Client Alert: Tax Reform Causes Some Employers to Put Transportation Plans in Park

Employee Benefits and Healthcare LawTax Reform Causes Some Employers to Put Transportation Plans in Park

Prior to 2018, it was commonplace for employers to provide qualified transportation fringe benefit plans, in part, to pay for or reimburse employees for costs associated with transit passes, commuter highway vehicles, carpools, or qualified parking. The benefit was not taxable to the employee and was deductible by the employer.

However, pursuant to the Tax Cuts and Jobs Act (TCJA), the employer deduction is no longer allowed effective 2018. The TCJA (formally called the “Act to provide for reconciliation pursuant to Titles II and V of the concurrent resolution on the budget for fiscal year 2018”), amended Internal Revenue Code Section 274 to deny any deduction for “the expense of any qualified transportation fringe (as defined in Code Section 132(f)) provided to an employee of the taxpayer”. See Code Section 274(a)(4). It also added Code Section 274(f) which specifically states:

No deduction shall be allowed under this chapter for any expense incurred for providing any transportation, or any payment or reimbursement, to an employee of the taxpayer in connection with travel between the employee’s residence and place of employment, except as necessary for ensuring the safety of the employee.

Moreover, Publication 15-B for 2018: Employer’s Tax Guide to Fringe Benefits confirms that no deduction is allowed for qualified transportation benefits incurred or paid after December 31, 2017, whether provided directly by the employer, through a bona fide reimbursement arrangement, or through a compensation reduction agreement. This prohibition on deductions includes any expense incurred for providing any transportation, or paying or reimbursing employees, for travel between the employees’ home and work (except for safety reasons). However, any such employer payments may be excluded from the employees’ wages.

Clearly, employers who had been subsidizing parking and transportation related expenses will no longer be able to deduct those expenses. Some commentary contemplates that by making such benefits taxable to the employee, possibly the employer would be allowed to deduct the expenses. Code Section 274(e)(2) does create an exception to Code 274(a)’s no deduction rule for expenses treated as compensation; however, this provision within Code Section 274(e) only applies to entertainment, amusement, or recreation… it was not amended to include transportation. Further guidance on this would be appreciated.

While some employers will continue to provide transportation fringe benefits to remain competitive, others are scaling back to eliminate subsidized parking and/or requiring employees to pay such expenses on a pre-tax basis through a qualifying transportation expense reimbursement arrangement.

Other Fringe Benefits

TCJA affects other fringe benefits as well. Subject to certain requirements and exceptions, effective 2018, deductions are generally eliminated for on-site premises athletic facilities; club dues and membership; entertainment, amusement and recreation; meals, food and beverages; and moving expenses.

Exempt Organizations

Finally, tax-exempt entities are also affected as they will now be taxed on the value of the transportation fringe benefits (either payment towards the benefit or the cost of an employer owned parking facility) by treating funds used to pay for these benefits as unrelated taxable income.

As mentioned above, the TCJA amended the employer deduction rules under Code Section 274 pertaining to the deduction of certain expenses for entertainment, amusement, or recreation and certain membership dues. While the elimination of the employer deduction for these expenses does not directly impact an exempt organization, the TCJA also amended Code Section 512(a) to provide that an exempt organization’s unrelated business taxable income is increased by any amount for which a deduction is not allowable under Code Section 274 and which is paid or incurred by the organization for any qualified transportation fringe (as defined in Code Section 132(f)), any parking facility used in connection with qualifying parking (as defined in Code Section 132(f)(5)(C), or any on-premises athletic facility (as defined in Code Section(j)(4)(B)). Accordingly, beginning in 2018, the amount an exempt organization pays for qualified transportation fringes, qualified parking, or on-premise athletic facilities will give rise to unrelated business taxable income.

Feel free to contact us for questions or further information on how the TCJA affects you and your business.


Elizabeth H. Latchana, Attorney Fraser TrebilcockElizabeth H. Latchana specializes in employee health and welfare benefits. Recognized for her outstanding legal work, in both 2018 and 2015, Beth was selected as “Lawyer of the Year” in Lansing for Employee Benefits (ERISA) Law by Best Lawyers, and in 2017 as one of the Top 30 “Women in the Law” by Michigan Lawyers Weekly. Contact her for more information on this reminder or other matters at 517.377.0826 or elatchana@fraserlawfirm.com.

Client Alert: Small Employers Have New Option for Benefit Offerings: Qualified Small Employer Health Reimbursement Arrangements

Employee Benefits and Healthcare LawSmall Employers Have New Option for Benefit Offerings: Qualified Small Employer Health Reimbursement Arrangements

In today’s market, small employers have increasingly difficultly offering competitive benefit structures given the elevated financial and administrative cost associated with maintaining comprehensive employer-sponsored group health plan coverage. And, pursuant to guidance issued under the Patient Protection and Affordable Care Act (“PPACA”), employers have been generally unable to pay for the cost of an employee’s health insurance on the individual market without incurring substantial compliance burdens and/or penalties. Certain small employers now have a welcomed new option available to help their employees pay for the cost of health insurance and other medical expenses: a qualified small employer health reimbursement arrangement (“QSEHRA”).

The 21st Century Cures Act amended section 9831 of the Internal Revenue Code (the “Code”) and provides that certain eligible small employers can establish a QSEHRA under which individual health insurance premiums and other Code section 213(d) qualified expenses can be reimbursed from. Unlike other forms of health reimbursement arrangements, a QSEHRA is not considered a “group health plan” for most purposes under the Code, ERISA, and the Public Health Service Act (“PHSA”). As such, a QSEHRA is exempt from numerous cumbersome legal requirements (including the PPACA’s PHSA mandates and COBRA). Thus, small employers that meet the requirements set forth in amended Code section 9831 and IRS guidance (Notice 2017-67) have a new opportunity to make their benefit offerings competitive.

IRS Notice 2017-67 (the “Notice”) provides comprehensive guidance related to compliance and administrative issues associated with QSEHRAs. The Notice is lengthy and comprehensive, and thus requires detailed review by any employer contemplating establishing a QSEHRA. However, a snapshot of highlights from the Notice for employers to keep in mind include:

  • What Employers Can Sponsor a QSEHRA? In order to adopt a QSEHRA, the employer cannot (1) be deemed an applicable large employer (i.e., generally an employer with 50 or more full-time employees (including full-time equivalents) in the preceding calendar year) under the employer shared responsibility mandate; and (2) offer a group health plan as defined in Code section 5000(b) (e.g., medical, dental, vision, health FSA, etc.) to its employees.
  • What Employees Must Be Provided Coverage? The QSEHRA must be provided on the same terms to all eligible employees. Uniformity is determined on the basis of the amount made available for reimbursement and not the amount actually reimbursed. The term “eligible employee” generally means any employee of the employer. However, the QSEHRA may be designed to exclude certain classes of employees including (1) employees who have not completed 90 days of service with the employers; (2) employees who have not attained age 25 before the beginning of the plan year; (3) certain part-time and seasonal employees; (4) certain non-participating employees covered by a collective bargaining agreement; and (5) nonresident aliens who do not receive earned income from the employer from sources within the United States. Employees cannot waive participation in the QSEHRA.
  • What Expenses Can Be Reimbursed? Guidance indicates that a QSEHRA can reimburse employees for Code section 213(d) medical care expenses (including major medical insurance premiums) incurred by the employee or an eligible family member. However, prior to providing reimbursement, the employee must substantiate the incurred expense (using a methodology similar to that used to substantiate health FSA expenses). Expenses reimbursed elsewhere do not qualify for reimbursement. Additionally, the QSEHRA may only reimburse expenses after the employee provides periodic proof that he or she maintains minimum essential coverage.
  • What is the Maximum Benefit That Can Be Provided? The maximum amount available to an employee under a QSEHRA is subject to an annual statutory dollar limit (adjusted annually for inflation). The limit for self-only coverage in 2018 is $5,050. The limit for family coverage is $10,250 for 2018.
  • How Does the QSEHRA Need to be Funded? The QSEHRA must be funded solely by an eligible employer (no salary reduction contributions are permitted).
  • What Notice and Reporting Obligations Are Associated with a QSEHRA? Written notice, which includes certain statutory language, to each eligible employee must be furnished by the employer at least 90 days before the beginning of each plan year (and on or prior to the first day the employee becomes eligible for an employee who is not eligible to participate at the beginning of the plan year). Additionally, the total amount of the employee’s permitted QSEHRA benefit must be reported on Form W-2. And, employers that sponsor a QSEHRA must file a Form 720 annually and pay PCORI fees under Code section 4376.

Small employers that are considering establishing a QSEHRA for their employees should carefully review IRS Notice 2017-67 and Code section 9831 to ensure appropriate legal compliance. The requirements contained in the guidance are numerous and comprehensive. Additionally, employers should keep in mind that QSEHRAs are still subject to the general welfare benefit plan requirements of ERISA and the HIPAA administrative simplification rules (unless an exception exists). Moreover, benefits under a QSEHRA are taken into account for purposes of the Cadillac Tax provisions under Code section 49801. Thus, employers are encouraged to consult with their legal counsel in conjunction with establishing and administering a QSEHRA. Proper administration is imperative and small errors can have large penalties.

Copies of the Notice and Code section 9831 can be found at the following:


Elizabeth H. Latchana, Attorney Fraser TrebilcockElizabeth H. Latchana specializes in employee health and welfare benefits. Recognized for her outstanding legal work, in both 2018 and 2015, Beth was selected as “Lawyer of the Year” in Lansing for Employee Benefits (ERISA) Law by Best Lawyers, and in 2017 as one of the Top 30 “Women in the Law” by Michigan Lawyers Weekly. Contact her for more information on this reminder or other matters at 517.377.0826 or elatchana@fraserlawfirm.com.

Client Alert: IRS Announces 2019 Increases for HSAs and Provides Relief for 2018 Reduction in Family Contribution Levels

 

Employee Benefits Lawyer

IRS Announces 2019 Increases for HSAs and Provides Relief for 2018 Reduction in Family Contribution Levels

The IRS has just released its 2019 annual inflation adjustments for Health Savings Accounts (HSAs) as determined under Section 223 of the Internal Revenue Code. Specifically, IRS Revenue Procedure 2018-30 provides the adjusted limits for contributions to a Health Savings Account (“HSA”), as well as the high deductible health plan (“HDHP”) minimums and maximums for calendar year 2019.

The 2019 limits are as follows:

  • Annual Contribution Limit
    • Single Coverage: $3,500
    • Family Coverage: $7,000
  • HDHP-Minimum Deductible
    • Single Coverage: $1,350
    • Family Coverage: $2,700
  • HDHP Maximum Annual Out-of-Pocket Expenses (including deductibles, co-payments and other amounts, but not including premiums)
    • Single Coverage: $6,750
    • Family Coverage: $13,500
  • The catch-up contribution for eligible individuals age 55 or older by year end remains at $1,000

Plans and related documentation, including employee communications, should be updated to reflect these new limits for 2019. As always, please keep in mind that participation in a health FSA (or any other non-HDHP) will result in HSA ineligibility, unless the health FSA is limited to: (1) limited-scope dental or vision excepted benefits; and/or (2) post-deductible expenses.

As for 2018, the IRS recently offered relief to those taxpayers affected by the reduction in maximum family contribution. By way of background, Revenue Procedure 2017-37 provided that the adjusted limits for contributions to HSAs for calendar year 2018 were $3,450 for single coverage and $6,900 for family coverage. Based on this guidance, employers communicated these amounts to their employees, and employees made elections up to these amounts.

However, the Tax Cuts and Jobs Act reflected a change in the inflation adjustment calculations for 2018, which actually reduced the maximum annual HSA contribution for those with family coverage back down to $6,850, which was the amount for 2017.

That has since been rectified by relief provided in Revenue Procedure 2018-27, which announced that the previously established $6,900 limitation would remain in effect for 2018.

Those employers who took swift action after the passage of the Tax Cuts and Jobs Act by alerting employees of the reduction, modifying salary reduction amounts, and possibly amending plan documents, are now (depending on the wording of their plan documents and communications) likely put in the position of undoing these changes…

For others, it is welcome relief that modifications are not required.

This alert serves as a general summary of lengthy and comprehensive new provisions of the Internal Revenue Code. It does not constitute legal guidance. Please contact us with any specific questions.


Elizabeth H. Latchana, Attorney Fraser TrebilcockElizabeth H. Latchana specializes in employee health and welfare benefits. Recognized for her outstanding legal work, in both 2018 and 2015, Beth was selected as “Lawyer of the Year” in Lansing for Employee Benefits (ERISA) Law by Best Lawyers, and in 2017 as one of the Top 30 “Women in the Law” by Michigan Lawyers Weekly. Contact her for more information on this reminder or other matters at 517.377.0826 or elatchana@fraserlawfirm.com.

NEW VIDEO: The HITECH Act and HIPAA

With the enactment of the Health Information Technology for Economic and Clinical Health (HITECH) Act, it has caused a number of issues for employers. It is crucial for employers to stay in legal compliance to avoid audits, and the substantial penalties that come with HIPAA violations.

This video discusses the HITECH Act and HIPAA, and their possible effects on employers.

Our lawyers at Fraser Trebilcock also devote substantial amounts of time to advising clients of legislative and regulatory changes in the employee benefits area, and frequently write and lecture on employee benefits topics. Click HERE to sign up to receive updates and alerts on matters related to Employee Benefits Law.


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Tax Reform Offers New Incentive for Employers Providing Paid FMLA Leave

Employee Benefits LawyerCertain employers that provide paid leave under the Family and Medical Leave Act (“FMLA”) may be eligible to receive a general business tax credit for tax years beginning in 2018 and 2019.  While the FMLA provides certain job-protected leave, it does not require such leave to be paid.  The new law incentivizes employers to provide wage replacement.  Continue reading Tax Reform Offers New Incentive for Employers Providing Paid FMLA Leave

Client Alert: DOL Announces April 1, 2018 as Final Applicability Date for Revised ERISA Claims Procedures Related to Disability Benefits

Employee Benefits and Healthcare LawDOL Announces April 1, 2018 as Final Applicability Date for Revised ERISA Claims Procedures Related to Disability Benefits

In a news release issued earlier this month, the U.S. Department of Labor (“DOL”) announced its final decision to make significant changes to the ERISA claims procedures related to disability benefits applicable to claims filed after April 1, 2018.  As previously advised, the DOL published final regulations on December 19, 2016 revising the existing claims and appeals procedures regulations under ERISA for employee benefit plans providing disability benefits (“Final Regulations”).  According to the DOL, the intent of the Final Regulations is to strengthen the current procedures by adopting some of the additional procedural safeguards and protections for disability plan claims that are already in place for group health plan benefits pursuant to the Patient Protection and Affordable Care Act.

The Final Regulations were scheduled to apply to all disability benefits claims filed on or after January 1, 2018.  However, on November 29, 2017, the DOL published another final rule delaying the applicability date of the Final Regulations for 90 days (through April 1, 2018).  According to the DOL, the delay was necessary to enable the DOL to consider comments and data as part of its effort, pursuant to one of President Trump’s executive orders, to examine regulatory alternatives that meet its objectives of ensuring the full and fair review of disability benefit claims while not imposing unnecessary costs and adverse consequences and to determine whether the substantive provisions of the Final Regulations should be rescinded, modified, or retained.

The January 2018 news release confirms that the substantive provisions of the Final Regulations will be retained: “The Department received approximately 200 comment letters from the insurance industry, employer groups, consumer advocates, and lawyers representing disability benefit claimants, all of which are posted on the Department’s website. Only a few comments responded substantively to the Department’s request for quantitative data to support assertions that the final rule would drive up disability benefit plan costs by more than the Department had predicted, cause an increase in litigation, and consequently reduce workers’ access to disability insurance protections.  The information provided in the comments did not establish that the final rule imposes unnecessary regulatory burdens or significantly impairs workers’ access to disability insurance benefits.”  Accordingly, the substantive provisions of the Final Regulations will apply to disability benefits for claims filed “after April 1, 2018.”

With the April 1, 2018 applicability date quickly approaching, it is imperative for employers to work with their insurance carriers, third party administrators, and attorneys to ensure that all underlying disability plans/benefits and associated documentation (including any ERISA wrap plans, Code section 125 cafeteria plans, and claims denial forms) are reviewed and updated to ensure legal compliance with the requirements for claims filings beginning after April 1, 2018.

For highlights of the substantive provisions of the Final Regulations, please see our May 11, 2017 alert, http://www.fraserlawfirm.com/blog/2017/05/action-required-before-year-end-disability-plans-claims-and-appeals-procedures, or contact us.

Questions? Email Beth Latchana


Elizabeth H. Latchana, Attorney Fraser TrebilcockElizabeth H. Latchana specializes in employee health and welfare benefits. Recognized for her outstanding legal work, in both 2018 and 2015, Beth was selected as “Lawyer of the Year” in Lansing for Employee Benefits (ERISA) Law by Best Lawyers, and in 2017 as one of the Top 30 “Women in the Law” by Michigan Lawyers Weekly. Contact her for more information on this reminder or other matters at 517.377.0826 or elatchana@fraserlawfirm.com.

UPCOMING DEADLINES: (1) Form W-2 Reporting of Employer-Provided Health Coverage; And (2) Medicare Part D Notices To CMS

employee benefits planReminder: Form W-2 Reporting on Aggregate Cost of Employer Sponsored Coverage

Unless subject to an exemption, employers must report the aggregate cost of employer-sponsored health coverage provided in 2017 on their employees’ Form W-2 (Code DD in Box 12) issued in January 2018. Please see IRS Notice 2012-09 and our previous e-mail alerts for more information.

The following IRS link is helpful and includes a chart setting forth various types of coverage and whether reporting is required: http://www.irs.gov/Affordable-Care-Act/Form-W-2-Reporting-of-Employer-Sponsored-Health-Coverage. Please note this is a summary only and Notice 2012-09 should also be consulted. The IRS has issued questions and answers regarding reporting the cost of coverage under an employer-sponsored group health plan, which can be found here: https://www.irs.gov/newsroom/employer-provided-health-coverage-informational-reporting-requirements-questions-and-answers.

If you have questions regarding whether you or your particular benefits are subject to reporting, please feel free to contact us.

Deadline Coming Up for Calendar Year Plans to Submit Medicare Part D Notice to CMS

As you know, group health plans offering prescription drug coverage are required to disclose to all Part D-eligible individuals who are enrolled in or were seeking to enroll in the group health plan coverage whether such coverage was “actuarially equivalent,” i.e., creditable. (Coverage is creditable if its actuarial value equals or exceeds the actuarial value of standard prescription drug coverage under Part D.) This notice is required to be provided to all Part D eligible persons, including active employees, retirees, spouses, dependents and COBRA qualified beneficiaries.

The regulations also require group health plan sponsors with Part D eligible individuals to submit a similar notice to the Centers for Medicare and Medicaid Services (“CMS”). Specifically, employers must electronically file these notices each year through the form supplied on the CMS website.

The filing deadline is 60 days following the first day of the plan year. If you operate a calendar year plan, the deadline is the end of February. If you operate a non-calendar year plan, please be sure to keep track of your deadline.

At a minimum, the Disclosure to CMS Form must be provided to CMS annually and upon the occurrence of certain other events including:

  1. Within 60 days after the beginning date of the plan year for which disclosure is provided;
  2. Within 30 days after termination of the prescription drug plan; and
  3. Within 30 days after any change in creditable status of the prescription drug plan.

The Disclosure to CMS Form must be completed online at the CMS Creditable Coverage Disclosure to CMS Form web page at:

https://www.cms.gov/Medicare/Prescription-Drug-Coverage/CreditableCoverage/CCDisclosureForm.html

  1. The online process is composed of the following three step process: Enter the Disclosure Information;
  2. Verify and Submit Disclosure Information; and
  3. Receive Submission Confirmation.

The Disclosure to CMS Form requires employers to provide detailed information to CMS including but not limited to, the name of the entity offering coverage, whether the entity has any subsidiaries, the number of benefit options offered, the creditable coverage status of the options offered, the period covered by the Disclosure to CMS Form, the number of Part D eligible individuals, the date of the notice of creditable coverage, and any change in creditable coverage status.

For more information about this disclosure requirement (instructions for submitting the notice), please see the CMS website for updated guidance at:

https://www.cms.gov/Medicare/Prescription-Drug-Coverage/CreditableCoverage/CCDisclosure.html

As with the Part D Notices to Part D Medicare-eligible individuals, while nothing in the regulations prevents a third-party from submitting the notices (such as a TPA or insurer), ultimate responsibility falls on the plan sponsor.

This email serves solely as a general summary of the Form W-2 reporting requirements and CMS disclosure for Medicare Part D.

Questions? Email Beth Latchana


Elizabeth H. Latchana, Attorney Fraser TrebilcockElizabeth H. Latchana specializes in employee health and welfare benefits. Recognized for her outstanding legal work, in both 2018 and 2015, Beth was selected as “Lawyer of the Year” in Lansing for Employee Benefits (ERISA) Law by Best Lawyers, and in 2017 as one of the Top 30 “Women in the Law” by Michigan Lawyers Weekly. Contact her for more information on this reminder or other matters at 517.377.0826 or elatchana@fraserlawfirm.com.

This correspondence is intended to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.

ICLE On-Demand Seminar: Employee Benefits

Continued education is a vital part in ensuring that attorneys are up to date with the greatest knowledge to be confident that they are handling their client’s cases to the highest degree.

Fraser Trebilcock attorney Brian Gallagher recently recorded a presentation for the Institute of Continuing Legal Education (ICLE) on employee benefit matters. Specifically, the seminar covers qualified retirement plans and what the employer/employee receive in tax benefits from these retirement plans.

The on-demand seminar covers multiple employee benefits topics, including qualified/non-qualified retirement plans, health and welfare plans, and other fringe benefits.

Click here for a short preview of the seminar.

CLIENT ALERT: IRS Announces Increases for Health FSAs and HSAs for 2018

Employee Benefits LawyerThe IRS has just released its 2018 annual inflation adjustments, in which it announced that the dollar limitation under Code section 125 on voluntary employee salary reductions for contribution to health flexible spending arrangements (health FSAs) is increasing to $2,650. Previously the limitation was $2,600. The authority for this increase can be found in Rev. Proc. 2017-58: https://www.irs.gov/pub/irs-drop/rp-17-58.pdf. This link takes you to the IRS annual inflation adjustments for more than 50 tax provisions. Another item to note is that the qualified transportation fringe benefit increases to $260.

Although open enrollment season is about to be in full swing for most, employers should ensure that their salary reduction agreements and related enrollment materials are updated to reflect this increase. Additionally, employers will want to review their Code section 125 cafeteria plan documents to ensure these also allow for such an increase.

Moreover, as previously advised, earlier this year in Rev. Proc. 2017-37, the IRS released the HSA limits for 2018.  Specifically, IRS Revenue Procedure 2017-37 provides the adjusted limits for contributions to a Health Savings Account (“HSA”) as determined under Section 223 of the Internal Revenue Code, as well as the high deductible health plan (“HDHP”) minimums and maximums for calendar year 2018.

The 2018 limits:

    • Annual Contribution Limit
      • Single Coverage: $3,450
      • Family Coverage: $6,900
    • HDHP-Minimum Deductible
      • Single Coverage: $1,350
      • Family Coverage: $2,700
    • HDHP Maximum Annual Out-of-Pocket Expenses (including deductibles, co-payments and other amounts, but not including premiums)
      • Single Coverage: $6,650
      • Family Coverage: $13,300
    • The catch-up contribution for eligible individuals age 55 or older by year end remains at $1,000.

Plans and related documentation, including employee communications, should be updated to reflect these new limits.

As always, please keep in mind that participation in a health FSA will result in HSA ineligibility, unless the health FSA is limited to:

  1. limited-scope dental or vision excepted benefits; and/or
  2. post-deductible expenses.

This blog serves solely as a general summary of the Medicare Part D disclosure requirements, and does not constitute legal advice. If you have questions regarding the application of this fee to your plans, contact an attorney at Fraser Trebilcock.


Elizabeth H. Latchana, Attorney Fraser TrebilcockElizabeth H. Latchana specializes in employee health and welfare benefits. Recognized for her outstanding legal work, in both 2018 and 2015, Beth was selected as “Lawyer of the Year” in Lansing for Employee Benefits (ERISA) Law by Best Lawyers, and in 2017 as one of the Top 30 “Women in the Law” by Michigan Lawyers Weekly. Contact her for more information on this reminder or other matters at 517.377.0826 or elatchana@fraserlawfirm.com.