#compliance – WisMed Assure

IRS Releases 2019 Instructions for Form 8994: Employer Credit for Paid Family and Medical Leave

January 17, 2020January 17, 2020

The IRS recently released the 2019 Instructions for Form 8994: Employer Credit for Paid Family and Medical Leave. Employers who provide family and medical leave to their employees may complete Form 8994 in order to claim a credit for tax years 2018 and 2019. In order to claim the leave, employers must have a written policy that provides at least two weeks of paid leave to full-time employees (prorated for part-time employees), and the paid leave must be at least 50% of the wages normally paid to the employee.

Family and medical leave, for purposes of this credit, is leave granted by the employer in accordance with written policy for one or more of the following reasons:

Birth of an employee’s child and to care for the child
Placement of a child with the employee for adoption or foster care
To care for the employee’s spouse, child, or parent who has a serious health condition
A serious health condition that makes the employee unable to do the functions of their position
Any qualifying exigency due to an employee’s spouse, child, or parent being on covered active duty (or having been notified of an impending call or order to covered active duty) in the Armed Forces
To care for a service member who’s the employee’s spouse, child, parent, or next of kin

The credit is a percentage of the amount of wages paid to a qualifying employee while on family and medical leave for up to 12 weeks per taxable year. The applicable percentage falls within a range from 12.5% to 25%. In certain cases, an additional limit may apply. An employer can claim credit only for leave taken after the written policy is in place, and the credit is scheduled to expire for tax years beginning after 2019.

Employers seeking to claim this credit should work with their accountants or tax professionals to do so.

Source: NFP Benefit Partners Compliance and Regulatory Federal Health Updates; December 10, 2019

What are the timing rules for employer and employee HSA contributions? What should be done if HSA contributions are submitted late?

November 11, 2019January 17, 2020

There are some general rules pertaining to timeliness of HSA account contributions. While employer contributions to an HSA don’t have a particular “due date,” the employer should sufficiently follow the plan terms. So if an employer communicates to employees that employer contributions will be contributed at a specific interval (such as per pay period), the employer should contribute based on that timetable. As an outside compliance limit, the IRS generally allows employers to contribute to employees’ HSAs through the tax filing deadline for the year in which the HSA contributions were due.

On the other hand, participant contributions withheld from employee paychecks, including employee-deferred HSA contributions, are subject to the DOL’s plan asset regulations governing welfare and pension benefits. Specifically, participant contributions become plan assets “as of the earliest date on which such contributions can reasonably be segregated from the employer’s general assets, but in no event later than 90 days after the payroll deduction is made.” This generally means the outside limit for submitting contributions is 90 days, but this is not to be considered a safe harbor because contributions should nearly always be segregated in a matter of days rather than weeks.

This deadline applies to participant contributions coming into an employer’s possession under the welfare benefit plan, including personal checks used to pay COBRA contributions, premiums during FMLA leave, retiree premiums, salary reductions under a cafeteria plan, and HSA contributions. As such, employers should contribute employee-deferred HSA contributions to their accounts as soon as the funds can be separated from the employer’s general account. In this way, the deadline for forwarding HSA contributions is similar to the deadline for forwarding employee 401(k) deferrals.

Keep in mind, though, that there is a safe harbor for small employers for this purpose. Employers with fewer than 100 participants can utilize a DOL “safe harbor” that gives them up to seven business days to deposit plan assets (including HSA contributions) to an employee’s account.

When an employer has failed to forward participant contributions on a timely basis, there are procedures available to correct both the fiduciary breach and the prohibited transaction that has occurred. There is a DOL correction program available to employers that commit this failure. The Voluntary Fiduciary Correction Program (VFCP) allows employers to correct failures (such as failure to forward HSA contributions on a timely basis) by submitting an application for the program and filing a Form 5330, acknowledging the prohibited transaction. However, as with any compliance failure, an employer that fails to timely forward contributions should consult with legal counsel.

Source: NFP Benefit Partners Compliance and Regulatory Frequently Asked Questions; October 1, 2019

Can an employer choose not to allow mid-year changes to employees’ HSA contribution elections?

September 9, 2019

While an employer could choose to limit employees’ HSA contributions in some ways, they have to allow employees the chance to change their HSA contribution amount at least monthly.

As background, pre-tax HSA contribution election changes must be allowed at least monthly and upon a loss of HSA eligibility. This requirement correlates with the HSA monthly eligibility rules. Although an employer could choose to place other restrictions on HSA contribution elections under its cafeteria plan (such as only allowing one election change per month), the same restrictions must apply to all employees.

So the employer would essentially have to allow employees to change their HSA contribution elections on at least a monthly basis. Keep in mind, though, that many employers just allow open-ended prospective election changes to employees’ HSA contributions.

Ultimately, the circumstances under which mid-year election changes will be allowed for HSA contributions should be addressed in the cafeteria plan document and in participant communications.

Source: NFP Benefit Partners Compliance and Regulatory Frequently Asked Questions; May 29,2019