2. Benefts Industry Flashcards
To which federal taxes are benefits such as health ins, sick pay, disability pay, WCI, and retirement plans subject?
It varies.
The different types of bens are funded by ER and in part by EE salary reduction contribs. Whether ER and EE contribs and Ben payments received by EEs are subject to withholding for FIT, FICA, or FUTA varies by benefit type.
Are ER contribs made on an EE’s behalf to a health ins plan considered wages?
Generally no.
ER contribs made on EE’s behalf to a health ins plan are generally not considered wages, and thus not FIT- FICA or FUTA taxable. OTOH, EE contribs to such plans are included in the EE’s taxable income for the purposes of all of these taxes UNLESS the contribs are made via a Ss.125 caf plan.
If the ER doesn’t offer the benefits thru a caf plan, and the EE may choose whether to have the ER pay health ins premiums in lieu of receiving the same amount in wages, the amounts are fully taxable to the EE whether they’re received as wages of as ER-paid premium.
Are health/accident ins plan benefits received by an EE taxable?
No, so long as the expenses are for medical care as defined by IRS.
What reqs must be met for ER contribs (to a health plan) to be exempted from FICA and FUTA taxation?
ER contribs toward health ins must be made under a plan to be free from FICA FUTA tax. Plan exists if any one of the following is met:
1. Plan is in writing; copies of plan details are made available to EEs in print (booklet, pamphlet…) or by email
2. Plan is referred to in an employment contract
3. The ER can document that EEs contribute to the plan
4. ER contribs are kept in a separate acct from the ER’s salary account
5. ER is required to make the contribs
->The plan must benefit EEs and their deps in order for the tax exclusion to apply.
Explain the tax treatment of health bens offered by ER to EEs’ same-sex spouses & their eligible deps
The value of health ins bens offered by ER to EEs’ same-sex spouses & eligible deps is NOT subject to FIT or FICA. In addition, ERs are permitted to offer this benefit on pretax basis. Legally married samesex couples must be treated as spouses, regardless of their state of residence/celebration.
Discuss the 2016 IRS regs that codified a nationally uniform rule regarding tax treatment of benefits to individuals in same-sex marriage
Defined the terms spouse, husband, and wife in a gender neutral way, for all federal tax purposes, to mean an individually lawfully married to another individual. The phrase “husband and wife” means two individuals lawfully married to each other.
According to the regs, if a couple is married in a state/territory/possession that recognizes same-sex marriage, it’s legal for all fed tax purposes regardless of residence.
Marriages performed in a foreign country are valid in the US for all fed tax purposes if at least one state/territory/possession recognizes it as valid. That req is easily met because of 2015 USSC decision mandating ALL states recognize same-sex marriage.
List the bens that an ER may provide to an EE’s same-sex spouse tax-free under federal law
- Health bens
- Qualified tuition reduction
- Meals, lodging provided as a condition of employment
- Dependent-care bens
- No-additional-cost svcs
- Qualified EE discounts
- Working condition fringe bens
- Qualified transportation fringe bens
- De minimis fringe bens
- qualified moving exp
- Qualified retirement planning svcs
- On-site gyms/athletic facilities
Under federal law, how is the value of all benefits provided to an EE’s same-sex civil union or domestic partner treated?
- NOT exempt from FIT unless person is a “dependent,” as defined by IRC.
If benefits are provided to a non dependent partner in a same-sex civil-union or DP, FIT are withheld based on FMV of the benefits: imputed income.
Explain the PPACA’s non discrimination reqs enacted for health ins plans & current enforcement status
Prior to ACA, ER could structure health ins plans thru third-party ins co to favor HCEs without jeopardizing the tax exclusion for ER contribs & reimbs.
ACA changed the rules to require such plans to meet the same nondiscrim reqs that self-ins plans must meet in order to retain tax-favored status.
What new reqs did PPACA impose on form W-2?
All ERs providing group health that is excludable from EE gross income must report the agg cost of coverage to EE on their forms W-2. The req is for consumer info purposes only and doesn’t cause ER-provided health ins that is non taxable to become taxable. This includes the portion of the cost paid by the ER & EE.
NOT reported on the form:
- LTC
- HIPAA “excepted benefits,” including D&V not part of a group health plan
- Coverage for specified disease or illness/hospital indemnity or other fixed-indemnity ins, if premiums are paid for by EE post-tax
- MSA/HSA contribs. Reporting ER HRA is optional
- Cost of EAP, wellness program, and onsite medical clinic, unless ER charges a COBRA premium to continue these
- Wellness programs, unless COBRA QBs pay premiums
- Excess reimb to HCEs that is made under discriminatory insured plan that is INcluded in EE gross income
- Payment/reimb of health ins premium made for 2% S-corp shareholders, that is INcluded in EE gross income
- Sal reduction elections for HC-FSAs
Summarize the info that is reported to EE & IRS on the ACA-enacted Form 1095-C
All large (50+ FTE), insured ERs must report whether they offer group health to full-time EEs & no spouse deps, and whether that insurance provides MV and is affordable.
Large self-insured ERs must report whether they offer group health to ANY EE (includes PT). The info is reported on 1095-C.
SMALL (<50 FTE) self-ins ERs complete and file Form 1095-B.
Describe the characteristics of an HRA
- ER may provide HRA to reimburse current & former (e.g., retired) EEs for medical expenses of EE, spouse, dep, and eligible adult deps (thru age 26).
- HRAs are fully funded by ER and cannot be offered to EE thru caf plan/sal reduction
- EE are reimbursed on pretax basis up to set max amount per period of coverage. Any amount not used by end of period is NOT lost and CAN be carried-over, at employer’s discretion
- Three conditions must be met for HRA coverage & remind to be EXcluded from EE gross income:
1. HRA only reimburses medical care expenses as defined by IRC
2. Every request for reimbursement is substantiated
3. HRA doesn’t reimburse expenses for prior tax year, those incurred before HRA plan took effect, or incurred before EE enrolled in plan
3 conditions must be met for HRA coverage/reimbursements not to be included in EE gross income
- HRA only reimburses med care expenses as defined by IRC
- Every request for reimbursement is substantiated
- HRA doesn’t reimburse expenses for a prior tax year, those incurred before HRA plan took effect, or those incurred before EE enrolled in the plan
List the criteria for a SMALL employer to meet, to qualify for a standalone HRA NOT linked to an HDHP
- Small employer has <50 FTE
- Does not offer its EEs group major-medical
-> Can offer standalone qualified small ER HRA: QSEHRA without running afoul of ACA market reform
ER’s contribution into EEs’ QSEHRA is limited to specified amount for EE based on their marital status.
Amounts are adjusted for inflation. Amounts exceeding limits, and amounts the EE doesn’t use to purchase an individual policy offering MEC, are taxable to EE.
In 2003, the Medicare Rx Drug, Improvement, and Modernization Act (MMA) made MSAs obsolete by creating HSAs.
What are some unique features of HSAs?
HSAs are tax-exempt accounts used by EEs to pay for med expenses for self, spouse, deps. ER can offer HSA to EEs enrolled in HDHP. Annual caps apply to the amount of contribs that may be made to an HSA for both self-only or +family coverage.
Statutory contrib caps as well as deductibles and OOPMs are adjusted annually for inflation. Catch-up contribs can be made into HSA by person age 55+ until they reach Medicare eligibility.
No contribs once individual enrolls in Medicare.
[While Archer MSAs were replaced by HSAs in ‘03, there are still Medicare MSAs. They’re uncommon, but available with HDHP thru Medicare Advantage plans.]
