PPI in the News Compliance Corner - February 7, 2019 Archive
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IRS Issues Form 8994, Employer Credit for Paid Family Leave

The IRS recently issued 2018 Form 8994 and the corresponding instructions intended for employers to determine the tax credit available to them for providing paid family and medical leave.

As background, the Tax Cut and Jobs Act of 2017 created a new employer credit available for those that offer qualifying paid family and medical leave for tax years beginning after 2017 and before 2020. To claim the credit, eligible employers must have a written program that pays at least 50 percent of wages paid for up to 12 weeks of family and medical leave a year, with the credit ranging from 12.5 to 25 percent.

Form 8994 requires employers to confirm four statements:

1. That there is a written policy providing for at least two weeks of annual paid family and medical leave for qualifying employees.
2. That the written policy provides paid family and medical leave of at least 50 percent of the wages normally paid to a qualifying employee.
3. That the family and medical leave was paid to at least one qualifying employee during the tax year.
4. That if at least one qualifying employee that was not covered by the FMLA was employed during the year, that the written paid family and medical leave policy complies with FMLA's "non-interference" language.

Form 8994 also provides the lines to calculate the appropriate credit amount.

Employers that provided qualifying paid family and medical leave during the 2018 tax year should work with their tax advisers to properly complete this form. If an employer didn't offer paid family and medical leave during 2018, but is considering the opportunity for 2019, then this Form can be used as a guide. The IRS has indicated that it intends to issue proposed regulations on this tax credit, so we will continue to monitor and update as needed.

Form 8994 >>
Form 8994 Instructions >>

IRS Releases VCP Submission Kit for Failure to Adopt Pre-Approved Retirement Plans

On Jan. 31, 2019, the IRS released a Voluntary Compliance Program (VCP) Submission Kit for plan sponsors that failed to adopt an updated pre-approved defined contribution (DC) plan. As background, DC plan sponsors were generally required to update their plan document by April 30, 2016, to reflect the changes imposed by the Pension Protection Act. If plan sponsors failed to do so, their plan is no longer entitled to tax-favored treatment.

However, plan sponsors that failed to adopt an updated plan can restore their plan's tax-favored status by adopting an updated plan document and filing a VCP submission. The submission kit describes the process by which plan sponsors can file their submission. Specifically, it details the steps to take, lists the required documentation and forms, and discusses fees. Additionally, the guidance outlines what will happen after the submission is filed.

DC plan sponsors that have not filed an updated pre-approved plan document should consult with their advisers about whether they should file for the VCP relief.

VCP Submission Kit >>

IRS Releases 2018 Publication 590-B, Distributions from IRAs

The IRS recently released the 2019 Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs), to be used to prepare 2018 returns. This publication details rules for receiving distributions (withdrawals) from a traditional or Roth IRA. The instructions summarize the changes for 2018 which include:

• No recharacterizations of conversions made in 2018 or later.
• Miscellaneous itemized deductions are no longer permitted.
• The 2018 Form 1040 has been redesigned with additional schedules to be used for more complex returns.
• Form 1040A and 1040-EZ are no longer available. Instead, filers must use the revised Form 1040.

In addition, the publication reminds individuals that there is still qualified disaster tax relief for IRAs related to Hurricane Harvey, Tropical Storm Harvey, Hurricane Irma, Hurricane Maria and the California wildfires. There is also relief for economic losses suffered as a result of disasters declared by the President under Section 401 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act during calendar year 2016.

Employers that offer Roth or traditional IRAs should familiarize themselves with this guidance.

Publication 590-B, Distributions from IRAs >>

Reminder: Upcoming IRS 6055 and 6056 Reporting Deadlines

Applicable large employers (ALEs--those with 50 or more full-time employees including equivalents, or FTEs) in 2017 must comply with IRC Section 6056 reporting in early 2019. Specifically, ALEs must complete and distribute a Form 1095-C to full-time employees by March 4, 2019 (changed from Jan. 31, 2019). The form should detail whether the employee was offered minimum value, affordable coverage during 2018. The forms may be mailed, delivered electronically or delivered by hand (although proof of delivery in some manner is recommended).

If an employer sponsored a self-insured plan during 2018, it must comply with Section 6055 reporting in 2019. Self-insured employers with 50 or more FTEs must complete Section III of Form 1095-C detailing which months the employee (and the employee's spouse/dependents, as applicable) had coverage under the employer's plan. If the self-insured employer has fewer than 50 FTEs, it must complete and distribute a Form 1095-B with such information. Again, the forms must be delivered to employees by March 4, 2019.

Employers must file the forms with the IRS by Feb. 28, 2019, if filing by paper and April 1, 2019, if filing electronically. Those that are filing 250 or more forms are required to file electronically. Lastly, the employer is required to a file the transmittal Form 1094-C (if filing Forms 1095-C) or Form 1094-B (if filing Forms 1095-B).

Form 1094-C >>
Form 1095-C >>
Forms 1094-C and 1095-C Instructions >>
Form 1094-B >>
Form 1095-B >>
Forms 1095-B and 1095-B Instructions >>

Reminder: Medicare Part D Disclosure to CMS

As a reminder, employers who sponsor a group health plan that provides prescription drug coverage to Medicare Part D eligible individuals must disclose to CMS, on an annual basis, whether the coverage qualifies as creditable or non-creditable. The disclosure is due no later than 60 days after the beginning of each plan year. Thus, for calendar year plans, the disclosure is due March 1, 2019.

CMS Disclosure Form >>
CMS Guidance >>

Does the actual cost of group term life coverage matter when determining the amount of imputed income?

No. If the aggregate death benefit payable on all employer-provided group term life insurance (GTLI) during a period of coverage (usually one month) exceeds $50,000, the actual cost of the coverage does not matter when calculating the imputed income amount. If the coverage exceeds $50,000, then the imputed income amount is determined using the IRS Table I rates.

As background, generally the cost of employer-provided GTLI is included in an employee's gross income. However, IRC Section 79 provides that an employee may exclude the cost of up to $50,000 of employer-provided GTLI coverage from income on his or her own life. The exclusion applies only to insurance on the life of the employee, and not on the life of a spouse, dependent or any other person.

Importantly, the exclusion is determined on a calendar-month basis. So, for purposes of determining the employee's own tax liability, all employer-provided GTLI provided during a month is considered when applying the $50,000 limit.

If the employee receives more than $50,000 of employer-provided GTLI coverage for a period of coverage (a calendar month), then the cost of the insurance in excess of $50,000, less any amount paid by the employee with after-tax contributions, is included in the employee's gross income for both federal income tax and FICA purposes. The included amount as a result of the excess coverage is commonly referred to as "imputed income."

The cost of GTLI coverage taken into account in determining an employee's imputed income is determined using a uniform table of life insurance rates outlined in IRS regulations, commonly known as the "Table I rates." Table I establishes gradually increasing rates based on age, which are generally structured in five-year age brackets. For purposes of the table, an employee's age is determined by his or her age at the end of the taxable year.

For example, if an employee receives $250,000 in coverage from the employer-paid group term life coverage, then $200,000 of excess coverage (250,000-50,000=200,000) must be counted in the employee's gross income using the rates from Table I. If the employee is age 60, then the employer would first calculate .66 (Table I rate for insured age 60) per $1,000 of excess coverage (200 x .66 = 132), then by number of coverage months (132 x 12 = $1,584).

Any additional spouse/dependent coverage (let's say $20,000 of dependent coverage) from the employer-paid GTLI must be counted in the employee's gross income using the rates from Table I. If the spouse is age 39, the employer would calculate .09 (Table I rate for insured age 39) per $1,000 of coverage (20 x .09 = 1.80), then multiply by number of coverage months (1.80 x 12 = $21.60).

So, to be clear, the requirement to impute income for the spouse/dependent GTLI is independent of the employee's GTLI amount. All employer-sponsored spouse/dependent GTLI is imputed income to the employee. As another example, the employee could have $40,000 in GTLI and $20,000 on his/her spouse/dependent. The employee's GTLI amount would not need to be imputed because it is under $50,000, but the $20,000 in spouse/dependent GTLI would need to be added to the employee's gross income (again, since it is employer-paid GTLI).

After determining the cost of coverage through the Table I rate, the aggregate cost of the coverage for the employee's taxable year is reduced by the amount, if any, that the employee paid toward the purchase of all employer-provided GTLI. Employee payments toward the purchase of such coverage do not include amounts contributed by pre-tax salary reduction under a cafeteria plan, amounts paid for non-employer-provided GTLI coverage or amounts paid for GTLI coverage during a different taxable year. In other words, the Table I aggregate cost of coverage may only be reduced by after-tax employee contributions; employer contributions and employee pre-tax contributions do not reduce the aggregate cost.

Although an employee's imputed income for GTLI is not subject to income tax withholding, employers must report the income and must withhold FICA taxes on it. Employers are responsible for determining imputed income only for that employer's GTLI coverage; employers are not required to take into account coverage provided by an unrelated employer.

In addition, there is a "de minimis" amount for dependent coverage. In other words, if the face value of the dependent coverage is $2,000 or less, then it isn't includable in the employee's taxable income (see page 9 of Publication 15-B). For example, if the employer-provided spouse/dependent GTLI is $20,000, this would not fall under the de minimis amount allowed for dependent coverage.

Therefore, employers should review their GTLI benefit plan offerings, and determine whether the employee coverage exceeds $50,000. If so, then the employer will have to determine the aggregate cost of coverage that exceeds $50,000, and that cost must be included in the employee's gross income as imputed income. Any spouse/dependent amounts (assuming they exceed the de minimis amount) would generally be counted as taxable income to the employee subject to federal withholding (although imputed income for employee's group coverage would not be subject to federal withholding). The employer will need to consult the Table I rates to make that determination based upon the insured's age, and engaging outside tax counsel or an accountant may be necessary in some instances.