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IRS Provides ACA Reporting Relief

12.26.18

On Friday, December 22, 2017, the IRS some relief regarding ACA reporting:

• The good faith reporting standard will continue to apply for the calendar year 2017 reporting.
  • While employers should do what they can to provide all required reporting as accurately
    as possible, any employer that can show good faith effort to comply may be able to
    avoid the penalties for missing or incorrect returns.
• The due date to provide the 1095 form to individuals is automatically extended 30 days.
  • The previous due date was Wednesday, January 31, 2018.
  • This is automatically extended to Friday, March 2, 2018. Employers do not need to
    apply for this automatic extension.
• However, the due date to provide 1094 and 1095 forms to the IRS is not extended.
  • Employers providing forms 1094 and 1095 on paper must postmark them to the IRS by
    Wednesday, February 28, 2018.
  • Employers providing them electronically must e-file them by Monday, April 2, 2018. As a
    reminder, any employer issuing 250 or more forms must e-file.

Tax Cuts and Jobs Act (H.R.1) Signed Into Law

On Wednesday, December 20, 2017, President Trump held a news conference to congratulate the House and Senate on passing the Tax Cuts and Jobs Act (). As promised, he signed it into law before Christmas on Friday, December 22. The new law permanently lowers the corporate tax rate from 35% to 21% beginning in 2018, and several revisions to pass-through businesses’ and individuals’ taxes are made for 2018 through 2025.

Below we review the changes most impactful to employee benefits.

The Health Insurance Individual Mandate Is Repealed Effective 2019

The Affordable Care Act (ACA) is left largely intact. The individual mandate penalties for not having health coverage are permanently changed to $0 starting in 2019. It appears this will have little to no direct impact on group benefit plans.

Otherwise, the numerous ACA provisions affecting employers remain, including but not limited to:

• The §4980H “play or pay” rules, non-deductible penalties, and IRS reporting remain
• Tax credit subsidies continue for public Marketplace coverage
• The 0.9% additional Medicare tax and 3.8% net investment income tax both remain
• The health insurance providers fee and medical device tax both resume in 2018
• The §4980I “Cadillac” tax is still scheduled to begin 2020

There are some bills in Congress to delay the three taxes in the final 2 bullets above. We will keep an eye on whether any of those come to pass.

Other Benefit Changes

• Inflation Indexing
  • Some benefits provisions index to the consumer price index for urban consumers (CPI-U). These include things like the annual contribution limit for flexible spending accounts (FSAs) and health savings accounts (HSAs), and the annual thresholds for the §4980I “Cadillac” tax coming up in 2020.
  • Beginning 2019, these will index according to the chained CPI (C-CPI-U), which generally indexes more slowly but is generally regarded by the government as a more accurate representation of true inflation.
  • As a result, FSA and HSA contribution limits may index more slowly than they have in the past, and the “Cadillac” tax may impact more employers more quickly when the thresholds defining a “Cadillac” plan don’t move up as quickly as health insurance costs.
• Qualified Transportation
  • Employer deduction for qualified mass transit and parking expenses is permanently removed starting in 2018 (except as necessary for the safety of an employee in commuting between work and home).
  • Even tax-exempt employers (non-profits and governments) paying for such benefits will have to report it as subject to the unrelated business income tax (UBIT).
  • Some municipalities, such as NYC, DC, and San Francisco, mandate employers offer such benefits, but hopefully the reduced corporate tax rate would help offset the impact non-deductibility will impose.
  • Employees would still be allowed to pay pre-tax toward these qualified §132 benefits out of their own paychecks.
  • The $20 per month bicycle commuter benefit is eliminated from 2018 through 2025.
• Moving Expenses
  • From 2018 through 2025, employee job-related moving expenses are not deductible to employer or employee, and expenses paid by employer are taxable to employees.
• Entertainment
  • The deduction for employee entertainment/recreation expenses is permanently repealed effective 2018, including membership/subscription dues with respect to any club organized for pleasure, recreation, or other social purposes.
• Meals
  • The 50% deduction of meal expenses for work-related travel remains, and such meals remain non-taxable to employees.
  • De minimis food/beverages provided on or near employer premises for the convenience of the employer are reduced to the 50% deduction. In 2026, they’ll lose all deductibility.
• Employee Achievement Awards
  • Generally, employers are allowed to provide deductible and non-taxable “tangible personal property” worth up to $400 in a given year for various achievements, and that can go up to $1,600 for an employee if the qualified, written, non-discriminatory award plan doesn’t average more than $400 per recipient that year.
  • Beginning in 2018, the new law clarifies that “tangible personal property” cannot include cash and cash equivalents (like gift cards), vacations, meals, lodging, event tickets, stocks, bonds, other securities, and other similar consumables.
• Paid Family and Medical Leave Act (FMLA) Tax Credit
  • For 2018 and 2019, employers will be eligible for a tax credit (that’s a dollar-for-dollar reduction in tax liability) when they provide a certain amount of paid leave under FMLA.
  • Employers can claim 12.5% of their paid FML expenses as a tax credit if they provide:
    • Full-time employees at least two weeks of annual paid FMLA, and
    • Part-time employees a pro-rated share of that amount of leave time per a prescribed ratio (his/her expected PT hours divided by normal FT hours),
    • At 50% of normal pay,
    • Without requiring the employee to use other banked hours (like sick, vacation, or paid time off/PTO) and outside of any state or local mandatory paid leave.
• If the employer is more generous, the 12.5% credit can scale 0.25% higher for every 1% in additional compensation, all the way up to 25% credit for up to 12 weeks per tax year.
• However, employees with more than 60% of the highly compensated earnings threshold (which was $120,000 in 2017) won’t earn the employer the tax credit.
• That’s the general framework, but future regulations will provide needed detail.
• On-site Gyms
  • The deduction for on-site gyms is permanently repealed effective 2018.
  • Even tax-exempt employers will have to report funds they spend toward on-site gyms as subject to the unrelated business income tax (UBIT).
  • However, on-site gyms can continue to be non-taxable to employees.
• Individual Threshold for Deducting Unreimbursed Medical Expenses
  • While not an employee benefit, this could be an impactful change to note.
  • For 2017 and 2018, taxpayers can itemize unreimbursed medical expenses exceeding 7.5% of their adjusted gross income (AGI) rather than the current 10% threshold.

Other Benefits Which Didn’t Change

• There had been a discussion of capping the tax exclusion and deductibility of employee benefits. Thankfully that did not occur, although we do still have the “Cadillac” tax to contend with in 2020.
• Tuition assistance, adoption assistance, dependent care assistance plans (DCAPs), employer-provided child care, and employer-provided housing were all left intact.
• In addition to the tax reform bill, there was a short-term budget bill to provide financing for the children’s health insurance program (CHIP) through March.