Module 2 Benefits Industry

Question 1

Are employer contributions made on an employee’s behalf to a health insurance plan considered wages?

Answer 1

Employer contributions are not considered wages and are not FIT, FICA, or FUTA taxable

Question 2

What requirements must be met for employer contributions to be exempted from FICA and FUTA taxation?

Answer 2

• the plan is in writing and copies of the plan details are made available to employees
• the plan is referred to in an employment contract
• the employer can document that employees contribute to the plan
• employer contributions are kept in a separate account from the employer’s salary account
• the employer is required to make the contributions

Question 3

What are the regulations issued in 2016 by the IRS that codified a nationally uniform rule regarding the tax treatment of benefits provided to individuals in a same-sex marriage?

Answer 3

defines the terms spouse, husband and wife in a gender-neutral way, for all federal tax purposes, to mean an individual lawfully married to another individual; the phrase husband and wife means two individuals lawfully married to each other

Question 4

What are the benefits that an employer may provide to an employee’s same-sex spouse tax-free under federal law?

Answer 4

• health benefits
• qualified tuition reduction
• meals and lodging provided as a condition of employment
• dependent care benefits
• no-additional-cost services
• qualified employee discounts
• working condition fringe benefits
• qualified transportation fringe benefits
• de minimis fringe benefits
• qualified moving expenses
• qualified retirement planning services
• access to on-premises gyms and other athletic facilities

Question 5

What information must be reported to employees and to the IRS on the new ACA enacted form 1095-C?

Answer 5

all large insured employers (50+ full time employees) must report whether they offer affordable, minimum essential coverage

Question 6

What is a cafeteria plan?

Answer 6

a type of benefit plan permitted by IRC 125 in which the employer offers a choice of benefits that are either in the form of taxable cash compensation or tax -free (qualified) benefits

Question 7

How does an FSA integrate into group health plans?

Answer 7

must meet the market reform provisions, but they will be considered to provide only excepted benefits if the employer also makes available group coverage that is not limited to excepted benefits and the health FSA is structured so that the maximum benefit payable to any participant does not exceed tow times the participant’s salary reduction election for the year

Question 8

What happens to unused FSA amounts?

Answer 8

employee may be eligible to carry over up to $500 of the unused amount from one year to the next

Question 9

What is the FSA contribution limit?

Answer 9

beginning with the 2017 plan year, the max amount of EE’s pre-tax contributions is $2,600

Question 10

Which federal taxes are benefits (health insurance, sick pay, disability pay, WC insurance, and retirement savings plans) subject?

Answer 10

it varies among benefit types as to whether a benefit is subject to FIT, FICA, or FUTA

Question 11

Are health and accident insurance plan payment benefits received by an employee taxable?

Answer 11

no, so long as the employee’s expenses are for medical care

Question 12

What is the tax treatment of health benefits offered by employers to employees’ same-sex spouses and their eligible dependents?

Answer 12

not subject to FIT or FICA tax withholding and employers can offer this benefit on a pre-tax basis regardless of their state of residence or state of celebration

Question 13

Under federal law, how is the value of all benefits provided to an employee’s same-sex civil union partner or domestic partner treated?

Answer 13

is not exempt from FIT unless the person is a ‘dependent’ as defined in the IRC

Question 14

What are the nondiscrimination requirements that the Patient Protection and Affordable Care Act (ACA) enacted for health insurance plans and its current enforcement status?

Answer 14

ACA changed the rules to require plans that favor highly compensated employees (HCEs) to meet the same nondiscrimination requirements that self-insured plans must meet in order to retain tax-favored status

Question 15

What new requirements did ACA impose on the Form W-2 reporting?

Answer 15

all employers that provide group health care coverage that is excludable from employees’ gross income must report the aggregate cost of the coverage to employees on their W-2s

Question 16

What are the characteristics of an HRA?

Answer 16

• reimbursement of current and former employees for medical expenses
• fully funded by the employer and cannot be offered to employees through a cafeteria plan or salary reduction

Question 17

What is the criteria that a small employer must meet to qualify for a standalone HRA not linked to a HDHP?

Answer 17

a small employer (does not have at least 50 FTEs) that does not offer its employees group major medical coverage may offer standalone qualified small employer health reimbursement arrangements (QSEHRAs) without running afoul of ACA market reform provisions

Question 18

What are some of the unique features of HSAs?

Answer 18

tax-exempt accounts used by employees to pay for medical expenses for themselves, their spouses, and dependents if they are enrolled in a HDHP

Question 19

How are contributions to HSAs taxed?

Answer 19

employer contributions are excluded from the employee’s gross income and are not taxable wages for purposes of withholding FIT, FICA taxes, and FUTA taxes if, when the contributions are made, the employer reasonably believes it is excludable

Question 20

How is pay for sick days associated with brief minor illnesses treated for tax purposes?

Answer 20

this type of sick pay is subject to FIT, FICA taxes, and FUTA taxes when paid

Question 21

How are sick pay benefits for lengthier absences treated for tax purposes?

Answer 21

as STD and LTD, benefits that can be attributed to employee contributions made with after-tax dollars are not taxable income to the employee, benefits that can be attributed to employee pretax contributions or employer contributions are included in the employee’s taxable income and may be taxable for FIT, FICA, and FUTA

Question 22

What is the taxability of permanent disability benefits?

Answer 22

are subject to FIT withholding to the extent that the premiums were paid by the employer or the employee on a pretax basis, payments made under a plan after the employment relationship ends because of the disability, retirement, or death are not subject to FICA taxes or to FUTA taxes unless the payments would have been made even if the employment had not ended for one of those reasons

Question 23

What are the general rules to which workers’ compensation benefits are subject?

Answer 23

as a general rule, workers’ compensation benefits are not subject to FIT or FICA taxes on amounts that do not exceed the amount of benefits provided under federal, state, or local law

Question 24

What types of plans may be offered under a cafeteria plan?

Answer 24

• a 401(k) plan
• health and accident insurance plan coverage
• HSA contributions
• long term and short term disability coverage
• COBRA continuation coverage premiums

Question 25

What benefits are nonqualified, and are taxable income to employees and may not be offered as part of a cafeteria plan?

Answer 25

• scholarships and fellowships
• nontaxable fringe benefits under 132
• educational assistance benefits
• meals and lodging provided for the employer’s benefit
• MSA contributions made by the employer
• certain HSAs
• certain long-term care insurance benefits
• certain group-term life insurance benefits
• tax-sheltered annuity plan elective deferrals under 403(b)

Question 26

What are the taxation requirements of a cafeteria plan?

Answer 26

employer contributions to a qualified cafeteria plan that relate to tax-free benefits chosen by an employee are not included in the employee’s income and are not taxable for FIT, FICA, or FUTA

Question 27

What special rules apply to 401(k) plans and group-term life insurance offered under a qualified cafeteria plan?

Answer 27

• pretax 401(k) plan employer contributions under a qualified cafeteria plan are subject to FICA and FUTA taxes and must be reported on an employee’s form W-2 along with amounts withheld
• cafeteria plans may offer employees more than $50k of group-term life insurance to an employee as a qualified benefit, the imputed cost of coverage in excess of $50k must be included in income

Question 28

Under a cafeteria plan, if an employee elects to receive cash rather than to purchase benefits, how is the cash treated for tax purposes?

Answer 28

if an employee elects to receive cash rather than to purchase benefits, the cash is wages and is FIT, FICA, and FUTA taxable

Question 29

Upon what factors does the tax treatment of qualified pension and profit-sharing plans depend?

Answer 29

depends on who makes the contributions,

• EE after tax contributions are included in employee income and are FIT, FICA, and FUTA taxable
• voluntary employee contributions are always taxable income
• employee elective deferrals are FICA and FUTA taxable
• employer contributions to qualified plans are not included in employees’ taxable wages and are not FIT, FICA, or FUTA taxable
• employees are taxed on pension plan payments when they are received to the extent that they are based on employer contributions, pretax deferrals, or investment gains
• they are only subject to FIT, however, and not to FICA or FUTA taxes

Question 30

Are contributions to 401(k) plans considered wages?

Answer 30

not considered wages and are not subject to FIT withholding, employee elective deferrals are subject to FICA and FUTA taxes, even though employer matching contributions are not

Question 31

What is the taxability of IRAs?

Answer 31

• employer IRA contributions are included in the income of employees but they are not subject to FIT withholding
• income earned on contributions is not taxable until distributed to employees
• employer contributions are subject to FICA and FUTA taxes

Question 32

What is the taxability of Roth IRAs?

Answer 32

contributions are not deductible from employee income

Question 33

What is the taxability of SEP plans?

Answer 33

employer contributions are not FIT, FICA, or FUTA taxable

employee contributions are excluded from wages up to the deferral limit but are FICA and FUTA taxable

Question 34

What is the taxability of ESOPs?

Answer 34

• defined contribution plans that give employees the chance to own shares of the employer’s stock
• employer contributions are not taxable wages and not FIT, FICA, or FUTA taxable