IRS Releases 2019 HSA Reporting Forms 1099-SA and 5498-SA and Instructions

The IRS recently published updated versions of Forms 5498-SA and 1099-SA and combined instructions for 2019. As background, the IRS requires HSA trustees and custodians to report certain information to the IRS and to the HSA holder regarding contributions, distributions, the return of excess contributions and other matters the IRS deems appropriate. Form 5498-SA is used by trustees and custodians of HSAs and Archer MSAs to report contributions and any administration or account maintenance fees. Form 1099-SA is used to report distributions, including any curative distributions in the event of excess contributions. HSA account holders report contributions and distributions on Form 8889.

Other than updated filing and delivery deadlines, the 2019 forms and related instructions are largely unchanged from the 2018 versions.

Forms 1099-SA and 5498-SA generally apply only to HSA trustees and custodians. However, employers that offer an HSA may want to familiarize themselves with these forms, particularly in the event of any excess contributions.

Form 1099-SA »

Form 5498-SA »

Form 1099-SA and 5498-SA Instructions »

Filed under: Abentras Blog

IRS Published Guidance for Tax-Exempt Organizations on Nondeductible Parking Benefits, Including Limited UBTI Relief

On Dec. 10, 2018, the IRS published two notices (2018-99 and 2018-100) and a news release relating to tax-exempt organizations, nondeductible parking expenses and limited unrelated business taxable income (UBTI) relief. As background, the Tax Cuts and Jobs Act of 2017, enacted in December 2017, makes qualified transportation benefit expenses nondeductible (for 2018 and beyond). If such expenses are incurred by a tax-exempt organization, those expenses are treated as UBTI. The two 2018 notices provide guidance on nondeductible parking expenses and UBTI.

On nondeductible parking expenses (under Notice 2018-99), the amount of parking expenses that will be treated as nondeductible business expenses (and therefore UBTI for a tax-exempt organization) depends on how those parking expenses are provided — as payments to a third party or through employer-owned or leased parking facilities. On payments to a third party, the process is straightforward: the nondeductible expense is the amount paid to the third party (up to the monthly limit for qualified parking benefits (which was $260 for 2018). Since payments above the monthly limit are not excludable from an employee’s income, those payments are unaffected by the rule that disallows deductions for qualified transportation fringe benefits. Instead, they are treated as employee compensation (subject to employment and income tax withholding, the same as any other taxable compensation).

On employer-owned or leased facilities, the process is less clear: the employer should use any reasonable method to determine the nondeductible expense. The notice outlines a four-step process that would be deemed reasonable; the process looks at several factors relating to the employee’s use of the employer-owned parking facility, and whether that use is a primary use for employees versus the general public.

Notice 2018-99 also addresses UBTI. Specifically, the notice confirms the general notion that rules for determining UBTI attributable to qualified transportation fringe benefits provided by a tax-exempt organization mirror the rules for other taxpayers. In addition, though, the notice clarifies that tax-exempt organizations that have only one unrelated business or trade may reduce UBTI by the amount of any unused deductions that exceed the gross income of that trade or business. The notice also explains that tax-exempt organizations with less than $1,000 in UBTI do not need to file Form 990-T (Exempt Organization Business Income Tax Return) or pay UBTI tax.

Lastly, Notice 2018-100 provides a waiver for certain tax-exempt organizations. As background, tax-exempt organizations that underpay their estimated taxes are normally assessed a penalty. The notice provides a waiver from that penalty if the underpayment results from changes to the tax treatment of qualified transportation fringe benefits. In other words, if the employer otherwise reported and paid UBTI for all unrelated business income except that relating to qualified transportation fringe benefits, the underpayment penalty will be waived. The notice provides details on how tax-exempt organizations would claim that waiver.

Overall, because tax-exempt organizations face many challenges with regard to federal taxation and filings, and because UBTI is really outside the scope of employee benefits, employers should work with their accountant or tax counsel in understanding and applying the above IRS guidance.

Notice 2018-99 »
Notice 2018-100 »
IRS News Release »

Filed under: Abentras Blog

IRS Clarifies “Once In, Always In” Rule for 403(b) Plans

On Dec. 4, 2018, the IRS released Notice 2018-95, clarifying 403(b) plan eligibility requirements. As background, 403(b) plans are subject to a universal availability rule which requires employers to offer the 403(b) plan to all their employees. There is an exception that allows employers to exclude part-time employees who are expected to work less than 20 hours per week if they work less than 1,000 in their first year and in any year that the person worked less than 1,000 hours per week in the immediately preceding plan year.

Many employers read those rules to allow for an employer to potentially stop 403(b) plan deferrals for a part-time employee that might have been in the plan before, but later had a year where they worked less than 1,000 hours. However, the IRS released model 403(b) plan language in 2013 and 2015 that made it clear that they don’t acknowledge that reading of the rule. Instead, the IRS recognizes a “once in, always in” rule that mandates that a part-time employee that gains eligibility cannot lose it later, even if they work less than 1,000 hours in a subsequent year.

Notice 2018-95 provides relief to employers that subscribe to the incorrect reading of the rule. Specifically, as long as those employers correct their practice by Jan. 1, 2019, they will not be held accountable for failing to comply with the universal availability rule for the years preceding 2018. Keep in mind, though, that they will need to offer any part-time employees that were improperly excluded the opportunity to contribute to the plan in 2019.

403(b) plan sponsors that have improperly excluded part-time employees should work with their TPA or other service provider to come into compliance, including amending plan documents if necessary.

Notice 2018-95 »

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IRS Issues 2018 Form 8941, Credit for Small Employer Health Insurance Premiums

The IRS recently issued the 2018 version of the Form 8941, Credit for Small Employer Health Insurance Premiums, and the related instructions. Form 8941 is used by small employers to calculate and claim the small business health care tax credit. As background, this tax credit benefits employers that do all of the following:

  • Offer coverage through the small business health options program, also known as the SHOP Marketplace
  • Have fewer than 25 full-time equivalent employees
  • Pay an average wage of less than $50,000 a year (indexed annually)
  • Pay at least half of employee health insurance premiums

An employer may only claim the credit for a two-consecutive-year period.

The 2018 instructions include three important information items.

First, the average annual wage for 2018 is increased from $53,000 (in 2017) to $54,000.

Second, the IRS states that employers located in Hawaii cannot claim this credit for insurance premiums paid for health plans beginning after 2016. This is because Hawaii’s Section 1332 Innovation Waiver related to the SHOP was approved by HHS. Thus, effective 2017, the state of Hawaii is no longer required to maintain a SHOP because of the state’s Prepaid Health Care Act, which requires employers of all sizes to offer affordable coverage to employees. The state also provides premium assistance to small employers.

Lastly, for calendar year 2018, some SHOP Marketplaces in certain counties didn’t have qualified health plans available for employers to offer to employees. However, relief is available which allows eligible small employers with a principal business address in those counties to claim the credit for 2018, including coverage through a SHOP or coverage that met the requirements for relief under IRS Notice 2016-75 (if applicable), for all or part of 2017.

If a small employer qualifies for the health care tax credit, they should work with their accountant to properly claim the credit with the IRS.

Form 8941 »
Form 8941 Instructions »

 

Source: NFP BenefitPartners

Filed under: Abentras Blog

DOL Issues 2018 Form M-1 and New Filing Tips

The DOL recently issued the 2018 version of Form M-1. As background, Form M-1 must be filed by multiple employer welfare arrangements (MEWAs) and certain entities claiming exception (ECEs). The Form M-1 allows those entities to report that they complied with ERISA’s group health plan mandates.

While minimal changes to the Form M-1 have been made, this year’s Form M-1 instructions have been updated to reflect changes brought about by the final regulations on association health plans (AHPs). As a reminder, AHPs are MEWAs and, as a result, must file Form M-1 annually and following certain events. Thus, in an effort to provide additional guidance, the DOL has issued a list of Form M-1 filing tips for MEWA administrators. Here are some highlights:

  • Who Must File. The revised instructions define which entities are required to file in certain situations. Under both the instructions and the filing tips, filers are reminded that a MEWA that is an ERISA employee welfare benefit plan must also file Form 5500, and it must use the same name, EIN and other identifying information on both forms. Further, the instructions now describe the special filing rules for group insurance arrangements.
  • Date and Type of Filing. Item 4 of Form M-1, which identifies the type of filing, now requires filers to enter the event date for a registration, origination or special filing. The filing tips explain that only MEWAs should check “annual” or “registration,” and only ECEs will check “origination” or “special.” The instructions now emphasize that “operating” for this purpose means “any activity including but not limited to marketing, soliciting, providing, or offering to provide benefits consisting of medical care.”
  • Additional Details. The instructions for item 13 (actuarial soundness) emphasize the DOL’s power to issue a cease and desist order if it appears a MEWA “is fraudulent, or creates an immediate danger to the public safety or welfare.” The instructions for item 17 include a new note about completing this line for all applicable states in which the MEWA operates. Also, clarifications have been added to the instructions for item 21 regarding whether the MEWA is subject to Part 7 of ERISA.
  • Annually Adjusted Penalties. The instructions specify that the maximum penalty for Form M-1 filing failures is currently $1,558 per day, but they remind filers to check for increases, since required annual adjustments take place after the Form M-1 has been published.
  • Self-Compliance Tool. The self-compliance tool is no longer included on the informational Form M-1, but the form describes where to locate the tool online.
  • Filing Tips. The filing tips state that insurance information for every state in which the MEWA operates must be provided, and that the information must be correct. Another tip explains that only medical insurance must be reported — not, for example, dental or vision insurance. Another reminds MEWAs that are also employee benefit plans to retain the M-1 filing confirmation number because this will be needed for the Form 5500 filing. The tips also explain that more than one Form M-1 filing requirement could apply for a year: a registration filing and an annual filing.

The filing tips and additions to the instructions appear to indicate the DOL’s expectation of an increase in Form M-1 filings due to the final AHP regulations (see June 26, 2018 edition of Compliance Corner). Therefore, MEWAs (AHPs are MEWAs) should work with their advisor and service vendors to ensure compliance with ERISA and Form M-1 filing obligations.

2018 Form M-1 »
M-1 Filing Tips for AHPs and Other MEWAs »

 

Source: NFP BenefitPartners

Filed under: Abentras Blog

IRS Extends Forms 1095-B/C Reporting Deadline and Good Faith Effort Relief

On Nov. 28, 2018, the IRS published Notice 2018-94, which delays the date by which informational statements must be provided to individuals. The notice also provides transitional good faith relief for reasonable mistakes made in reporting Sections 6055 and 6056 information about 2018.

Specifically, the due date for providing individuals with Form 1095-B (by a carrier or self-insured employer) and Form 1095-C (by an applicable large employer) has been extended from Jan. 31, 2019, to March 4, 2019. The deadline for filing these forms with the IRS hasn’t changed. That date remains April 1, 2019, if filing electronically, or Feb. 28, 2019, if not filing electronically. If an employer doesn’t comply with the deadlines, the employer could be subject to penalties. The notice also states that because the automatic extension of the due date to furnish is as generous as the permissive 30-day extension to provide notices to individuals/employees, the IRS will not formally respond to any request for such an extension.

Despite the extended due date, employers and other coverage providers are encouraged to furnish 2018 statements as soon as they’re able. But if individuals haven’t received these forms by the time they file their individual tax returns, they may rely upon other information received from employers or coverage providers to attest that they had minimum essential coverage as required by the individual mandate. Individuals need not amend their returns once they receive the forms, but they should keep them with their tax records.

In addition, Notice 2018-94 extends good faith effort relief to employers for incorrect or incomplete returns filed in 2019 (as to 2018 information). The IRS previously provided relief for penalties stemming from 2018 reporting failures (as to 2017 information). Accordingly, for 2018 and prior filings, relief is available to entities that could show that they made good faith efforts to comply with the information reporting requirements, even if they reported incorrect or incomplete information. In determining what constitutes a good faith effort, the IRS will take into account whether an employer or other coverage provider made reasonable efforts to prepare for reporting, such as gathering and transmitting the necessary data to a reporting service provider or testing its ability to use the Affordable Care Act Information Return Program (AIR) electronic submission process. This relief doesn’t apply to a failure to timely furnish or file a statement or return, and it doesn’t extend to employer mandate penalties (for large employers that didn’t offer affordable, minimum value coverage to full-time employees pursuant to the ACA’s employer mandate).

Lastly, the notice states that the IRS is reviewing whether the repeal of the individual mandate tax penalty (which takes effect in 2019) will change the reporting requirements under IRC Section 6055 for self-insured employers and other coverage providers (such as an insurer of a fully insured plan) to report on all covered individuals under the plan on either Form 1095-B or 1095-C. NFP’s Benefits Compliance division will continue to monitor any developments that might impact employer reporting obligations in future years.

IRS Notice 2018-94 »

Filed under: Abentras Blog

Treasury and IRS Issue HRA Guidance

On Nov. 19, 2018, the IRS released IRS Notice 2018-88, which provides guidance on the proposed regulations related to HRAs. The regulations, which were released Oct. 23, 2018, provide for two separate arrangements called individual coverage HRAs (ICHRAs) and excepted benefit HRAs. The new notice focuses on ICHRAs, which are employer-sponsored HRAs integrated with individual health insurance policies. The notice specifically discusses how the IRC Section 105, employer mandate and premium tax eligibility rules apply to ICHRAs.

IRC Section 105 generally requires employer contributions to be uniform for all participants. Otherwise, the HRA is at risk for discrimination. The Department of the Treasury and IRS anticipate releasing guidance providing that employer ICHRA contributions may vary by class as long as all participants in a class receive uniform contributions.

IRC Section 105 also prohibits the variance of contributions based on age. However, the cost of individual health coverage increases with age. It is reasonable that older employees may require increased ICHRA contributions in order to pay for the increased premium cost. To resolve this issue, the Treasury and IRS expect to issue future guidance permitting employer contributions to increase based on participant age.

The employer mandate requires an applicable large employer (or ALE, an employer with 50 or more full-time employees including equivalents) to offer minimum essential employer-sponsored coverage to at least 95 percent of full-time employees (known as Penalty A). If an ALE offers an ICHRA to at least 95 percent of full-time employees, it will comply with Penalty A.

As a reminder, individuals are not eligible for a premium tax credit (PTC) for any month they are covered by an employer-sponsored plan, which includes an HRA. Thus, any participants covered by an ICHRA will not be eligible for a PTC.

Further, individuals are not eligible for a PTC if they are eligible for an employer-sponsored plan that is affordable and meets minimum value. The notice provides guidance on how affordability will be calculated on an ICHRA. The employee’s required contribution is the premium amount for self-only coverage under the lowest cost silver plan offered by the Exchange for the rating area in which the employee resides minus the employer’s ICHRA contribution.

The Treasury and IRS recognize the burden on an employer to determine affordability for each individual employee, considering separate rating areas. For this reason, they anticipate proposing a location safe harbor that would permit an employer to base affordability on the cost of coverage in the worksite’s rating area (as opposed to each employee’s residential location).

Additionally, because of the late date on which individual policy premium rates are typically released each year, the Treasury and IRS are requesting comments related to a safe harbor that would permit an employer to base affordability on the previous year’s cost of exchange coverage.

An ICHRA that is determined to be affordable would also be considered to provide minimum value. Thus, an employee who is offered coverage in an affordable ICHRA would not be eligible for a PTC, even if they waived coverage.

Comments on the proposed guidance are due by Dec. 28, 2018.

IRS Notice 2018-88 »

 

Source: NFP BenefitPartners

Filed under: Abentras Blog

IRS Issues 2019 Limits on Benefits and Contributions Under Qualified Retirement Plans

On Nov. 1, 2018, the IRS issued Notice 2018-83, which relates to certain cost-of-living adjustments for a wide variety of tax-related items, including retirement plan contribution maximums and other limitations for tax year 2019.

For 2019, the elective deferral limit for employees who participate in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan increases to $19,000 (up from $18,500 in 2018).

Additionally, the catch-up contribution limit for employees age 50 and over who participate in any of those plans remains at $6,000. The annual limit for Savings Incentive Match Plan for Employees (SIMPLE) retirement accounts will increase from $12,500 to $13,000.

The annual limit for defined contribution plans under Section 415(c)(1)(A) increases to $56,000 (from $55,000), and the annual limit on compensation that can be taken into account for contributions and deductions increased from $275,000 to $280,000. The threshold for determining who is a “highly compensated employee” (HCE) increases to $125,000 (from $120,000).

The annual benefit for a defined benefit plan under Section 415(b)(1)(A) increased from $220,000 to $225,000, and the dollar limitation concerning the definition of key employee in a top-heavy plan and the limitation on IRA contributions increased from $175,000 to $180,000.

Cost-of-living adjustments are effective Jan. 1, 2019. Sponsors and administrators of benefits with limits that are changing will need to determine whether their plans automatically apply the latest limits or must be amended (if desired) to recognize the changes. Any changes in limits should also be communicated to employees.

Notice 2018-83 »

 

Source: NFP BenefitPartners

Filed under: Abentras Blog

Agencies Issue Final Rules to Broaden Exemption from Contraceptive Coverage

On Nov. 7, 2018, the HHS, the Treasury Department and the DOL (the Departments) jointly released advanced copies of two final regulations that broaden the exemption from the ACA’s contraceptive mandate. The final rules are effective 60 days following publication in the Federal Register (expected Nov. 15, 2018).

As background, the ACA requires plans to cover certain preventive services with no cost-sharing. However, a number of religious institutions objected to being required to cover certain contraceptives, prompting the Obama administration to provide a waiver and accommodation process for those institutions. The Supreme Court’s decision in Burwell v. Hobby Lobby Stores, Inc. ruled in favor of Hobby Lobby, holding that closely held for-profit employers could also choose not to cover certain contraceptives.

Then, in Oct. 2017, the Trump administration issued two interim final rules which broadened the exemption for sincerely held religious beliefs and sincerely held moral convictions. Further litigation spawned from the interim final rules and two federal courts issued preliminary injunctions blocking the federal government from enforcement of these rules as a result (see Jan. 9, 2018, edition of Compliance Corner). It remains to be seen how the courts’ injunctions will impact the finalized rules.

After considering over 100,000 public comments, the final rules remain largely unchanged from the interim final rules issued back in Oct. 2017 (see article in Oct. 17, 2017, edition of Compliance Corner).

Here is a general overview of both final rules:

First, the final rule on religious exemptions expands the exemption that previously applied only to churches and similar religious organizations. This particular exemption will be available to non-governmental employers and institutions of higher education, nonprofits, for-profits, insurers and individuals with religious objections where the employer plan sponsor and/or issuer (as applicable) are willing to offer a plan omitting certain contraceptive coverage. The religious exemption does not apply to governmental plans, and no publicly-traded employers are expected to invoke the religious exemption.

Second, the final rule on moral exemptions is more restrictive than the religious exemption. Under the moral exemptions rule, only nonprofits, privately held for-profit employers, insurers, institutions of higher education, and individuals can invoke an exemption to the contraceptive mandate based on sincerely held moral objections. This could encompass association health plans where the plan sponsor is a nonprofit or a privately-held for-profit entity. However, the moral final rule does not extend to governmental plans or publically traded for-profit employers.

Both rules maintain the availability of an optional accommodation where the entity’s insurer or third-party administrator is responsible for providing contraceptive services to plan participants and beneficiaries on a voluntary basis. In other words, an otherwise exempt employer could decide to take advantage of the accommodation, which would provide contraceptive coverage to its employees and their dependents on an optional basis. Businesses that object to covering some, but not all, contraceptives would be exempt with respect to only those methods to which they’re opposed.

Under both final rules, if an employer objects to contraceptive coverage on a religious or moral basis, the group health plan, the insurer, and the coverage itself are exempt from the full ACA guidelines on contraceptive methods. Those entities are not subject to a penalty for failure to cover contraceptives for plan enrollees. Employers who claim an exemption do not have to provide any sort of self-certification or notice to the government.

Several states currently require insurers to cover contraceptives and several others have religious exemptions of some kind, but it should not be assumed that these are comparable with the new federal exemption. The departments state that the final rules only apply to the federal contraceptive mandate and do not regulate, preempt or otherwise address various state contraceptive mandates or religious exemptions. Therefore, if a plan is exempt under the final rule on religious or moral exemptions that does not necessarily exempt the plan or insurer from applicable state laws. Of course, state mandates do not apply to self-funded plans, but they apply to fully-insured plans.

Importantly, though, ERISA requires employers to outline the plan’s covered services in the plan document. As such, employers should keep in mind that the rules require employers to notify employees of any change in contraceptive coverage, in accordance with current ERISA rules. So, for example, where the decision not to cover certain contraceptives is a material modification or reduction in covered services, the employer will need to provide employees with Summaries of Material Modification. In addition, if that decision is made outside of open enrollment/renewal, the employer may also be responsible for an advance notice under the summary of benefits and coverage (SBC) rules, which may require 60-days advance notice of the change.

The final rules are effective 60 days following publication on the Federal Register (presumably effective Jan. 15, 2019). However, as these various legal challenges work their way through the courts, employers wishing to avail themselves of these exemptions should work with legal counsel to ensure that they implement the exemptions in a compliant manner, paying special attention to applicable state laws.

Press Release »
Fact Sheet »
Final Regulations for Religious Exemptions »
Final Regulations for Moral Exemptions »

 

Source: NFP BenefitPartners

Filed under: Abentras Blog

PCOR Fee Increased for 2018-2019 Plan Years

On Nov. 5, 2018, the IRS released Notice 2018-85, which announces that the adjusted applicable dollar amount for PCOR fees for plan and policy years ending on or after Oct. 1, 2018, and before Oct. 1, 2019, is $2.45. This is a $.06 increase from the $2.39 amount in effect for plan and policy years ending on or after Oct. 1, 2017, but before Oct. 1, 2018.

As a reminder, PCOR fees are payable by insurers and sponsors of self-insured plans (including sponsors of HRAs). The fee doesn’t apply to excepted benefits such as stand-alone dental and vision plans or most health FSAs. The fee, however, is required of retiree-only plans. The fee is calculated by multiplying the applicable dollar amount for the year by the average number of lives and is reported and paid on IRS Form 720 (which hasn’t yet been updated to reflect the increased fee). It’s expected that the form and instructions will be updated prior to July 31, 2019, since that’s the first deadline to pay the increased fee amount for plan years ending between Oct. and Dec. 2018. The PCOR fee is generally due by July 31 of the calendar year following the close of the plan year.

The PCOR fee requirement is in place until the plan years ending after Sept. 30, 2019.

Notice 2018-85 »
IRS Form 720 »
IRS Form 720 Instructions »

Filed under: Abentras Blog