Tax Update on Employee Benefits
As tax advisors, we touch many areas of a business – including employee benefits. While this may not be your thing, and there is value to "staying in your lane", it's important to have a working knowledge and keep up on issues business owners and employees are facing. Below is a tax-focused update on a few employee benefit related topics that might be inquired about.
Employers are continuing to move even more towards high deductible healthcare plans (HDHP) – which likely means more Health Savings Accounts, or HSAs. HSAs are a great tax reduction and potentially tax-free growth vehicle for those who have the money to fund them. The IRS recently expanded their list of HDHP compliant preventative care treatments for certain chronic conditions in Notice 2019-45 , which means adding to the class of care that doesn’t require a deductible to apply in the HDHP. It’s likely this favorable HDHP/HSA trend will continue. The recently added items are as follows:
Individual & Employer Mandate
The Affordable Care Act’s individual healthcare mandate tax penalty was repealed at the Federal level effective 2019 by the Tax Cuts & Jobs Act, but beware that states can still mandate this penalty at their level, if they so choose. California, for example, passed a law this summer mandating its citizens have healthcare or pay a tax penalty similar to the Federal individual mandate, starting in 2020. The ACA employer mandate, the part that requires employers with 50 or more full-time employees to offer health insurance or pay a penalty, is still in effect and may not be going away any time soon. So, keep Forms 1094-C and 1095-C on the to-do list.
Health Reimbursement Arrangements
In June, final regulations (TD 9867) were released related to Health Reimbursement Arrangements, or HRAs, and other account-based group health plans that reimburse employee health care costs, in an effort to expand their use. The regulations allow for employers of all sizes to offer an individual coverage HRA (ICHRA) instead of traditional group plans starting in 2020, as well as creating a new excepted-benefit HRA to allow employers to offer traditional group coverage plus reimburse employees for certain qualified medical expenses like dental and vision plan premiums. Employers subject to ACA’s employer mandate may be able to use ICHRAs to satisfy the requirement, and the IRS has suggested it will identify a safe harbor for employers to determine whether their ICHRAs will meet coverage requirements.
Delays & Potential Repeal
Also worth noting, the “Cadillac Tax” of the ACA, which imposes an excise tax on the value of coverage over certain thresholds, has been delayed further until 2022 with the potential for full repeal remaining a future possibility. The health insurer tax (HIT), another controversial ACA tax that is assessed on premiums collected and likely to be passed onto the consumer in premium increases, had also been suspended for 2019, with uncertainty to its future as well.
While it can seem like we're inundated with tax guidance to digest lately, staying up on these types of topics as well is certainly an opportunity to become a better overall business adviser to our clients and companies!