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Darcy’s Input Employer Penalty Individual Premiums 1 Darcy L. Hitesman, Esq. 763-503-6620 www.HitesmanLaw.com www.HitesmanLaw.com IRS Circular 230 Disclosure:

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Presentation on theme: "Darcy’s Input Employer Penalty Individual Premiums 1 Darcy L. Hitesman, Esq. 763-503-6620 www.HitesmanLaw.com www.HitesmanLaw.com IRS Circular 230 Disclosure:"— Presentation transcript:

1 Darcy’s Input Employer Penalty Individual Premiums 1 Darcy L. Hitesman, Esq IRS Circular 230 Disclosure: To insure compliance with Treasury Regulations, we are required to inform you that any tax advice contained in this communication (including any attachments) was not intended or written by us to be used, and may not be used by you or anyone else, for the purpose of: (i) avoiding penalties imposed by the Internal Revenue Code; or (ii) promoting, marketing, or recommending to another party any tax-related matter addressed in this communication. Friday, September 20, 2013

2 Employer Penalties Look at the requirement – what is the penalty? Keep in mind that some requirements have been delayed – Large employer Play or Pay – Reporting under Sections 6055, 6056 – Nondiscrimination testing for fully insured – Automatic enrollment At issue when you do not do something you are supposed to or where you do not do something the way you are supposed to. 2

3 Employer Penalties If the requirement has been delayed, the penalty is effectively delayed too If the requirement has not been delayed, the penalty may or may not be delayed – SBC penalty – transitional relief extended 3

4 What about a requirement that does not have a penalty? Exchange (Marketplace) Notification DOL statement Sept. 11, 2013 – no penalty Caution: Consider all possible sources. No penalty in one area does not necessarily mean no penalty or law suit possible from other areas. Additional Thought: HCR elements have been included in DOL Audit letters. 4

5 Excise Tax In general, non-compliance triggers a $100 per day, per person penalty. Self-reported on Form 8928 Special rule -- “reasonable cause and not willful neglect” No tax liability if: – Did not know or exercising reasonable diligence would have known; or – Corrected within 30 days after knew or reasonably should have known 5

6 Requirements That Could Result in Penalty Coverage requirements – No annual or lifetime maximum – First dollar preventive care – Claims and appeals procedures – Clinical trials – Maximum 90 day waiting period – Rescission – Deductibles/out-of-pocket Effective date – varies based on requirement – First dollar preventive care – Maximum 90 day waiting period 6

7 Individual Premiums-HRAs Impact on HRAs that pay premiums “plus" or just premiums Need to be an HRA excepted from the coverage mandates or amend to be an HRA excepted from the coverage mandates HRA by definition has an annual maximum – the account balance Subject to no annual limit, preventive care first dollar unless fits within excepted HRA category – Integrated – Retiree only – Limited scope Cannot have an HRA that pays individual premiums for active employees Important Note: Section 106 (c)(2) health FSA not applicable because only intended to reach health FSAs offered through cafeteria plan; no independent existence 7

8 Individual Premiums – Cafeteria Plan Impact on Section 125 plans with individual premium payment feature Look at the environment – Have proposed cafeteria plan regulations – HCR amendment to 125 specifically providing no exchange individual polices can be paid pre-tax (not qualified benefit) Observation: Guidance could have been more clear in this area. How hard would it have been? Question: Can individual premiums (for other than excepted coverage) be paid pre-tax through a cafeteria plan? Answer: No. 8

9 Individual Premiums – Cafeteria Plan The guidance did not do that -- what does that mean? – Intended to still leave pre-tax payment of non- exchange individual policies as a possibility? – Intended to completely foreclose pre-tax payment (in which case, they could have done a better job)? 9

10 Individual Premiums – Cafeteria Plan Meaning of “employer payment plan” – What is it? – Does it include the individual premium payment feature of a cafeteria plan? If yes, why not just say so? – Does it include employer contributions allocated to the individual premium payment feature of a cafeteria plan but still permit employee salary reduction? If yes, why not just say so? Observation: Guidance refers to coverage paid through a Section 125 plan as part of a list that includes employer payment plan; suggests are different rather than one in the same. 10

11 Individual Premiums – Cafeteria Plan What is a “group health plan” for purposes of the HCR coverage requirements? – A group health plan under Section 106 of the Code? – A group health plan under ERISA? – Could you be a group health plan under the Code but not under ERISA? Observation: Guidance suggests ERISA voluntary safe harbor still available. 11

12 Individual Premiums – Cafeteria Plan Can individual premiums for exchange coverage be paid with after tax dollars through a cafeteria plan? [If paid after tax, then arguably does not need to be a qualified benefit?] Can individual premiums for non-exchange coverage be paid with after tax dollars through a cafeteria plan? [Clearly not within the Section 125 amendment] – Can it reach employer contributions? – Does it just reach employer contributions? 12

13 Conservative Approach “Adjust” the individual premium payment feature – No exchange individual policies – No outside exchange individual policies other than excepted coverage 13

14 Less Conservative Approach Adjust individual premium payment feature – No exchange individual policies – Individual policies other than exchange individual policies can continue to be paid pre-tax Check administrative services agreement language Disclaimer on all communications – not providing legal or tax advice Plan B: be prepared to flip the switch 14

15 Questions Submit questions to: – Mike Melnychuk – Darcy Hitesman – Larry Grudzien 15 Visit the Hitesman website to register to receive our informational Client Alerts!


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