Federal Updates
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:
- That there is a written policy providing for at least two weeks of annual paid family and medical leave for qualifying employees.
- That the written policy provides paid family and medical leave of at least 50 percent of the wages normally paid to a qualifying employee.
- That the family and medical leave was paid to at least one qualifying employee during the tax year.
- 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.
Retirement Update
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.
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.
Announcements
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.
FAQ
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.
State Updates
Alaska
Information on AHPs
On Jan. 30, 2019, Director Wing-Heier issued Bulletin B 19-02 to provide information to insurers and entities regarding association health plans (AHPs) and the application of AK's insurance statutes.
As background, the DOL and EBSA published a final rule relating to AHPs on June 21, 2018, intending to expand access to AHP coverage options. The final rule establishes new standards and criteria for the creation of AHPs and, by providing additional clarifications of existing criteria, expands access to health coverage through AHPs. Specifically, the new regulatory framework expands the "commonality of interest" requirement to include geographic location and industry. The expansion is intended to allow employers from non-related industries and trades from the same geographical areas and working owners (for example, sole proprietors with no employees) to access health coverage through AHPs. This AK bulletin points out that several provisions of the final rule are in direct conflict with existing AK statutes, and while AK seeks to harmonize any conflicts to the reasonable benefit and flexibility to AK employers, the new final rules do not preempt state law.
Because AK continues to have broad authority under ERISA to regulate AHPs under state licensure and solvency statutes, insurance companies that offer health insurance plans to AHPs in AK must follow the existing state regulations. Regarding self-funded AHPs, any entity wishing to form a self-funded AHP in AK must do so within the existing framework of permissible self-funded arrangements. Specifically, AK requires employers in an AHP to be members of a "bona fide association or group of two or more businesses in the same or a closely related trade, profession or industry that provide support, services, or supplies primarily to that trade, profession or industry." So, the expansion of "commonality of interest" within the DOL's final rules is not permissible in AK. Also keep in mind that all AHPs, both fully-insured and self-funded, must file with the Division of Insurance for review.
AK employers interested in AHPs should work closely with insurance carriers on fully-insured arrangements. However, the provisions of the DOL's final rule intended to expand access will likely not be permissible for self-funded AHPs under existing AK regulations.
District of Columbia
Protecting Pregnant Workers Notice
The Office of Human Rights has issued a revised notice regarding The Protecting Pregnant Workers Fairness Act (PPWFA). The notice must be posted in the workplace in a conspicuous place. Employers must also provide employees with notice of the law within 10 days of an employee notifying them of their pregnancy or related condition.
As a reminder, the PPWFA requires District employers of all sizes to provide reasonable accommodation for employees whose ability to perform job duties is limited because of pregnancy, childbirth, breastfeeding or a related medical condition. Reasonable accommodations include unpaid time off, modifying work equipment, providing more frequent or longer breaks and modifying work schedules.
Hawaii
Revised Disability Compensation Notice
The Department of Labor and Industrial Relations has issued a revised version of the "Disability Compensation Law Notice to Employees," which must be posted in the workplace. The poster advises employees of their right to temporary disability insurance, prepaid health care and workers compensation benefits.
Massachusetts
Proposed Regulations for Family and Medical Leave
On Jan. 23, 2019, MA's Dept. of Family and Medical Leave (the department) issued proposed regulations to clarify the procedures, practices and policies applicable to employers and employees under the MA Family and Medical Leave Law (MFMLL). As background, the MFMLL requires all private employers in MA to provide covered individuals with up to twelve weeks of paid family leave and up to 20 weeks of medical leave. The paid leave is funded through a payroll tax. All employers, regardless of headcount, are required to provide family and medical leave to eligible employees. Employers are required to begin the payroll tax as of July 2019 and employees may begin taking the leave as of Jan. 1, 2021. The Dept. of Family and Medical Leave was created by the MFMLL to oversee the law.
Under the proposed regulations, employers (including self-employed individuals) must establish an account with the MassTax connect system in order to make the filings and contributions required by the MFMLL. In addition, an employer must submit a quarterly filing with the MassTax connect system that includes each employee's name, social security number, wages paid or other earnings. All full-time, part-time, seasonal and temporary employees on the payroll each pay period must be included in the quarterly filing. In addition, employers that have a workforce that is more than 50 percent independent contractors must treat such workers as employees for purposes of calculating the average.
Based on the quarterly report, the department will calculate the total quarterly contribution amount owed by each employer, which must then be remitted within 30 days after the end of the calendar quarter. The penalty for failing to make the required employer contributions is 0.63 percent of the total annual payroll for each year of the failure. This penalty is in addition to the total amount of benefits paid to covered individuals for whom the employer failed to make contributions. Employers with an average of less than 25 employees may not be required to pay the employer portion of the premium for family and medical leave. To determine whether an employer is under the 25 employee average, an employer must include all workers referenced above (including independent contractors) that are included on the payroll during each pay period and divide by the number of pay periods of the previous calendar year.
Employers with a private plan that provides at least the same rights, protections and benefits to employees as provided under the MFMLL may be exempt from the employer portion of the payroll tax for medical coverage, leave coverage or both. The proposed regulations do not provide much detail, but generally, to be exempt, an employer must submit an application of the private plan for approval to the department every year. Exemptions must be renewed annually. There is an appeals process should an employer feel the exemption is improperly denied.
As a reminder, effective July 1, 2019, MA employers will be required to:
- Post a workplace notice (prepared or approved by the department) in a conspicuous place of each premises
- Provide all new employees within 30 days of hire a written notice (provided or approved by the department) containing specific information about the MFMLL
- Begin implementation of the payroll tax of .63 percent on the first $128,400 (to be adjusted annually) of an individual's annual earnings paid into the fund created by the MFMLL.
The department will hold a number of listening sessions to gather input from the public. The proposed regulations are expected to be finalized on or before July 1, 2019. MA employers should review the proposed regulations and be prepared to begin paying the applicable payroll tax as of July 1, 2019. Employees may begin to apply and receive paid leave under MFMLL beginning January 2021.
This material was created by PPI Benefit Solutions to provide accurate and reliable information on the subjects covered but should not be regarded as a complete analysis of these subjects. It is not intended to provide specific legal, tax or other professional advice. The service of an appropriate professional should be sought regarding your individual situation. PPI does not offer tax or legal advice. "PPI®" is a service mark of Professional Pensions, Inc., a subsidiary of NFP Corp. (NFP). All rights reserved.