All posts tagged irs

Question: If an employee has a small health flexible spending account (FSA) balance with a carryover to the next year, and the employee chooses not to participate in the new FSA year, can the employer force the employee to use those funds so as not to incur additional administrative fees in the next plan year?

Answer: An employer can prevent “perpetual carryovers” by carefully drafting the cafeteria plan document with respect to carryover amounts. IRS guidance allows carryovers to be limited to individuals who have elected to participate in the health FSA in the next plan year. Health FSAs may also require that carryover amounts be forfeited if not used within a specified period of time, such as one year. Note that this plan design requires additional administration (to track the time limit for each carryover dollar, for instance) as well as ordering rules (e.g., will carryovers be used first?), so you will need to carefully review the cafeteria plan document. Under no circumstances are amounts returned to participants.

According to IRS guidance, a health FSA may limit the availability of the carryover of unused amounts (subject to the $500 limit) to individuals who have elected to participate in the health FSA in the next year, even if the ability to participate in that next year requires a minimum salary reduction election to the health FSA for that next year. For example, an employer sponsors a cafeteria plan offering a health FSA that permits up to $500 of unused health FSA amounts to be carried over to the next year in compliance with Notice 2013-71, but only if the employee participates in the health FSA during that next year. To participate in the health FSA, an employee must contribute a minimum of $60 ($5 per calendar month). As of December 31, 2016, Employee A and Employee B each have $25 remaining in their health FSA. Employee A elects to participate in the health FSA for 2017, making a $600 salary reduction election. Employee B elects not to participate in the health FSA for 2017. Employee A has $25 carried over to the health FSA for 2017, resulting in $625 available in the health FSA. Employee B forfeits the $25 as of December 31, 2016 and has no funds available in the health FSA thereafter. This arrangement is a permissible health FSA carryover feature under Notice 2013171. The IRS also clarifies that a health FSA may limit the ability to carry over unused amounts to a maximum period (subject to the $500 limit). For example, a health FSA can limit the ability to carry over unused amounts to one year. Thus, if an individual carried over $30 and did not elect any additional amounts for the next year, the health FSA may require forfeiture of any amount remaining at the end of that next year.

Originally published by www.thinkhr.com

0624UBAApplicable large employers and self-funded employers of all sizes have now completed the first round of required IRS reporting under the Patient Protection and Affordable Care Act (ACA). The ACA requires individuals to have health insurance, while applicable large employers (ALEs) are required to offer health benefits to their full-time employees. In order for the IRS to verify that (1) individuals have the required minimum essential coverage, (2) individuals who request premium tax credits are entitled to them, and (3) ALEs are meeting their shared responsibility (play or pay) obligations, employers with 50 or more full-time or full-time equivalent employees and insurers were required to report on the health coverage they offered. Similarly, insurers and employers with less than 50 full time employees but that have a self- funded plan also have reporting obligations. All of this reporting is done on IRS Forms 1094-B, 1095-B, 1094-C and 1095-C.

Now that the first set of forms has been completed, many employers are wondering what the next steps are. Employers that did not fulfill all of their obligations under the employer shared responsibility provision (play or pay) might owe a penalty to the IRS. A penalty will be owed in regard to the 2015 plan year if:

  • The employer does not offer health coverage or offers coverage to fewer than 70 percent of its full-time employees and the dependents of those employees, and at least one of the full-time employees receives a premium tax credit to help pay for coverage on a Marketplace; or
  • The employer offers health coverage to all or at least 70 percent of its full-time employees, but at least one full-time employee receives a premium tax credit to help pay for coverage on a Marketplace, which may occur because the employer did not offer coverage to that employee or because the coverage the employer offered that employee was either unaffordable to the employee or did not provide minimum value.

As of March 2016, the only information from the IRS on the payment of these penalties is as follows:

The IRS will adopt procedures that ensure employers receive certification that one or more employees have received a premium tax credit. The IRS will contact employers to inform them of their potential liability and provide them an opportunity to respond before any liability is assessed or notice and demand for payment is made. The contact for a given calendar year will not occur until after the due date for employees to file individual tax returns for that year claiming premium tax credits and after the due date for applicable large employers to file the information returns identifying their full-time employees and describing the coverage that was offered (if any).

If it is determined that an employer is liable for an Employer Shared Responsibility payment after the employer has responded to the initial IRS contact, the IRS will send a notice and demand for payment. That notice will instruct the employer on how to make the payment. Employers will not be required to include the Employer Shared Responsibility payment on any tax return that they file.

 Employers will be notified if an employee who either was not offered coverage, or who was not offered affordable, minimum value, or minimum essential coverage, goes to the Exchange and gets a subsidy or “advance premium tax credit.” To understand this “Employer Notice Program” the appeals process, and how affordability must be documented, request UBA’s newest ACA Advisor, “IRS reporting Now What?”

Originally published by United Benefit Advisors – Read More

Employers Ask: What Prevents Me from Reimbursing Individual Health Insurance Policies? | Ohio Employee Benefits

Categories: ACA, General News, Health Care Reform, Health Insurance, HRA, IRS, Team K Blog
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0511In serving 36,000 employers and 5 million employees, our UBA Partners get this question frequently: What federal guidance prohibits employers from reimbursing individual health insurance policies?

Answer: The IRS has issued extensive guidance prohibiting employers from reimbursing health insurance policies on an individual basis. It issued two notices in 2015 that addressed this issue.

In February 2015, the IRS provided greater detail on the issue when it issued Notice 2015-17, which addresses employer payment or reimbursement of individual premiums in light of the requirements of the Affordable Care Act (ACA). For many years, employers were permitted to reimburse premiums paid for individual coverage on a tax-favored basis, and many smaller employers adopted this type of an arrangement instead of sponsoring a group health plan. However, these “employer payment plans” frequently are unable to meet all of the ACA requirements that took effect in 2014, and in a series of Notices and frequently asked questions (FAQs) the IRS has made it clear that an employer may not either directly pay premiums for individual policies or reimburse employees for individual premiums on either an after-tax or pre-tax basis. This is the case whether payment or reimbursement is done through a health reimbursement arrangement (HRA), a Section 125 plan, a Section 105 plan, or another mechanism.

The notice reiterates this position. It also clearly states that an employer may increase an employee’s taxable wages to help cover the cost of health coverage if it chooses not to offer coverage, but the employer may not require an employee to purchase health insurance or certify that he or she has coverage in order to receive the bonus or other wage increase. If the bonus or increase is specifically designated as a premium reimbursement or if it must be used for premiums, this would be an impermissible employer payment plan.

Under these rules, if the employer reimburses or directly pays premiums for individual coverage, on either a pre-tax or after-tax basis, it has created a noncompliant group health plan and the $100 per day per employee penalty would apply. Reimbursement and payment of group health premiums is still allowed.

Most recently, in December 2015, in Notice 2015-87, the IRS restated that employer arrangements that reimburse the cost of individual market coverage under a cafeteria plan will not be integrated with the individual market coverage and that these arrangements will be unable to comply with the ACA’s annual dollar limit prohibitions or the preventive service requirements and will fail to satisfy market reforms. Practically speaking, these arrangements are prohibited regardless of how they are structured.

In addition to penalties for non-compliance with employer shared responsibility rules, the ACA has introduced a multitude of new fees that employers must pay. These dollar amounts change annually, as does the percentage amount used to calculate affordability in relation to the ACA. Download UBA’s “Reference Chart on ACA Fees and Penalties” for information on the applicable 2015 and 2016 percentages and dollar amounts to help employers understand the indexed penalty and updated fee amounts.

Originally published by United Benefit Advisors – Read More

Taxation of Identity Protection Services | Ohio Employee Benefits

Categories: Health Insurance, IRS, Taxes, Team K Blog
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uba0426According to the IRS, identity theft has been the number one consumer complaint to the Federal Trade Commission for 15 consecutive years. The Bureau of Justice Statistics estimates that 17.6 million people were victims of identity theft in 2014. Organizations at every level are trying to protect employee and customer personal information from computer hacking that can disclose sensitive information to identity thieves. As a protective measure, some businesses are providing identity theft protection services in the hopes of preventing and mitigating damage from a data breach. Some insurance carriers are now also offering identity protection services to their customers at no additional cost. Questions were posed to the IRS concerning the taxability of identity protection services provided at no cost to customers, employees, or other individuals whose personal information may have been compromised in a data breach.

The taxation of this identity protection benefit/service was considered by the IRS in 2015 and again in early 2016. Originally, the IRS determined that an individual whose personal information may have been compromised in a data breach does not have to include the value of such an identity protection service in his or her gross income. Similarly, the IRS had ruled that an employer providing such data protection services to employees whose personal information may have been compromised in a data breach of the employer’s recordkeeping system (or employer’s agent or service provider) does not have to include the value of such service in the employee’s gross income or wages. The value does not have to be reported on an individual’s W-2. (See IRS Announcement 2015-22.)

But what about identity theft protection services that are offered as a precautionary measure before a breach occurs? Blue Cross Blue Shield, for example, is now offering identity protection services to all eligible BCBS members on an opt-in basis as of January 1, 2016. The offering includes credit monitoring, fraud detection and fraud resolution support. After the IRS elicited comments on Announcement 2015-22, it decided to extend the same tax treatment to identity protection services provided to employees or other individuals before a breach occurs, similar to that offered by Blue Cross Blue Shield. (See Announcement 2016-02.) The reasoning behind this ruling is that providing identity protection services to employees and others before a data breach occurs will foster earlier detection of a data breach and may minimize the impact of a breach on operations.

While this tax treatment does not apply to cash received in lieu of the identity protection service or proceeds received under an identity theft insurance policy, it is a benefit that is worthwhile to flag for your clients at a time when identity theft continues be a growing problem in the United States.

Originally published by United Benefit Advisors – Read More

IRS Reporting Tip: Check the Right Boxes on Your Cover Sheet | Ohio Employee Benefits

Categories: Compliance News, General News, IRS, Taxes, Team K Blog
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0406UBAUnder the Patient Protection and Affordable Care Act (ACA), individuals are required to have health insurance while applicable large employers (ALEs) are required to offer health benefits to their full-time employees.

In order for the Internal Revenue Service (IRS) to verify that (1) individuals have the required minimum essential coverage, (2) individuals who request premium tax credits are entitled to them, and (3) ALEs are meeting their shared responsibility (play or pay) obligations, employers with 50 or more full-time or full-time equivalent employees and insurers will be required to report on the health coverage they offer. Similarly, insurers and employers with less than 50 full time employees but that have a self-funded plan also have reporting obligations. All of this reporting is done on IRS Forms 1094-B, 1095-B, 1094-C and 1095-C.

Final instructions for both the 1094-B and 1095-B and the 1094-C and 1095-C were released in September 2015, as were the final forms for 1094-B, 1095-B, 1094-C, and 1095-C.

Form 1094-C is used in combination with Form 1095-C to determine employer shared responsibility penalties. It is often referred to as the “transmittal form” or “cover sheet.” IRS Form 1095-C will primarily be used to meet the Section 6056 reporting requirement, which relates to the employer shared responsibility/play or pay requirement. Information from Form 1095-C will also be used in determining whether an individual is eligible for a premium tax credit.

Form 1094-C contains information about the ALE, and is how an employer identifies as being part of a controlled group. It also has a section labeled “Certifications of Eligibility” and instructs employers to “select all that apply” with four boxes that can be checked. The section is often referred to as the “Line 22” question or boxes. Many employers find this section confusing and are unsure what, if any, boxes they should select. The boxes are labeled:

  1.  Qualifying Offer Method
  2.  Qualifying Offer Method Transition Relief
  3.  Section 4980H Transition Relief
  4.  98% Offer Method

Different real world situations will lead an employer to select any combination of boxes on Line 22, including leaving all four boxes blank. Practically all employers except a mid-size employer that did not qualify for transition relief should select Box C, and corresponding with that, most employers will enter letter either “A” or “B” in Part III Column (e) of the 1094-C. Very few employers will be able to select Box D unless they offer minimum value, minimum essential, affordable coverage to all employees. Employers who do not use the federal poverty level safe harbor for affordability will never select Box A or Box B, and corresponding with that, will never use codes 1A or 1I on Line 14 of a 1095-C form.

To fully understand each box, including plain language explanations of the form instructions, request UBA’s ACA Advisor, “IRS Reporting Tip: Form 1094-C, Line 22”.

Originally published by United Benefit Advisors – Read More

Independent Contractor vs Employee | Ohio Benefits Broker

Categories: PPACA Report
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By K. Michael Ward
The Wilson Agency
A UBA Partner Firm

whichAs a business professional who is trying to classify a worker, it is important to remain compliant with the IRS regulations that determine whether an individual providing services to your organization should be classified as an independent contractor or an employee.

Furthermore, the “employer mandate” section of the Patient Protection and Affordable Care Act (PPACA) requires companies with 50 or more employees to either provide adequate and affordable coverage to their workers or pay tax penalties. United Benefit Advisors (UBA) has developed a guide to help employers determine how many employees they have for several purposes under PPACA. Those who think they are exempt need to make sure they are counting employees correctly so they’re not surprised with penalties.

The guide provides the definitions of full-time employees, how to count part-time employees on a pro-rata basis, how to treat seasonal employees, who the law considers an “employee,” counting hours correctly, determining average hours worked, penalties that result if a “large employer” doesn’t offer coverage, applying the requirement to offer coverage, paying the penalty, and eligibility for the Small Business Health Options Program (SHOP).

Your UBA Partner Firm can help you find the compliance solutions specific to the issues your company is facing. Visit the UBA website to learn more.

Why does it matter?

Not correctly classifying an individual as an employee can lead to an employer being required to pay taxes, such as unemployment tax, that would have been required of the employer if the individual had been correctly classified. The organization may also be held liable for overtime pay, resulting in a costly expense for the organization. In certain situations, the issue can escalate leading to civil lawsuits against the employer.

How do I know how to classify individuals?

Generally, an individual is an independent contractor if the employer controls only the final result of the work and not when, where and how it will be done. Therefore, employers cannot demand that independent contractors work a “9-5” schedule in their office. If the person is an independent contractor, they are free to perform the work on a beach at 4 a.m., as long as they produce the services for which they were hired.

An individual may also be classified as an employee if the company provides the majority of the equipment used to perform the services. Independent contractors will generally work with their own equipment and are unlikely to be reimbursed for any equipment purchases required to perform the job.

Some others factors to take into consideration are the time period of hire and whether the individual provides services that are integral to the business. If an individual has been hired on an indefinite basis, versus for a specific project or time period, and/or provides key services, then the employee may be classified as an employee.

There are a variety of other nuances that can determine whether an individual is an independent contractor or an employee. Therefore, it is advised that you speak with a professional before taking action that could have an adverse effect on your business.

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IRS Raises 401(k) Contribution Limit

Categories: Team K Blog
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On Thursday October 18, 2012 the Internal Revenue Service(IRS) announced that effective January 1, 2013 employees will be able to contribute an additional $500 a year into their 401(k)s, tax free.

The tax-free contribution limit for retirement plans will increase to $17,500 for 2013, up from $17,000 this year. This will be the second in a row that the IRS has increased the limit by $500 as a result of the rising inflation rate.

The catch-up contribution limit-the additional amount of tax-free money employees over 50 are allowed to contribute to their retirement plan- remains unchanged at $5,500 on top of the initial $17,500.

Limits for Defined Contribution Plans

Individual Limitation-
The limit on contributions made on behalf of an individual to a defined contribution plan will be increased from $50,000 to $51,000. Application of this limit will remain the lesser of 100% of pay or $51,000.

401(k) Deferrals-
The dollar limitation on employee deferrals in 401(k) plans is increased from $17,000 to $17,500. 401(k) limits are based on the calendar year regardless of plan year end.

Catch-Up Contributions-
Catch-up contribution for participants 50 years or older remains unchanged at $5,500. This is also a calendar year limit regardless of plan the year end.

Defined Benefit Plan Limits-

Effective January 1, 2013, the limitation on the annual benefit under a defined benefit plan under section 415(b)(1)(A) is increased from $200,0000 to $205,000.

Annual Compensation Limits-
The annual compensation limit under Sections 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) is increased from $250,000 to $255,000.

Key Employees-
The dollar limitation under Section 416(i)(1)(A)(i) concerning the definition of a key employee in a top-heavy plan remains at $165,000.

Highly Compensated Employees-
The limitation used in the definition of highly compensated employee under Section 414(q)(1)(B) remains at $115,000.

The impact of this is that employees who earn in excess of $115,000 in the plan year that begins in 2012 will be considered highly compensated for the plan year beginning in 2013 and an employee who earns in excess of $115,000 in 2013 will be considered highly compensated employees in 2014.

These limits are applicable to calendar year plans.