Reproduced with permission from Benefits Magazine, Volume 57, No. 1, January 202, pages 40-45, published by the International Foundation of Employee Benefit Plans.
Employers have a duty to provide a safe workplace for employees. The author discusses preventive measures employers can take to reduce the risk of workplace violence and create a psychologically healthy work culture.
As part of the Further Consolidated Appropriations Act, 2020 (the “Act”), Congress repealed Section 512(a)(7) of the Internal Revenue Code of 1986 (the “Code”). This Code section was added as part of the Tax Cuts and Jobs Act of 2017 (the “TCJA”) and resulted in an unrelated business income tax (UBIT) liability when a tax-exempt entity provides qualified transportation benefits to employees. The repeal is effective retroactively to December 22, 2017, the date the TCJA was enacted. Tax-exempt entities who paid a UBIT on transportation benefits in the last two years should be able to obtain a refund.
About UBIT and Qualified Transportation Fringe Benefits
The UBIT on qualified transportation fringe benefits only affected tax-exempt entities. UBIT generally applies to income that is not related to an entity’s exempt purpose, so it was unclear why Congress targeted expenses related to providing parking or transportation for employees. Under the TCJA, tax-exempt entities offering qualified transportation fringe benefits to their employees were exposed to a 21% UBIT tax. The tax applied regardless of whether the employer was providing the benefits or whether employees were paying pre-tax.
Qualified transportation benefits include transit passes, parking, and commuter highway vehicle rides. Notably, the amount of UBIT was based on qualified transportation benefit expenditures instead of the entity’s income. As a result, tax-exempt entities were experiencing larger UBIT bills, even though employees may have been paying for the benefits themselves via salary reduction.
What the Repeal Does
Under the Act, the UBIT for tax-exempt entities who offered qualified transportation fringe benefits is retroactively repealed. This means that tax-exempt entities are no longer subject to UBIT on qualified transportation benefits and should also be able to seek a refund of taxes paid. The IRS may issue further guidance or establish a separate process for refunds.
With this repeal, tax-exempt entities can continue to provide employees with qualified transportation benefits without incurring a 21% tax. This should be a relief to affected employers, who can continue to offer these transit benefits without exposure to a UBIT.
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About the Authors. This alert was prepared by Marathas Barrow Weatherhead Lent LLP, a national law firm with recognized experts on the Affordable Care Act. Contact Peter Marathas or Stacy Barrow at pmarathas@marbarlaw.com or sbarrow@marbarlaw.com.
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Published by SHRM on January 2, 2020, with input from Perry Braun
As a new decade begins, employee-compensation specialists shared their expectations. Below are five trends that pay-watchers predict will gain ground in 2020 and beyond.
No. 1: States will continue to set their own compensation mandates.
On minimum wage and overtime requirements, “more states feel emboldened to establish their own direction and set their own policies that stretch beyond the policies established by the federal government,” said Perry Braun, executive director of the Benefit Advisors Network (BAN), a consortium of health and welfare benefit brokers. “Many states today have wage and labor laws that are richer than federal guidelines,” and more states are likely to follow these trendsetters, Braun said.
This trend will continue no matter which party leads the White House, House of Representatives or Senate after 2020, he predicted. “Governors feel emboldened by the actions of their peers to go beyond the guidance, policies or laws established by the federal government and believe that their local policies are in the best interest of their local citizens.”
On December 17, 2019, the House and Senate agreed to a bipartisan legislative package of spending bills to avoid a government shutdown. This package of bills is collectively referred to as the Further Consolidated Appropriations Act, 2020 (the “Act”). The Act has passed the House and is expected to pass the Senate by December 20. The president has agreed to sign the Act, which includes a permanent repeal of three Affordable Care Act (ACA) taxes: the tax on high-cost health plans (the so-called “Cadillac Tax”), the Health Insurance Tax (HIT tax), and the medical device tax. Overall, the repeal of these ACA taxes may result in at least $300 billion in lost revenue to the government; however, the bill brings relief to employers and consumers, who may have experienced tax payments, increased health premiums and other costs. The repeal of the HIT tax is effective as of January 1, 2021, and the medical device tax is repealed as of January 1, 2020. The Cadillac Tax was already delayed until 2022 and thus will never take effect. The Patient-Centered Outcomes Research Institute (“PCORI”) fee has also been extended to 2029 (i.e., it will apply to plan years ending on or before September 30, 2029).
PCORI Fee Extension
The PCORI fee has been extended to plan years ending on or before September 30, 2029. PCORI fee extensions have been discussed frequently and have been included in previously introduced bills, such as the Protecting Access to Information for Effective and Necessary Treatment and Services Act (PATIENTS Act) that was approved by the House Ways and Means Committee in June 2019. The amount due per life covered under a policy will be adjusted annually, as it has been previously. Insurers of fully insured health plans and employers with self-funded group health plans will continue to have to pay this fee until 2029 or 2030 (depending on plan year).
The PCORI was established as part of the ACA to conduct research to evaluate the effectiveness of medical treatments, procedures, and strategies that treat, manage, diagnose, or prevent illness or injury. The research considers both the effectiveness of the treatment, as well as an individual’s decisions and outlook regarding the treatment.
The Cadillac Tax
The Cadillac tax is a 40% tax on the cost of health coverage offered by employers that exceeds a certain amount. For 2019, those thresholds were $11,200 for single and $30,100. If the total cost of coverage (including pre-tax FSA/HSA/HRA contributions) exceeded the threshold, the 40% tax would apply. The Cadillac Tax was intended to raise revenue for the ACA while encouraging employers to offer less generous benefits that would purportedly lead to wage increases. It was also meant to help lower healthcare costs and overutilization by offering less robust coverage. The tax has been repeatedly delayed since the inception of the ACA. It was originally intended to be effective in 2018 but was delayed twice, first until 2020 then until 2022. Therefore, it will never take effect. Both Republicans and Democrats alike have moved for repealing the Cadillac Tax.
With the repeal of the Cadillac tax, employers offering generous health plans no longer have to be concerned with being subject to a tax after a certain point. Likewise, the tax could have disproportionately affected lower-income employees as well as unions, as more generous benefits are often negotiated instead of pay raises. Similarly, states where insurance is more expensive in general—such as Alaska—would have also seen a greater negative effect if the Cadillac tax moved forward.
The HIT Tax
The Health Insurance Tax—also known as the HIT Tax (the “t” being redundant)—is essentially a sales tax on insurance. The tax was in effect from 2014 – 2016 and in 2018 but was suspended in 2017 and 2019 as a result of lobbying. It is repealed effective as of January 1, 2021. Therefore, it is in effect for 2020. In general, the HIT tax is an annual fee charged to insurance companies that provide medical, dental, or vision policies. The tax is divided among the insurers, based on their value and market share of business, focusing on the premium amount. When passed through to employers, the HIT tax was typically in the range of 2% to 4% premium.
With the repeal of the HIT tax, insurers can be focused on providing benefits and charging premiums that are not related to having a tax associated with how much is made from the premium amount. While this may not have a direct correlation with premium increases, there could be some reprieve associated with the repeal of this particular tax.
The Medical Device Tax
The ACA’s medical device tax is a 2.3% excise tax on medical devices—such as hospital beds or an MRI machine—that are sold within the United States. The tax is imposed on the manufacturer, producer, or importer of the device. The Act repeals the medical device tax effective January 1, 2020. The tax was in effect from 2013 to 2015 and has been suspended from 2016 through 2019.
The medical device tax had bipartisan support for repeal, caused by concerns that the tax would chill research efforts, increase price of devices in order to recover lost profit, and discourage certain sales. There was also a concern that the tax could cause lost jobs, due to cutting back on staff in order to compensate for having to pay for the tax. One study states that 29,000 jobs were lost while the tax was in effect.
What to Expect Next
Although the Act has not yet passed the Senate or been signed by the president, it will likely be effective before the end of the year. With the repeal of these taxes, there will need to be recalculations on the cost of the administering the ACA, as well as well as overall effect on the tax system within the United States. The repeal of these taxes come as a relief to many; however, the upcoming election in 2020 could have an effect on where the nation goes from here. Next year may bring additional legislation regarding surprise billing or drug pricing reform.
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About the Author. This alert was prepared by Stacy Barrow. Mr. Barrow is a nationally recognized expert on the Affordable Care Act. His firm, Marathas Barrow Weatherhead Lent LLP, is a premier employee benefits, executive compensation and employment law firm. He can be reached at sbarrow@marbarlaw.com.
The Internal Revenue Service (IRS) has released Notice 2019-63, which extends the deadline for furnishing 2019 Forms 1095-B and 1095-C to individuals from January 31, 2020, to March 2, 2020. The Notice also provides penalty relief for good-faith reporting errors and suspends the requirement to issue Form 1095-B to individuals, under certain conditions.
The due date for filing the forms with the IRS was not extended and remains February 28, 2020 (March 31, 2020, if filed electronically).
The draft instructions to Forms 1094-C and 1095-C allow employers to request a 30-day extension to furnish statements to individuals by sending a letter to the IRS with certain information, including the reason for delay. However, because the Notice’s extension of time to furnish the forms is as generous as the 30-day extension contained in the instructions, the IRS will not formally respond to requests for an extension of time to furnish 2019 Forms 1095-B or 1095-C to individuals.
Employers may still obtain an automatic 30-day extension for filing with the IRS by filing Form 8809 on or before the forms’ due date. An additional 30-day extension is available under certain hardship conditions. The Notice encourages employers who cannot meet the extended due dates to furnish and file as soon as possible and advises that the IRS will take such furnishing and filing into consideration when determining whether to abate penalties for reasonable cause.
Relief from Furnishing Form 1095-B to Individuals
Due to the individual mandate penalty being reduced to zero starting in 2019, an individual does not need the information on Form 1095-B in order to complete his or her federal tax return. Therefore, the IRS is granting penalty relief for employers who fail to furnish a Form 1095-B to individuals, provided that the reporting entity:
Note that Applicable Large Employers (ALEs) are still required to furnish Form 1095-C to their full-time employees. They must also complete Part III if the employee is enrolled in self-insured coverage. The relief from furnishing Form 1095-B does not extend to IRS reporting. Forms 1095-B must still be submitted to the IRS, as applicable.
In general, this relief from furnishing Form 1095-B applies to insurers and non-ALEs that sponsor self-insured plans, as they complete Form 1095-B for covered participants.
Extension of Good-Faith Relief
As with the calendar year 2015 – 2018 reporting, the IRS will not impose penalties on employers that can show that they made good-faith efforts to comply with the requirements for the calendar year 2019. In determining good faith, the IRS will consider whether employers have made reasonable attempts to comply with the requirements (e.g., gathering and transmitting the necessary data to an agent or testing its ability to transmit information) and the steps that have been taken to prepare for next year’s reporting.
Note that the relief applies only to furnishing and filing incorrect or incomplete information, and not to a failure to timely furnish or file. However, if an employer is late filing a return, it may be possible to get penalty abatement for failures that are due to reasonable cause and not willful neglect. In general, to establish reasonable cause the employer must demonstrate that it acted in a responsible manner and that the failure was due to significant mitigating factors or events beyond its control. The IRS has been enforcing late filing penalties via Letter 972CG, which may include penalties based on failure to file electronically (when required) or failure to file with correct TIN information.
As in past years, individuals can file their personal income tax returns without having to attach the relevant Form 1095. Taxpayers should keep these forms in their personal records, even though the federal individual mandate penalty is not applicable for the 2019 filing year.
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About the Author. This alert was prepared by Stacy Barrow, Esq. Mr. Barrow is a nationally recognized expert on the Affordable Care Act. His firm, Marathas Barrow Weatherhead Lent LLP, is a premier employee benefits, executive compensation, and employment law firm. He can be reached at sbarrow@marbarlaw.com.