Earlier this year, IRS Notice 2020-18 was released announcing that the April 15th tax deadline was extended to July 15th. As the July 15th income tax deadline quickly approaches, employees that participate in a cafeteria plan that includes employer sponsored health insurance, Health Care Flexible Spending Accounts (FSA), Dependent Care Flexible Spending Accounts (FSA) or health savings accounts (HSA) should keep a few things in mind. Below is what employees and plan participants need to know when filing their taxes.
Employer sponsored health insurance
When completing a federal tax return, individuals may be asked if they had health insurance coverage during 2019 and the source of the coverage (i.e. employer sponsored, Marketplace, etc.). Individuals may or may not receive a form to show evidence of health coverage (1095-B or 1095-C). Individuals are not required to submit these with their tax returns, however, it is best practice to keep a copy with important tax papers as proof of which months an individual was enrolled in an employer sponsored health insurance plan.
- 1095-B may be sent to individuals as proof of health insurance coverage. This will be sent from the health insurance carrier for insured plans and your employer if individuals have certain self-funded health insurance.
- Note:Beginning in 2020 (for 2019 tax filings), primarily as a result of the individual mandate penalty being reduced to $0, issuers of 1095-B can opt to provide prominent notice on their website that 1095-B is available only upon request.
- 1095-C will be sent to employees from their employer as proof of employer-sponsored health plan coverage.
If the employer issued over 250 W-2’s for 2019 they are required to report the value of the health plan in Box 14 of the W-2 for informational purposes only coded as “DD”.
Health Care FSA
Generally employees will not need to do anything special on their personal taxes if they participated in the standard or limited health FSA. Essentially any dollars contributed to the Health Care FSA pre-tax will not appear on the W-2 and will not be reflected in the income amounts. No extra forms to file.
Employer contributions (flex credits) to the Health Care FSA will get reported in Box 14 of the W-2 for informational purposes only coded as “DD” if the employer issued over 250 W-2’s for 2019. No extra forms to file for the employee.
Dependent Care FSA
Any amounts participants and/or employers contributed to a Dependent Care FSA will be reported in Box 10 of the W-2. Any amounts contributed to the Dependent Care FSA pre-tax will not be reflected in the income amounts.
Employees should use Form 2441 to report the Dependent Care provider, participation in a Dependent Care FSA and/or take any eligible child and dependent care tax credits. See Form 2441 Instructions.
Health Savings Accounts (HSA)
Employer contributions (including amounts employees elected to contribute using a Section 125 (cafeteria) plan) to their health savings account will be reported in Box 12 Coded as a “W”. Any amounts contributed to the HSA pre-tax will not be reflected in an employee’s income amounts.
Individuals will report the information on Form 8889 and/or take any additional tax deductions for post-tax deposits made directly to the HSA custodian. See Form 8889 Instructions. Depending on the circumstances, individuals may need to also report information on Schedule 1 and/or Schedule 2. (See more information in this Buzz Article.)
As a result of the delay in income tax filing to July 15, 2020, the IRS has also extended the deadline to contribute to a HSA for 2019 to July 15, 2020 as well. Typically individuals that want to take advantage of this additional time will be making their contribution outside of payroll and directly to the HSA custodian. Individuals can take the income tax deduction on Form 8889 when they file their taxes.
1099-SA is issued by the HSA custodian and represents a report of distributions made from a HSA. The distribution may have been paid directly to a medical service provider or as a repayment to the HSA accountholder. Keep this form with tax papers. In the event of an audit, it will be up to the taxpayer to provide substantiation to prove tax-free distribution status. An individual should also report any non- qualified distributions on their tax return and pay any applicable penalties.
Per IRS Notice 2020-35, the due date for filing and furnishing the Form 5498, IRA Contribution Information, Form 5498- ESA, Coverdell ESA Contribution Information, and the Form 5498-SA, HSA, Archer MSA, or Medicare Advantage MSA Information is postponed to August 31, 2020. The period beginning on the original due date of those forms and ending on August 31, 2020, will be disregarded in the calculation of any penalty for failure to file those forms. Penalties with respect to such a postponed filing will begin to accrue on September 1, 2020.
Always consult with a tax advisor for questions regarding preparation of tax returns and required forms and schedules.
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