Tag: FSAs

Client Alert: Dependent Care FSA Relief, In a Big Way

The American Rescue Plan Act (“ARPA”) temporarily amends Code section 129(a) to increase the amount of dependent care expenses that may be excluded from gross income.

Dependent care FSAs have historically been capped at reimbursing $5,000 per calendar year.  However, under the ARPA, and only for taxable years beginning after December 31, 2020 and before January 1, 2022, dependent care FSAs can reimburse over double! The max is now $10,500 (or $5,250 for married individuals filing single returns).

Employers, of course, must amend their plans. Although generally Code section 125 cafeteria plans cannot be amended retroactively, the ARPA states that retroactive amendments are allowed for this purpose as long as: (1) the amendment is adopted no later than the last day of the plan year in which it is effective, and (2) the plan is operating consistent with the term of the amendment as of its effective date.

This will be welcome news for all employers who were struggling with allowing carryovers or grace periods for dependent care FSAs that would exceed the $5,000 max.

As you are well aware, the law and guidance are rapidly evolving in this area. Please check with your Fraser Trebilcock attorney for the most recent updates.

Fraser Trebilcock is committed to providing you valuable information. Please watch for upcoming alerts on these and other topics.

We have created a response team to the rapidly changing COVID-19 situation and the law and guidance that follows, so we will continue to post any new developments. You can view our COVID-19 Response Page and additional resources by following the link here. In the meantime, if you have any questions, please contact your Fraser Trebilcock attorney.

Elizabeth H. Latchana specializes in employee health and welfare benefits. Recognized for her outstanding legal work, in both 2019 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.

Brian T. Gallagher is an attorney at Fraser Trebilcock specializing in ERISA, Employee Benefits, and Deferred and Executive Compensation. He can be reached at (517) 377-0886 or bgallagher@fraserlawfirm.com.

Client Alert: PCORI Payment Due July 31st

Patient-Centered Outcomes Research Institute (PCORI) Fee/Comparative Effectiveness Fee

Reminder: Plan Sponsors of Applicable Self-Funded Health Plans Must Make PCORI Fee Payment By July 31, 2019.

Please let this serve as a reminder that the PCORI fee is due by July 31st and must be reported on Form 720. The fee is used to partially fund the Patient-Centered Outcomes Research Institute which was implemented as part of the Patient Protection and Affordable Care Act.

Instructions are found here (see Part II): http://www.irs.gov/pub/irs-pdf/i720.pdf

The Form 720 itself is found here (see Part II): http://www.irs.gov/pub/irs-pdf/f720.pdf

Form 720, as well as the attached Form 720-V to submit payment, must be used to report and pay the requisite PCORI fee to the IRS. While Form 720 is used for other purposes to report excise taxes on a quarterly basis, for purposes of this PCORI fee, it is only used annually and is due by July 31st of each relevant year.

As previously advised, plan sponsors of applicable self-funded health plans are liable for this fee imposed by Code section 4376. Insurers of specified health insurance policies are also responsible for this fee.

  • For plan years ending on or after October 1, 2016 and before October 1, 2017, the fee is $2.26 per covered life.
  • For plan years ending on or after October 1, 2017 and before October 1, 2018, the fee is $2.39 per covered life.
  • For plan years ending on or after October 1, 2018 and before October 1, 2019, the fee is $2.45 per covered life.

See IRS Notice 2018-85. The fee is due no later than July 31 of the year following the last day of the plan year and concludes with plan years ending on or after October 1, 2018 and before October 1, 2019. For calendar year plans, the fee runs from 2012 through 2018 plan years. This means that 2018 will be the last year that the PCORI fee is assessed for a calendar year plan (and again, will be due July 31, 2019).

There are specific calculation methods used to configure the number of covered lives and special rules may apply depending on the type of plan being reported. While generally all covered lives are counted, that is not the case for all plans. For example, HRAs and health FSAs that are not excepted from reporting only must count the covered participants and not the spouses and dependents. The Form 720 instructions do not outline all of these rules.

Elizabeth H. Latchana, Attorney Fraser TrebilcockElizabeth H. Latchana specializes in employee health and welfare benefits. Recognized for her outstanding legal work, in both 2019 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.