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 only. The 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), or employee contributions to flexible spending accounts (FSAs).
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.
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
- 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;
- 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;
- all of these records are available to the employer or its agent upon request; and
- the debit card system will not accept a charge for an over-the-counter medicine or drug unless an Rx number has been assigned.
