Monthly Archives: August 2015

Health Reimbursement Plans: Beware of Penalties

2015_08_20 Health Reimbursement Plans2m Health Reimbursement Plans, Healthcare, Health, Reimbursement PlansHealth reimbursement plans and rules have been very interesting these days. They can save you a lot of money, if used appropriately.

Beginning in 2015, large employers defined as those with 100 or more full-time employees must begin offering health insurance coverage to their employees. Then, in 2016, employers with 50 or more full-time employees must do the same or face penalties. These are called the “large employer health coverage excise tax.”

Employers with fewer than 50 full-time employees are never required to offer their employees an insurance plan. However, qualified small employers who do provide coverage may qualify for the small business health insurance credit.

In the past, many smaller employers have simply reimbursed their employees for the cost of insurance. They found it less expensive. And, they had fewer administrative costs than having a group insurance plan. However, under the Affordable Care Act (ACA, or Obamacare for short), a group health plan that reimburses employees for the employees’ substantiated individual insurance policy premiums must satisfy the market reforms for group health plans. Most commentators believe an employer payment plan will fail to comply with the ACA annual dollar limit prohibition. This is because an employer payment plan is considered to impose an annual limit up to the cost of the individual market coverage purchased through the arrangement. Also, an employer payment plan cannot be integrated with any individual health insurance policy purchased under the arrangement. Thus, reimbursement plans may be subject to a very draconian penalty.

Small Business Employers, Did You Get the Notice?

Back in February, the IRS issued Notice 2015-17. This provides small employers limited relief from the stiff $100 per day, per participant, penalties under IRC §4980D for health insurance reimbursement plans that had been addressed in Notice 2013-54. In particular, that notice provided:

    • Transitional relief for employers that do not meet the definition of large employers (i.e., employers with 50 or more employees). This relief is granted for all of 2014 and for January 1 through June 30, 2015; and
  • Relief for S corporations that pay for or reimburse premiums for individual health insurance coverage for 2% shareholders, as previously addressed in Notice 2008-1. The relief period is indefinite, and the IRS states that taxpayers may continue to rely on Notice 2008-1 “unless and until additional guidance” is provided.

The Small Employer Health Reimbursement Relief is Expired

2015_08_20 Health Reimbursement Plans QuoteWell, June 30, 2015 has come and gone. So has the small employer relief. Therefore, employers who still reimburse employees for their medical expenses are in danger of being subject to the $100 per day ($36,500 a year) per employee penalty. Compared to the annual $2,000 penalty that large employers face for not providing insurance to their full-time employees, the penalties on small employers are substantial enough to bankrupt them. What does this mean? The large employer who fails to provide any insurance pays a penalty of only $2,000 per year per employee while the employer who helps employees by reimbursing them for the cost of insurance gets hit with an up to $36,500-per-employee penalty.

This is true even if the employer is a small employer (50 or fewer full-time employees) who is under no legal obligation to provide health insurance plans for its employees. They just want to offer reimbursements simply to help the employees. Does this seem fair? We will let you form your own opinion. You are welcome to leave a comment below to go over to our Facebook or Google+ pages to express your thoughts.

Will Congress step in to alleviate the problem? Maybe yes and maybe no. Employers must decide if it is worth the risk to depend on Congress to act.

There is one firm, Zane Benefits, which claims to have solved the problem with a reimbursement plan that complies with the code. Of course, there are others who argue that it does not.

Bottom Line: Understand your risks if your business has a medical reimbursement plans and consider other options.

If you have questions related to your business and employees or about the tax consequences or benefits regarding health reimbursement plans, please give Alex a call at 781-848-7200. He can help you sort through the tax treatments for you or your business large or small.

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Same-Sex Marriage: Now That It Is Legal In All States, What Are The Tax Implications?

same-sex marriage, Supreme-courtOn June 26, the Supreme Court ruled that the Fourteenth Amendment to the Constitution requires all states to license marriages between two people of the same sex. It also required that all same-sex marriages performed in other states are recognized in every state in the USA. This comes approximately two years after the Supreme Court overturned the Defense of Marriage Act (DOMA) enacted by Congress and signed by then President Bill Clinton. DOMA defined marriage as “legal union between one man and one woman as husband and wife.”

This has wide-range implications for married individuals who reside in states that until now have not recognized same-sex marriage. Also, for those who can now marry in their state, including employer-provided employee and spousal benefits, retirement issues, Social Security benefits, and of course tax issues.

Since DOMA was overturned, legally married same-sex couples have been required to file their federal returns as “married,” but they have had to file their state returns as single or head of household status if their state did not recognize their marriage as legal. That will now change. They will now be able to file using the married status for their state returns as well.

Tax Breaks Available to Legally Married Same-Sex Couples

Being married for tax purposes is not always beneficial. It depends on a number of circumstances. The following are some of the tax breaks available to legally married same-sex couples:

  • The right to file a joint return, which can produce a lower combined tax than the total tax paid by same-sex spouses filing as single persons (but this can also produce a higher tax, especially if both spouses are relatively high earners or one or both previously qualified to file as head of household);
  • The opportunity to get tax-free employer-paid health coverage for the same-sex spouse;
  • The opportunity for either spouse to utilize the marital deduction to transfer unlimited amounts during life to the other spouse, free of gift tax;
  • The opportunity for the estate of the spouse who dies first to receive a marital deduction for amounts transferred to the surviving spouse;
  • The opportunity for the estate of the spouse who dies first to transfer the deceased spouse’s unused exclusion amount to the surviving spouse;
  • The opportunity to consent to make “split” gifts (i.e., gifts to others treated as if made one-half by each); and
  • The opportunity for a surviving spouse to stretch out distributions from a qualified retirement plan or IRA after the death of the first spouse under more favorable rules than apply for non-spousal beneficiaries.

There is a negative side as well.

Many same-sex married couples, especially higher-income ones, may find that filing as married has unpleasant income tax outcomes. Divorcing before the end of the year can fix that. However, before employing that strategy, a couple needs to consider the other financial benefits of being married. The following issues are commonly encountered by same-sex married couples.

  • A taxpayer who is married and living with his or her spouse cannot file using head of household filing status. So a same-sex spouse (or both) who previously qualified for and filed a federal return using the head of household status will no longer file as head of household. Instead, the same-sex couple will file as married using the joint or separate status. This will generally result in higher taxes.
  • When filing as unmarried, one individual can take the standard deduction and the other can itemize. As married individuals, they must choose between the two. This could substantially reduce their overall deductions. If a same-sex couple files married separate returns and one spouse claims itemized deductions, the other spouse cannot use the standard deduction.
  • As unmarried individuals, same-sex partners were able to adopt each others children and claim the adoption credit. As married individuals they can no longer do that.

Domestic Partnerships

For those who are registered domestic partners (RDPs) in California, the Supreme Court’s recent ruling does not address the IRS’s position that these individuals are not legally married and therefore not eligible to file as married. Unless IRS changes its interpretation, RDPs will still not be able to file as married for federal purposes.

Contemplating a Same-Sex Marriage?

Are you thinking about a same-sex marriage? Do you live in a state that previously did not recognize same-sex marriage? Do you wish to explore the tax consequences of now filing as married individuals? Call Alex a call at 781-848-7200.

We invite you to visit our Facebook or Google+ pages to leave your thoughts, or feel free to leave a comment below this blog.

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photo credit: Supreme Court of the United States via photopin (license)

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Click here to read about The Supreme Court’s 5-4 landmark ruling on Obergefeel v. Hodges with regard to Same-Sex marriage.

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Perhaps you know someone who may benefit from this information, please feel free to share:
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