internal Revenue Service and the Department of Labor that stated that these arrangements violated the ACA’s insurance market reforms.*** As a result of that previous interpretation, employers who continue to offer stand-alone HRAs today face the potential of a $100 per day, per employee penalty ($36,500 per year).

While it’s a good sign that this bi-partisan legislation passed the House with very little opposition, our work is not done. The measure now goes to the Senate where a companion bill – S. 3060 – has been introduced by Sen. Grassley (R-IA) and Sen. Heitkamp (D-ND).   Although similar legislation has received opposition in the past from members of the Democratic leadership in that body, we’re hopeful that it will be taken up this fall/winter as part of the year-end agenda.

This a common-sense solution ensuring that small businesses aren’t penalized for trying to do the right thing. HRAs are an affordable solution for both employees and employers to combat the escalating cost of health insurance. Since many small employers do not have human resource departments or benefits specialists, this change would provide them with the necessary flexibility to help their employees pay for health care.

TASC remains a strong supporter of both H.R. 5447 & S. 3060, and we will continue to advocate for their passage throughout the remainder of this Congressional session by engaging with Senators and their staff.

* Indexed for inflation

** H.R. 5447 also establishes a number of notice/reporting requirements and requires that employers report contributions on their employees’ W-2 forms.

*** Notice 2013-54 (dated Sept. 13, 2013)

2017 HSA Limits

Revenue Procedure 2016-28 essentially status-quo

Yesterday, the IRS provided the inflation adjusted deduction limitations for annual contributions made to a HSA under Section 223 of the Internal Revenue Code. These amounts are updated annually to reflect cost-of-living adjustments.  

Contribution Limits                                                                                                         Self-only coverage = $3,400 (an increase of $50)                                                    Family coverage = $6,750*

High Deductible Health Plan (HDHP)                                                                                A HDHP is defined as a health plan with an annual deductible not less than $1,300 for self-only coverage or $2,600 for family coverage, while annual out-of-pocket expenses may not exceed $6,550 (self-only) or $13,100 (family).*

*Unless noted, the amounts are unchanged and reflect current 2016 levels.

 

Tax Change is Good News for VEBAs

New law overturns 2006 IRS ruling; improves VEBA Death Benefits

Last month, President Obama signed legislation that will fund the federal government – through September 2016 – and extend certain expiring tax provisions. The Protecting Americans from Tax Hikes (PATH) Act, which was enacted effective December 18, 2015, includes an amendment to Section 105(j) of the Internal Revenue Code that prevents the forfeiture of death benefits by allowing the taxable reimbursement of medical expenses for designated beneficiaries such as adult children, siblings, parents and others.

Section 105(j) allows for certain funded HRAs, sponsored by a State retirement system, to provide reimbursements to designated beneficiaries (other than the Participant’s spouse and tax dependents) without jeopardizing the tax advantages of the Plan. The PATH Act expands the types of Plans to which Section 105(j) applies to include HRAs sponsored by any State or political subdivision that is funded through a Section 115 trust* or a Voluntary Employee Beneficiary Association (VEBA) trust.

As amended, Section 105(j) provides that benefits provided to Participants and tax dependents will not be included in income “solely because such plan, on or before January 1, 2008, provides for reimbursements of health care expenses of a deceased employee’s beneficiary.” Accordingly, only those Clients who had adopted a funded HRA and provided reimbursements to designated beneficiaries on or prior to January 1, 2008, would be able to take advantage of the special designated beneficiary rule.**

Note: This change does not authorize cash distributions to designated beneficiaries or the participant’s estate; the law authorizes only “reimbursements of health care expenses of a deceased employee’s beneficiary.

Rick Allen, TASC’s Executive Vice President of Public Sector & Strategic Markets, was heavily involved throughout the process, spending years advocating for this change. “Although a small part of the overall (2,000 page) bill, this fix is a huge victory for VEBA Plan Participants,” said Rick, who has more than 25 years of employee benefits advisory and consulting experience working with public and private sector employers across the United States.

For those groups that wish to take advantage of the amendment to Section 105, TASC will follow up in the near future with a more detailed communication (including next steps – if any).

 

*An HRA that is funded through a Section 115 would not be able to take advantage of this special rule unless the employer has obtained a private letter ruling from the IRS that the trust’s income is not includable in gross income under Section 115.

**The impact of the reference to January 1, 2008, is not entirely clear; those employers opting for the more aggressive interpretation of the statute, are encouraged to consult legal/tax counsel in order to determine whether the new rule applies to their Plan.

IRS Extends ACA Reporting Deadlines

As a third-party vendor for Affordable Care Act (ACA) Employer Reporting, TASC stays on top of developments that may affect our Clients. On December 28, 2015, the Internal Revenue Service (IRS) released a Notice that may affect compliance with the ACA Employer Reporting requirements. Please review the following information to determine the best way to proceed.

IRS Notice 2016-4 extends the due dates for furnishing and filing the new ACA reporting forms for the 2015 calendar year. The new extended deadlines are as follows:

  • For the distribution of Forms 1095-B and 1095-C to individuals, the deadline is now March 31, 2016 (previously February 1).
  • For the filing of Forms 1094-B / 1095-B and 1094-C / 1095-C with the IRS, the deadline is now May 31, 2016 (previously February 29)…and June 30, 2016 if filed electronically. (previously March 31).

IRS Transitional Relief                                                                                                     For 2015 only, individuals who rely upon this information from their coverage providers or employers – but do not receive their Form 1095-B or Form 1095-C prior to filing their income tax returns – need not amend their returns once they finally obtain the appropriate documentation. Individuals also need not send this information to the IRS, but should keep it with their tax records.

What Does This Mean?                                                                                             TASC recommends that Clients furnish the necessary data to complete the Employee Statements as soon as possible. Despite the due date extension, Clients are encouraged to provide the applicable Forms to individuals on or before the original due dates. Completing these items now will allow employees who rely on the Employee Statements to complete their tax returns on time…and with confidence.

Therefore, in order for TASC to file by the initial deadlines, Clients have until January 11, 2016 to submit the required data. Note: If the original deadline is missed, TASC will furnish Clients with instructions on how to file taxes (without Form 1095) that can be supplied to employees.

Thank you for trusting TASC for your compliance needs!

Planes, Trains & Automobiles

After a series of temporary extensions, transit and parking benefits finally have a permanent fix

In a flurry of year-end activity, Congress adopted a massive tax and spending package that contains a litany of employee benefit provisions…including one which will help employers lower travel costs for their employees who commute to work. Signed into law by the President on December 18th, the Consolidated Appropriations Act of 2016 (Public Law 114-113) provides a permanent extension of eligible transit and parking benefits, retroactive to the beginning of 2015.

The Act increases the maximum monthly exclusion amount for transit benefits provided under a qualified transportation plan, making it equal to the limit for qualified parking benefits.* As a result of this equivalence – often referred to as “transit parity” – the transit limit for 2015 will jump to $250; and to $255 for 2016, pursuant to cost-of-living adjustments.**

In order to accommodate this legislative change, TASC will be implementing the following plan:

2015                                                                                                                           There will not be a change to MyTASC pertaining to the 2015 limit. The Participant would have needed to already elect an amount in excess of $130/month in order for any retroactive amounts to apply.

However, if a Participant did elect an amount greater than $130, then the excess transit benefits already taken can be re-characterized as pretax deductions up to the new amount of $250 (for 2015). Note: This is the employer’s responsibility.

2016                                                                                                                            TASC is currently working on updating the 2016 limits from $130/month to $255/month. Once completed, we will also automatically update the Client’s elected maximum; this amount will be increased by $125 for each month of the plan in 2016 (see examples below). Note: If a Client does not want their elected maximum to change, they will need to log into their account and update Plan Management or contact TASC to update the Plan.

  • Example 1 – Plan Start Date 10-01-2015 / End Date 09-30-2016

The system will increase the elected transit amount by $125.00 for each Plan month in 2016 (9 months X $125.00 = $1,125.00).  If the Plan’s original elected transit amount is $1,560.00, the system will update the elected transit amount to $2,685.00.

  • Example 2 – Plan Start Date 01-01-2016 / End Date 12-31-2016

The system will increase the elected transit amount by $125.00 for each plan month in 2016 (12 months X $125.00 = $1,500.00). If the plan’s original elected transit amount is $1,560.00, the system will update the elected transit amount to $3,060.00.

Once the Plan is updated, the Client may increase Participant elections, as applicable. Participants that would like to increase their transit election amount for 1/1/16 will need to request a change through their employer. Change requests must be completed and updated in MyTASC by 1/31/16 to be effective as of 1/1/16.

This is good news for employees typically in urban and suburban areas around the country who wish to utilize public transit. In fact, many cities now require employers to offer both transit and parking benefits to their employees on a pre-tax basis.

Happy New Year!

 

*Effective January 1st, parking will increase from $250/month to $255/month; TASC has already added the new limit to MyTASC and automatically increased the Client’s elected maximum amount.

**These amounts reflect increases of $120 and $125 respectively. Until enactment, the exclusion for transit benefits has been limited to $130 monthly.

New Card Requirement for Transit Benefits

Parking benefits not affected

The purpose of this communication is to inform you of recent guidance (Revenue Ruling 2014-32)* that will impact current Transit Benefit Plans.

Effective January 1, 2016, the Internal Revenue Service (IRS) will no longer allow manual cash reimbursements for pre-tax transit benefits. Instead, those employers who offer transit benefits will be required to provide a debit card to their employees.

This means that Clients who participate in a FlexSystem Transit Benefit Plan are strongly discouraged from submitting manual claims for reimbursements after December 31, 2015. However, they will be able to use the TASC Card to purchase transit passes from a qualified merchant.

TASC Card purchases for transportation expenses will be automatically approved when made at designated vendors for eligible transit expenses. This will ensure that the pre-tax funds placed in an employee’s account will only be used for eligible expenses, further enhancing the compliance of the Plan.

Please take a moment to review the important information below detailing TASC’s response to this new regulation.

Current Plan Status

Action

FlexSystem Plan without the TASC Card

TASC will issue TASC Cards for participating employees.

FlexSystem Plan with the TASC Card  (not activated for Transit)

TASC has revised the Plan Settings to activate the Transit Plan on the TASC Card for all current cardholders.

FlexSystem Plan with the TASC Card (activated for Transit)

No action required; the Plan is already in compliance with the new regulation.

Your cooperation is greatly appreciated!

*This new guidance provides that cash reimbursements may be offered by an employer for transit benefits only if a voucher – or a similar item that may be exchanged for a transit pass – is not readily available. In the past, the IRS permitted cash reimbursement arrangements where a debit card product was available to pay for the transit fare. However, after December 31, 2015, employers are no longer permitted to provide qualified Transportation Benefits in the form of cash where vouchers or terminal-restricted debit cards are readily available.

 

IRS Guidance: Notice 2015-87

Late yesterday, the IRS provided further guidance on the application of the market reforms that apply to group health plans (under the ACA) to various types of employer health care arrangements. Among other things, the notice covers (1) HRAs – including HRAs integrated with a group health plan, and similar employer-funded health care arrangements – and (2) group health plans under which an employer reimburses an employee for some or all of the premium expenses incurred for an individual health insurance policy, or an arrangement under which the employer uses its funds to directly pay the premium for an individual health insurance policy covering the employee.  This notice supplements the guidance provided in Notice 2013-54; FAQs Part XXII; Notice 2015-17; and the final regulations published on November 18, 2015.

TASC Governmental Affairs is currently in the process of reviewing this latest release in order to assess the effect–if any–on our NESP/NEFSA Plan. We will communicate further on this topic in the near future.

ALERT – Cadillac Tax & Transit Parity

Early this morning, Congressional negotiators reached an agreement on legislation to fund the federal government through September 2016 and to extend certain expiring tax breaks. The package deal contains at least two provisions that will have a positive impact on TASC’s Clients/Participants…first and foremost the ACA’s Cadillac Tax* has been delayed for two years (from 2018 to 2020), and secondly, parity has been permanently restored between qualified parking and transit benefits, meaning that the monthly limitations will now reflect equal dollar amounts.

The deal – which has bipartisan support – is expected to pass both the House and the Senate prior to December 22, when Congress will adjourn for the year.

We are continuing to review the language to see if any additional changes have been made to other TASC interests, but wanted to make you aware of these important items as soon as possible.

* The legislation also makes the excise tax deductible by businesses and calls for a study to determine suitable benchmarks for the age and gender adjustment that could result in an increase in the base thresholds.