Category: Compliance and Legal Department

After weeks of negotiations, Congress overwhelmingly passed a second COVID-19 stimulus package – the COVID-Related Tax Relief Act of 2020 (COVIDTRA) and the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (TCDTR), both part of the Consolidated Appropriations Act, 2021 (CAA, 2021).  President Trump signed the bill into law on December 27, 2020.  The new stimulus package includes several employee benefits-related provisions relevant to health and welfare plans, as summarized below.  A provision on surprise medical billing (effective for plan years beginning in 2022) will be the subject of a future client alert. 

FFCRA Paid Leave

As the COVID-19 pandemic continues and the vaccine is unlikely to be available on a wide-scale basis in the next several months, the refundable payroll tax credits for emergency paid sick leave (EPSL) and extended family and medical leave (E-FMLA), which were enacted pursuant to the Families First Coronavirus Response Act, are extended through March 31, 2021.  Notably, only the tax credits are extended, which means compliance with the EPSL or E-FMLA requirements is voluntary for employers after December 31, 2020. 

The policy behind this may have been to incentivize employers to continue allowing employees in the middle of FFCRA leave as of January 1, 2021 to finish out, and be paid for, any remaining leave to which they would have otherwise been entitled.  The tax credit is only available for leave that would otherwise satisfy the FFCRA, had it remained in effect, i.e., if employees for whom the employer provides paid leave would otherwise meet the eligibility requirements under the FFCRA and did not use the full amount of EPSL or E-FMLA leave between April 1, 2020 and December 31, 2020.

Relief for Health Care and Dependent Care Flexible Spending Accounts

As many employees are approaching the end of the year with significantly more unused funds in their health FSA and/or dependent care assistance plan (DCAP) than usual due to COVID-19, the stimulus package provides employers with the option of amending their plans to allow the following:

• Employers offering a DCAP or health FSA may allow participants to carry over all unused DCAP and health FSA contributions or benefits remaining at the end of the 2020 plan year to the 2021 plan year.
• Employers offering a DCAP or health FSA may allow participants to carry over all unused DCAP and health FSA contributions or benefits remaining at the end of the 2021 plan year to the 2022 plan year.
• Employers offering a DCAP or health FSA may extend the grace period for using any benefits or contributions remaining at the end of a plan year ending in 2020 or 2021 to 12 months after the end of the applicable plan year.
• Similar to DCAPs, employers offering a health FSA may allow participants who cease participation during the 2020 or 2021 plan year to continue to be reimbursed from any unused benefits through the end of the plan year (and applicable grace period) in which participation ceased.  This is often referred to as a “spend down” provision when included in a traditional DCAP. 
• Employers offering DCAPs may reimburse employees for dependent care expenses for children who turned 13 during the pandemic.  The relief applies to plan years with open enrollments that ended on or before January 31, 2020 (e.g., calendar year 2020 plans).  It also applies for the subsequent plan year (e.g., calendar year 2021 plans) to the extent the employee has a balance at the end of the 2020 plan year after any relief adopted by the employer, such as an extended grace period or carry over.  The relief allows the employer to substitute “age 14” for “age 13” for purposes of determining eligibility for reimbursement of a child’s expenses.  In general, DCAP eligibility ends at age 13, except in cases of mental or physical incapacity.
• Employers offering a health FSA or DCAP may allow employees to make prospective election changes (subject to annual limitations) to their 2021 contributions without experiencing a change in status event.

The stimulus bill allows employers to retroactively amend the plan to take advantage of any of the relief described above; however, any amendment must be adopted no later than the “last day of the first calendar year beginning after the end of the plan year in which the amendment is effective.” The employer must also operate the plan consistent with the terms of the amendment in the interim between date the amendment is intended to be effective and when it is ultimately adopted by the plan. For calendar year plans, this means any changes to the 2020 plan year must be adopted on or before December 31, 2021 and any changes to the 2021 plan year must be adopted on or before December 31, 2022.

Employers who adopt any of the relief options must amend their cafeteria plan by the applicable deadline and communicate the changes to employees.

Conclusion

Employers should familiarize themselves with these changes and determine next steps.  Employers should also consider any state or local COVID-19 related leave requirements. If an employer has employees in a state or locality with mandatory COVID-19 related leave, the expiration of mandatory paid leave under the FFCRA does not relieve employers of their obligation under state law.  Finally, employers who intend to adopt any of the health FSA or DCAP related relief should communicate these changes to employees, operate the plan in accordance with these intended changes, and adopt the necessary amendments before the applicable timeframe. 

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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 Stacy Barrow or Nicole Quinn-Gato at sbarrow@marbarlaw.com or nquinngato@marbarlaw.com

The IRS has released Notice 2020-84, which sets the applicable PCORI fee for plan years ending between October 1, 2020, and September 30, 2021, at $2.66 per covered life.

As a reminder, the PCORI was established as part of the Affordable Care Act (ACA) to conduct research to evaluate the effectiveness of medical treatments, procedures, and strategies that treat, manage, diagnose or prevent illness or injury.  Under the ACA, most employer sponsors and insurers were required to pay PCORI fees until 2019 or 2020, as it only applied to plan years ending on or before September 30, 2019.  However, the PCORI fee was extended to plan years ending on or before September 30, 2029, as part of the Further Consolidated Appropriations Act, 2020. 

The amount of PCORI fees due by employer sponsors and insurers is based upon the number of covered lives under each “applicable self-insured health plan” and “specified health insurance policy” (as defined by regulations) and the plan or policy year end date.  The fee must be paid on or before July 31^st each year.  The fees due by July 31, 2021 are for plan years ending in 2020 and are as follows:

• For plan years ending between January 1, 2020 and September 30, 2020, the fee is $2.54 per covered life.
• For plan years ending between October 1, 2020 and December 31, 2020, the fee is $2.66 per covered life.

Employers that sponsor self-insured group health plans must report and pay PCORI fees using the second quarter IRS Form 720, Quarterly Federal Excise Tax Return.  

The average number of covered lives for the plan year is generally calculated using the snapshot, snapshot factor, actual count, or Form 5500 method.  These counting methods will be described in more detail in a future alert as we approach the 2021 filing deadline.  Additionally, prior IRS guidance provided transition relief for employers who may not have anticipated that the PCORI fee would continue to apply after 2019.  For plan years ending between October 1, 2019, and September 30, 2020, employers may use any reasonable method for calculating the average number of covered lives so long as they apply that method throughout the year.

Insurance carriers are responsible for calculating and paying the PCORI fee for fully insured plans.  The employer is responsible for paying the fee on behalf of a self-insured plan, including an HRA.  In general, health FSAs are not subject to the PCORI fee.

Also note that because the PCORI fee is assessed on the plan sponsor of a self-insured plan, it generally should not be included in the premium equivalent rate that is developed for self-insured plans if the plan includes employee contributions.  However, an employer’s payment of PCORI fees is tax-deductible as an ordinary and necessary business expense. 

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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 Stacy Barrow or Nicole Quinn-Gato at sbarrow@marbarlaw.com or nquinngato@marbarlaw.com.

On October 26, 2020, the Internal Revenue Service (IRS) released Revenue Procedure 2020-45, which maintains the health flexible spending account (FSA) salary reduction contribution limit from 2020, which is $2,750, for plan years beginning in 2021. Thus, for health FSAs with a carryover feature, the maximum carryover amount is $550 (20% of the $2,750 salary reduction limit) for plan years beginning or ending in 2021. The Revenue Procedure also contains the cost-of-living adjustments that apply to dollar limitations in certain sections of the Internal Revenue Code. 

Qualified Commuter Parking and Mass Transit Pass Monthly Limit

For 2021, the monthly limits for qualified parking and mass transit are $270 each (which remains the same from 2020).

Adoption Assistance Tax Credit Increase

For 2021, the credit allowed for the adoption of a child is $14,440 (up $100 from 2020). The credit begins to phase out for taxpayers with modified adjusted gross income in excess of $216,660 (up $2,140 from 2020) and is completely phased out for taxpayers with modified adjusted gross income of $256,660 or more (up $2,140 from 2020).

Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) Increase

For 2021, reimbursements under a QSEHRA cannot exceed $5,300 (single) / $10,700 (family), an increase of $50 (single) / $100 (family) from 2020.

Reminder: 2021 HSA Contribution Limits and HDHP Deductible and Out-of-Pocket Limits

Earlier this year, the IRS announced the inflation-adjusted amounts for HSAs and high deductible health plans (HDHPs).

The ACA’s out-of-pocket limits for in-network essential health benefits have also increased for 2021.  Note that all non-grandfathered group health plans must contain an embedded individual out-of-pocket limit if the family out-of-pocket limit is above $8,550 (2021 plan years).  Exceptions to the ACA’s out-of-pocket limit rule are also available for certain small group plans eligible for transition relief (referred to as “Grandmothered” plans).  Unless extended, relief for Grandmothered plans ends December 31, 2021.

ACA Reporting Penalties (Forms 1094-B, 1095-B, 1094-C, 1095-C)

The table below describes late filing penalties for ACA reporting.  The 2021 penalty is for returns filed in 2021 for the calendar year 2020, and the 2022 penalty is for returns filed in 2022 for the calendar year 2021.  Note that failure to issue a Form 1095-C when required may result in two penalties, as the IRS and the employee are each entitled to receive a copy.

The Internal Revenue Service (IRS) has released Notice 2020-76, which extends the deadline for furnishing 2020 Forms 1095-B and 1095-C to individuals from January 31, 2021, to March 2, 2021.  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 March 1, 2021 (March 31, 2021, if filed electronically).

The regulations 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 the 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 2020 forms to individuals.  Employers may obtain an automatic 30-day extension for filing with the IRS by filing Form 8809 on or before the 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 considering 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:

1. Posts a notice prominently on its website stating that individuals may receive a copy of their 2020 1095-B upon request, accompanied by an email address and a physical address where the request can be sent.  The notice must also include a phone number individuals can use to contact the reporting entity with questions; and
2. Furnishes an individual with a Form 1095-B within 30 days of a request.

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 (Final Year)

As with the calendar year 2015 – 2019 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 2020. 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.  The Notice indicates that the good-faith relief was intended to be transitional relief, and therefore 2020 is the last year the IRS intends to provide this relief.

Note that the good-faith 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 2020 filing year.

On September 11, 2020, the U.S. Department of Labor (“DOL”) released a temporary rule updating certain FFCRA regulations.  The temporary rule is scheduled to be published on September 16, 2020, and will be effective immediately through the expiration of the FFCRA’s paid leave provisions on December 31, 2020. 

The temporary rule updates FFCRA regulations issued in April 2020 in response to a recent federal District Court decision which found four portions of the initial regulations invalid:  provisions related to whether the FFCRA applies if employers do not have work available for employees; the timing for which employees must request the need for leave; the definition of health care provider; and the availability of intermittent leave. 

While many anticipated that the DOL would appeal the decision, the DOL elected to reaffirm and clarify its position on some of these issues, while choosing to revise or update others. Thus, while the court’s order was limited to companies operating in New York (or potentially only those in the Southern District of New York), the DOL’s revisions to the regulations apply to all employers subject to the FFCRA (inside and outside New York). 

The District Court’s order and the updated regulations are discussed in more detail below.

New York Federal District Court Decision

Soon after the FFCRA regulations were implemented, the State of New York sued the DOL in the United States District Court for the Southern District of New York claiming the DOL exceeded its authority when it implemented several provisions of the FFCRA regulations. The District Court agreed in part and, in August, the court issued an order invalidating several portions of the FFCRA regulations.

• Work Availability Requirement – The original regulations limited the availability of emergency paid sick leave and expanded FMLA leave to certain situations where the employer’s business is open or the employer has worked for the employee, but the employee is unable to work due to a COVID-19 qualifying reason.  The court vacated this requirement, making the FFCRA available even if the employer does not have work for the employee, such as situations where the employee is furloughed, or the business is closed.
• Documentation – The FFCRA statute requires employees to notify an employer of the need for leave “after the first workday” during which an employee requires paid sick time; however, the initial FFCRA regulations required documentation to be provided to the employer before any sick time is taken. The court determined this was beyond the scope of the statute and vacated this requirement. The content of the documentation and the need for documentation were not eliminated, just the timing of when it must be provided.
• Definition of Health Care Provider – The initial FFCRA regulations used an expansive definition of health care provider, which included individuals who work in support of health care operations, such as cleaning staff, food service professionals and cooks, maintenance workers, IT staff, or other administrative support staff who support health care operations.   The district court vacated the definition of health care provider, finding it overbroad.
• Intermittent Leave – The initial regulations allowed employees to take intermittent leave in certain situations with employer approval/agreement.  The court found this inconsistent with the statute and rejected this aspect of the regulation as an impermissible limitation on the availability of intermittent leave. 

Updated Regulations

In the updated regulations, DOL reaffirms its regulations related to the work availability and intermittent leave requirements but provided further clarification or explanation of its regulations.  The DOL revised regulations related to the definition of “health care provider” and notice requirements.  The rationale and changes are discussed more fully below:

Work Availability

Specifically, for purposes of the work availability requirement, the DOL affirms that neither emergency paid sick leave nor expanded FMLA under the FFCRA may be taken unless the employer has work available for the employee (the “work availability” requirement).  The FFCRA statute provides that leave under the FFCRA is available if an employee is unable to work (or telework) “because of” or “due to” a qualifying reason under the FFCRA.  The DOL cites to U.S. Supreme Court authority that interprets “because of” or “due to” language to create a “but for” test or analysis. Thus, FFCRA leave must be the “but for” cause of the employee’s inability to work.  Furthermore, the DOL reasons that the plain meaning of the word “leave” in this context, and based on longstanding DOL interpretation, means that someone has to be absent from work at a time the employee would otherwise be working. Thus, the DOL stands by its original regulation and provides that an employee cannot take FFCRA leave if there was no work available from the employer for the employee to perform. 

Finally, the DOL explains that this requirement was intended to apply for all qualifying reasons under the FFCRA, not just those that were initially listed in the original regulations.

Intermittent Leave

The FFCRA is silent about the availability of intermittent leave, but as the DOL notes in the preamble to the updated regulations, the DOL was given broad authority to develop rules under the law. Thus, consistent with FMLA regulations, the DOL interpreted the availability of intermittent expanded FMLA leave for employees working onsite similar to how it applies for purposes of FMLA, which may also require employer approval.  For emergency paid sick leave, however, there is opportunity for spreading COVID-19 in the workplace.  Thus, it would be contrary to the purpose of the FFCRA to allow someone to take emergency paid sick leave intermittently (unless caring for a child whose regular daycare provider is unavailable due to COVID-19). Therefore, for employees working on-site, the DOL reaffirms its decision to only allow intermittent leave for expanded FMLA leave purposes.  The DOL confirmed, however, as originally provided, that intermittent leave may be available for any FFCRA qualified reason if an employee is teleworking, as there is no risk the employee would spread COVID-19 at a worksite.  In any intermittent leave context, however, permission from the employer is still required.

Health Care Provider Definition

In an effort to ensure the public health system could maintain its necessary function during the COVID-19 pandemic, the FFCRA allowed employers to exclude employees who are “health care providers” or “emergency responders” from eligibility for expanded FMLA leave and emergency paid sick leave.

The DOL took an expansive approach in defining “health care provider” in its initial FFCRA regulations to ensure health care operations would not be hampered, such as ensuring maintenance to health care facilities, trash collection, food services for hospital workers, and other similar services.  The District Court found this approach to be overly broad and, therefore, per the District Court’s order, the DOL opted to revise its definition of health care provider.  In the updated regulations, health care providers include employees who are health care providers under existing FMLA regulations and “any other employee who is capable of providing health care services such as diagnostic services, preventive services, treatment services, and other services that are integrated with and necessary to the provision of patient care and, if not provided would adversely impact patient care.”

This could include a variety of health care practitioners other than doctors, including nurses, nurse assistants, medical technicians, and laboratory technicians.  The preamble and rule provide numerous examples of what would constitute diagnostic, preventive, or treatment services, and services integrated with these that are necessary for patient care, such as bathing, dressing, or feeding patients, among several others.  Foodservice professionals, IT professionals, building maintenance workers, HR professionals, or other individuals who do not provide health care services even though their work impacts health care services are no longer included in the definition of health care providers.

Employees falling within the new definition of health care provider can work in a variety of settings including, but not limited to, hospitals, clinics, doctor’s offices, medical schools, local health departments, nursing or retirement facilities, nursing homes, home health providers, laboratories, or pharmacies.

Notice of the Need for Leave

In the updated regulations, the DOL clarifies that notice of the need for emergency paid sick leave must be provided as soon as practicable (instead of before emergency sick leave is taken), which is consistent with the position the plaintiffs took when they challenged the original regulations.

Additionally, the DOL revised the regulations regarding notice of expanded FMLA leave.  For a foreseeable need to expand FMLA leave, the employee must provide notice as soon as is practicable, which may mean the employee may have to provide advance notice of the need for leave if the facts and circumstances support prior notice.  Prior notice is not required for an unforeseeable need for expanded FMLA leave. Finally, the employer may require an employee to substantiate the need for leave as soon as practicable, which may be at the same time notice is provided.

The DOL also updated its FFCRA FAQ’s consistent with the updated regulations.

Conclusion

As mentioned previously, the DOL’s updated regulations impact all employers subject to the FFCRA, not just those with employees in New York. Thus, all impacted employers should familiarize themselves with the updated regulations and administer them accordingly moving forward. 

To the extent an employer has employees impacted by the revised regulations, such as individuals previously included in the DOL’s broad definition of health care provider or employees who were denied emergency paid sick leave for failing to provide advance notice, they should consult directly with counsel to discuss how to address those specific situations.