IRS guidance has been issued that changes the timing of the $2,500 Health Care Flexible Spending Account reduced maximum for off-calendar year plans. The decreased limit of $2,500 is effective for plan years beginning on or after January 1, 2013. Also, the IRS has requested comments on possible modification options to the use-or-lose rules for health flexible spending accounts. Watch for a TRI-AD news alert with details in the coming weeks.
The Patient Protection and Affordable Care Act of 2010 (PPACA) requires employers to report the cost of health care coverage on W-2 forms. The health care coverage is not taxable to the employees, but is reportable to provide health care coverage cost information to the employees and the government. This was originally to be effective beginning in 2011 but was extended until 2012 because the IRS could not provide guidance to employers soon enough.
The IRS has issued Notice 2012-9 providing W-2 reporting requirements for 2012 W-2 forms which amends and restates the IRS original guidance, Notice 2011-28.
The IRS is providing reporting transition relief for: 1) employers who will file less than 250 W-2 forms in the prior calendar year, 2) stand alone dental/vision plans, 3) health reimbursement arrangements, 4) multiemployer plans, 5) self-insured plans that are not subject to COBRA (i.e. church plans), 6) relief with respect to certain forms W-2 furnished to terminated employees before the end of the year, and 7) certain employers with respect to coverage under an employee assistance program, on-site medical clinic or wellness program. This relief continues until further guidance is published.
Below is a chart that outlines the provisions of Notice 2012-9.
For additional information:
IRS Notice 2012-9 at: https://www.irs.gov/pub/irs-drop/n-12-09.pdf
IRS Questions & Answers at: https://www.irs.gov/newsroom/article/0,,id=237894,00.html
The Internal Revenue Service has released 2013 limits for Health Savings Accounts (HSAs). Below is a chart comparing the 2012 limits to the recently-released limits for 2013.
The health care reform law added a comparative effectiveness research fee that will have to be paid to the government by either insurers or plan sponsors. The research fee will generally be paid between 2012 and 2019 and will be used by the government to fund research for evaluating and comparing health outcomes and the clinical effectiveness, risks, and benefits of medical treatments, services, etc. After 2019, the fee will no longer apply unless the law is extended. Below is information from the recently published IRS proposed guidance on the fees.
What coverage is subject to the fee? The fee will apply to group health plans, fully insured and self insured. Benefits that are excepted benefits under HIPAA are not subject to the fee. Fully-insured, stand-alone dental/vision plans are exempt. Self-insured dental/vision plans are exempt if employees can elect and pay a separate premium for coverage. Health Reimbursement Arrangements (HRA's), including retiree-only HRA's, will have to pay the fee. Health Care Flexible Spending Accounts (HCFSA) do not have to pay the fee if they are excepted benefits under HIPAA.
Who is responsible to pay the fee? For fully-insured health plans, the issuers of the policies will be responsible to pay the fee. For self-insured health plans, plan sponsors (employers, unions or boards of trustees) are responsible to pay the fee.
How much is the fee? The fee is $1 multiplied by the number of average lives covered under the plan under the particular policy year. For the second year, the fee is supposed to increase to $2 and thereafter, the fee may change and will be determined by information published by HHS.
How is the average lives determined? Plan sponsors will need to determine the fee for self-insured plans. There are three methods to calculate this average for self-insured plans – actual count, snapshot, 5500 form method. For the first year, there are some counting transition rules. A brief description of the three methods is below:
How does the responsible party pay the fee? The insurer or the plan sponsor will have to file IRS Form 720 to report the annual fee. Generally, the fee is due by 7/31 of the calendar year immediately following the last day of the policy year/plan year. For calendar year plan years, the first Form 720 with fee payment is due July 31, 2013.
TRI-AD will continue to monitor this legislation and contact our clients regarding compliance.
Dependent Care Tax Credit Beginning with tax year 2013, the Dependent Care Tax Credit will be reduced to $2,400 for one qualifying individual, and $4,800 for two or more qualifying individuals. The current maximums are $3,000 for one qualifying individual, and $6,000 for two or more qualifying individuals. The tax credit was a provision that was increased by the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) in 2001. EGTRRA provisions were all slated to sunset on December 31, 2010. Most, but not all, were extended. This particular credit amount was extended through December 31, 2012. We are anticipating that a proposal will be introduced in Congress to keep the limits at the current levels.
If the EGTRRA limits are not extended, participants who routinely file for the Dependent Care Tax Credit should be made aware of this change this year, as it may impact their decision regarding participating in the Dependent Care FSA for 2013. If the tax credit reduction goes into effect, participating in the Dependent Care FSA will become more appealing, as the limits will be higher in the FSA.
Pre-Tax Education Assistance Another item expiring in 2013 due to the EGTRRA sunset provisions is pre-tax benefits for employees for education assistance. If the existing tax-preferred status of employer-sponsored tuition assistance is not extended, employees will no longer be able to exclude from their taxable income any tuition assistance money provided by their employer. We anticipate a proposal will be introduced in Congress to keep these benefits tax-free.
Reduction of Deemed Dependent Income Limits Beginning with tax year 2012, the deemed earned income related to a spouse who is attending school full time, actively looking for work, or incapable of self-care will be reduced to $200 per month for one qualifying individual, and $400 for two or more qualifying individuals. Currently, the deemed earned income is $250 per month for one qualifying individual, and $500 for two or more qualifying individuals. This reduction will further limit the maximum election into the Dependent Care Account if the participant's spouse is not working but they qualify to use the Dependent Care FSA because they meet the special criteria (student, seeking work, or incapable of self-care).
Not Legal or Tax Advice: Nothing in this newsletter should be construed as tax or legal advice. TRI-AD may not be considered your legal counsel or tax advisor. If you have questions about how anything discussed in this newsletter pertains to your personal or your organization's situation, we encourage you to discuss the issue with your attorney and/or tax advisor. TRI-AD's communications are not privileged under attorney-client privilege.
Please feel free to forward this newsletter to your colleagues! We welcome your comments, suggestions or questions about TRI-AD Newsletters.
W-2 Reporting of Health Care Coverage Costs
2013 Limits Released for Health Savings Accounts
Proposed Guidance Provided – Comparative Effectiveness Research Fee
Legislative Issues TRI-AD is Monitoring
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