Innovative Employee Benefits, Inc.
Innovative Employee Benefits, Inc.
6926 Shannon Willow Road, Suite 100
Charlotte, NC 28226
PO Box 470257
Charlotte, NC 28247-0257
Phone: 704-341-5981
Email: info@better-benefits.com

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2015 HEALTH FSA LIMIT INCREASED TO $2,550

November 2014

On October 30, 2014, the IRS announced that the 2015 inflation-adjusted contribution limits for Health FSAs will go up by $50, to $2,550.
 
For plan years commencing in 2015, employer-sponsored health care FSAs may now allow for a plan design which allows employee contributions of up to $2,550.
 
The increase in the maximum health FSA contribution does not affect the treatment of amounts that an employer may permit to carryover from a prior year.  If an employer allows for a carryover, the carryover amount does not count against the maximum allowable contribution for the new plan year.
 
Note:  There were no changes to the limits for Dependent Care Assistance FSA contributions - the annual limit for a Daycare FSA remains at $5,000 for qualifying individuals who are married and file a joint return, while for those who are married, filing separately, the maximum allowance remains $2,500.



DO YOU OFFER A HEALTH FLEXIBLE SPENDING ACCOUNT (FSA) FOR YOUR EMPLOYEES? IF SO, THE INFORMATION BELOW IS APPLICABLE TO YOUR GROUP.

December 2013

RE:  IRS Notice 2013-54, Effective as of January 1, 2014:
 
Employer contributions to a Health FSA will be limited to a dollar for dollar match of the employee's contribution, up to a maximum employer contribution of $500 per Flex plan year.
 
If you, as an employer, do NOT contribute to the Flex participants' health FSA account, then this will not affect you.
 
And
 
For an employer to be able to offer a Health FSA, the employer must also offer a Group Health Plan (GHP) and the eligibility guidelines for participation in the Health FSA must mirror the eligibility guidelines for participation in the GHP.  For example, if part-time employees are not eligible for the Group Health Plan, they cannot be eligible for the Health FSA.  In order to participate in the Health FSA, the employee does not have to be "enrolled" in the GHP, but they do have to be "eligible" to enroll in the GHP.
 
The above applies only to Health FSAs, not Dependent Care Assistance Flexible Spending Accounts (Daycare).
 
For more information on this notice, go to www.irs.gov/pub/irs-drop/n-13-54.pdf.



MODIFICATION TO LONGSTANDING HEALTH FSA "USE IT OR LOSE IT RULE"

December 2013

RE:  IRS Notice 2013-71, Effective as of January 1, 2014:
 
In a change that has been long anticipated, the Treasury has finally modified the perennial Health FSA "Use It or Lose It" Rule.
 
With the release of IRS Notice 2013-71, it is now permissible for employers to allow employees to carry over up to $500 of the unused amounts left at the end of the plan year in their Health FSA for expenses in the next plan year.
 
There are several items to take into consideration before deciding whether to go or not go this route.  For instance:  A plan can have either a grace period or a carryover, but not both; An employer is not required to offer the carryover; An employer may choose to allow for a carryover amount of less than $500; The carryover amount does not count against the $2,500 employee salary reduction limit.
 
Note:  The above carryover is only available for Health FSAs, not Dependent Care Assistance Flexible Spending Accounts (Daycare).  However, the grace period remains a viable option for the Daycare Accounts.
 
For more information on this notice, go to www.irs.gov/pub/irs-drop/n-13-71.pdf.



5/31/2012 UPDATE to 2013 ANNUAL HEALTH SPENDING ACCOUNT CONTRIBUTIONS LIMITATIONS IMPACT 2012 ELECTIONS:

Just Released IRS Notice 2012-40 Relaxes Earlier $2500 Limit for Non-Calendar Year FSAs

Specifically this Notice provides that -

  • the $2500 limit does not apply for plan years that begin before 2012;
  • the term "taxable year" in Section 125(i) refers to the plan year of the cafeteria plan as this is the period for which salary reduction elections are made;
  • plans may adopt the required amendments to reflect the $2500 limit at any time through the end of calendar year 2014;
  • in the case of a plan providing a grace period (which may be up to two months and 15 days), unused salary reduction contributions to the health FSA for plan years beginning in 2012 or later that are carried over into the grace period for that plan year will not count against the $2500 limit for the subsequent plan year; and
  • relief is provided for certain salary reduction contributions exceeding the $2500 limit that are due to a reasonable mistake and not willful neglect and that are corrected by the employer.

Additionally, in light of the $2500 limit, the Treasury Department and the IRS are considering whether, for Health FSAs, the position contained in proposed regulations that is often referred to as the "use-or-lose rule" should be modified.  That rule generally prohibits any contribution or benefit under an FSA from being used in a subsequent plan year or period of coverage.  Thus, under this rule, unused amounts in the Health FSA are "forfeited" at the end of the plan year.

Comments are requested on whether the proposed regulations should be modified to provide additional flexibility with respect to the operation of the use-or-lose rule for Health FSAs and, if so, how any such flexibility might be formulated and constrained.

For more information on this notice, go to www.irs.gov/pub/irs-drop/n-12-40.pdf.

We will continue to evaluate and report on this important regulatory revision as more information becomes available.

 

December 2011

 

2013 ANNUAL HEALTH FLEXIBLE SPENDING ACCOUNT CONTRIBUTION LIMITATIONS IMPACT 2012 ELECTIONS

 

As part of Health Care Reform, beginning for the January 1, 2013 tax year, Health Flexible Spending Accounts (Health FSAs), including grandfathered plans, will be limited to an annual maximum of $2500 that an employee participant may contribute.  The $2500 annual contribution limit is indexed to inflation and set to increase in subsequent tax years, based on increases in the Consumer Price Index (CPI).

For Health FSA plans that run on a calendar year basis, this contribution limitation will be required for the 1/1/2013 plan year, so calendar year Health FSA plans that currently allow a maximum contribution greater than $2500 will be able to continue to do so for the upcoming 2012 plan year.

This $2500 annual contribution limit, however, does raise special considerations for non-calendar year Health FSA plans that will span both the 2012 and 2013 taxable years.  This transitional plan year will impact elections made for plan years beginning February 1, 2012.

All Health FSAs with a plan year beginning on and after February 1, 2012, must set their annual maximum contribution limit to no more than $2500 as of the first day of that plan year. 

Further, the contribution limitation is a flat dollar limit, applying per participant, so employees with family members will not be permitted to make higher contributions.  However, spouses who are individual participants in their own right in the Health FSA will be able to make separate elections, up to $2500 each.

 

Note:  This $2500 cap does NOT apply to Health Reimbursement Arrangements (HRAs) or change the applicable provisions regarding Dependent Care FSAs.

 

 

 

EMPLOYER RESPONSIBILITIES RE: NEW W-2 REPORTING REQUIREMENTS

November 2011

 

As an Employer, What are My Responsibilities Regarding the New W-2 Reporting Requirements?

 

As part of the Affordable Care Act to provide useful consumer information to employees, beginning in tax year 2012, most employers, including federal, state, and local governmental entities, that issue 250 or more W-2 forms for the preceding calendar year must report the cost of health coverage for each employee on their W-2 forms issued in 2013 and beyond.  (Keep in mind that the 250 threshold is the number of W-2 forms issued, NOT the number of employees on payroll.  Employers with high rates of turnover may be affected while having less than 250 employees.)

 The reporting is for informational purposes onlyThe cost of coverage is not included in the employee's taxable income.

 Transitional relief is available and reporting remains optional for employers that issue fewer than 250 W-2 forms in the preceding calendar year until further guidance is issued.  Employers are not required to report the cost of coverage on interim W-2s requested by employees before the end of the calendar year.

 

When calculating and reporting the cost of coverage, the following information should be included:

                Cost of coverage paid by the employee and the employer, including the cost of dependent coverage.  If an employee adds or removes a dependent during the calendar year, the cost change must be reflected on the W-2.

                Dental and vision benefits if integrated with the medical benefits.  The cost of dental and vision benefits should not be included if dental and vision are offered under a separate certificate. 

                Amount of employer's contribution, if any, to flexible spending accounts (FSAs).

The aggregate reportable cost of the coverage should be reported on the W-2 form in Box 12 using code DD.  There is no additional reporting on Form W-3.

Below are benefits that are not required, but can be included in reporting the cost of coverage:

                Contributions to health savings accounts (HSAs), Archer medical savings accounts (MSAs), or health reimbursement arrangements (HRAs).  Note:  employee contributions to flexible spending accounts (FSAs) should NOT be included.

                Any indemnity policy, or HIPAA "excepted benefit" plans offered by the employer.

                Multi-employer plans.

                Coverage for long-term care plans.

Employers will not need to report the value of health benefits provided to retirees, if the employer is not otherwise required to issue the individual a W-2 form.

 

Employers may select among three (3) options in calculating the cost of coverage to report on W-2s:

                COBRA applicable premium method - Use the COBRA premium cost..

                Premium charged method - Only employers reporting cost of coverage for employees under insured plans may calculate the reportable cost using the premium charged by the insurer.

                Modified COBRA premium method - If the employer subsidizes the cost of COBRA coverage, it can use a reasonable good faith estimate of the COBRA premium; or, if the current year COBRA premium is equal to a prior year COBRA rate, the prior year COBRA rate can be used to report the cost of coverage in the current year.

If an employer uses a 12-month determination period that is not a calendar year for purposes of applying the COBRA applicable premium under a plan, the reportable cost under a plan must be determined on calendar year basis.

 

For additional information, see IRS Notice 2011-28.

Please see the General Instructions for Forms W-2 and W-3 for potential penalties for non-compliance.  

 

The information contained in this article is not intended to be legal, accounting or other professional advice.  We assume no liability in connection with its use, nor are these comments directed to specific situations.

 Breast Pumps and Supplies that assist Lactation

The IRS has concluded that breast pumps and supplies that assist lactation will qualify as medical care expenses under Code Section 213(d) because they are for the purpose of affecting a structure or function of the lactating woman's body. Consequently, these items will qualify for tax-free reimbursement from a health FSA or HRA, or for a tax-free distribution from an HSA.

 

IRS Releases Draft W-2 Form for 2011; Announces Relief for Employers
IR-201--103, Oct. 12, 2010

WASHINGTON - The IRS today issued a draft Form W-2 for 2011, which employers use to report wages and employee tax withholding. The IRS also announced that it will defer the new requirement for employers to report the cost of coverage under an employer-sponsored group health plan, making that reporting by employers optional in 2011.

The draft Form W-2 includes the codes that employers may use to report the cost of coverage under an employer-sponsored group health plan. The Treasury Department and the IRS have determined that this relief is necessary to provide employers the time they need to make changes to their payroll systems or procedures in preparation for compliance with the new reporting requirement. The IRS will be publishing guidance on the new requirement later this year.

Although reporting the cost of coverage will be optional with respect to 2011, the IRS continues to stress that the amounts reportable are not taxable. Included in the Affordable Care Act passed by Congress in March, the new reporting requirement is intended to be informational only, and to provide employees with greater transparency into overall health care costs.

For more information, see:
http://www.irs.gov/pub/irs-drop/n-2010-69.pdf
http://www.irs.gov/pub/irs-utl/draft_w-2.pdf
 


IMPORTANT CHANGE TO EXTEND HEALTH COVERAGE TO ADULT CHILDREN  

An important part of the Affordable Care Act (the Patient Protection and Affordable Care Act & Health Care and Education Reconciliation Act of 2010, signed into law on March 23 & 30, 2010, respectively) now allows for the extension of health coverage to adult children by requiring group health plans that provide dependent coverage to continue to make such coverage available for an adult child.

IRS Notice 2010-38 expands the definition of a "child" to include a child who has not attained the age of 27 as of the end of the employee's taxable year (which is generally thought to be a calendar year January 1 through December 31). A "child", for this purpose, includes children, stepchildren, adopted children, and eligible foster children, and does so regardless of whether the child would otherwise qualify as a tax dependent.

The requirement is applicable regardless of marital status but there is no requirement to cover a spouse or children of a dependent child. Special exclusions apply to grandfathered plans until January 1, 2014.

This change in definition is effective for plan years beginning on or after September 23, 2010. This act also amended the tax code to extend the exclusion from gross income for reimbursements for medical care under an employer-sponsored plan to any employee's child who has not attained the age of 27 as of the end of the taxable year. This change is effective March 30, 2010. The Notice indicates the IRS and Treasury will be amending
the tax code retroactively to the March date to include the continuation or addition of a child who has not attained the age of 27 as a change in status event, which will allow an employee to change an election on the basis of that event.

What this means:
Although typically a plan may only be amended on a prospective basis, the Notice makes clear that under a special transition rule, employers may permit employees to make a pretax salary reduction contribution election for health benefits under a cafeteria plan for children who have not attained the age of 27, as long as the plan is formally amended by December 31, 2010 to provide for such contributions.

Also, as explained in the Notice, coverage and reimbursements under an employer- provided health plan for an employee's child under age 27 are not wages for FICA or FUTA purposes, and are also exempt from income tax withholding.

Please note the Act does NOT change the definition and rules of a "tax dependent" for purposes of individual income taxes.


ADDITIONAL CLARIFICATION FROM IRS 

 FOR OVER THE COUNTER MEDICINES & DRUG PURCHASES 
AND PERMISSABLE USE OF DEBIT CARDS 
AS OF 1/16/11
 
Notice from the IRS:  Effective January 1, 2011, the cost of an over-the-county medicine or drug cannot be reimbursed from Flexible Spending Arrangements (FSAs) or Health Reimbursement Arrangements (HRAs) unless a prescription is obtained.  The change does not affect insulin, even if purchased without a prescription, or other health care expenses such as medical devices, eye glasses, contact lenses, co-pays and deductibles. 
 
FSA and HRA participants can continue using debit cards to buy prescribed over-the-counter medicines, if specific requirements, outlined below, are met. 
 
Notice:  A health debit card can be used to purchase Over-The-Counter drugs and medicines if the specific criteria outlined below have been meet:
 
“After January 15, 2011, health FSA and HRA debit cards may continue to be used to purchase over-the-counter medicines or drugs at drug stores and pharmacies, at non-health care merchants that have pharmacies and at mail order and web-based vendors that sell prescription drugs, if: 
  1. prior to purchase, (i) the prescription for the over-the-counter medicine or drug is presented (in any format) to the pharmacist; (ii) the over-the-counter medicine or drug is dispensed by the pharmacist in accordance with applicable law and regulations pertaining to the practice of pharmacy; and (iii) an Rx number is assigned;
  2. the pharmacy or other vendor retains a record of the Rx number, the name of the purchaser (or the name of the person for whom the prescription applies), and the date and amount of the purchase in a manner that meets IRS recordkeeping requirements; 
  3. all of these records are available to the employer or its agent upon request; and 
  4. the debit card system will not accept a charge for an over-the-counter medicine or drug unless an Rx number has been assigned. 
If these requirements are met, the debit card transaction will be considered fully substantiated at the time and point-of-sale.” 

 


 

IRS RELEASES 2010 FORM 2441 AND INSTRUCTIONS 
 
Form 2441 (Child and Dependent Care Expenses), along with its Instructions for tax year 2010 have been released by the IRS. 
 
Per the IRS, this form is to be used by the taxpayer in filing Form 1040 for determining the applicable Dependent Care Tax Credit (DCTC).  Additionally, Flexible Spending Account plan participants with a Dependent Care Assistance Program (DCAP) are to use this form in filing Form 1040 in support of the income exclusion for DCAP reimbursements for 2010. 
 
As was the case in 2009, in calculating the DCTC, qualifying expenses are limited to $3,000 for one qualifying dependent and $6,000 for two (or more), reduced by the DCAP reimbursement amount. (For a full discussion, please seek advice from a tax professional.) 
 
For more information, see IRS links below: 
[IRS Form 2441 and Instructions (2010)] 
 

 

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