Qualified transportation fringe benefit plans allow employers to provide employees with qualified parking, transit passes, vanpooling and bicycle commuter benefits on a tax-free basis.  

All benefits provided to an employee by his or her employer result in taxable income to the employee unless the Internal Revenue Code (Code) specifically excludes the benefit from taxation.  Under Code §132, employers are permitted to give the following transportation fringe benefits to employees on a tax-free basis: 

qualified parking; transit passes; vanpooling; and qualified bicycle commuting reimbursement. 

Qualified parking is parking provided to an employee near the business of the employer or at a location from which the employee commutes to work.  Parking is “provided to an employee” if the employer pays for or provides the parking on premises that it owns or leases.  The statutory limit for parking expenses is $240 per month for 2012, subject to cost-of-living adjustments...

On April 27, 2012, the IRS announced the 2013 inflation adjusted annual contribution limits for Health Savings Accounts (HSA) and the deductible amounts and out-of-pocket limits for the high deductible health plans (HDHP) to which HSAs are linked. 

A quick refresher.  An HSA is a portable, tax favored medical reimbursement account (at a bank or other financial institution) funded by the employee and/or employer, but owned and controlled by the employee.  HSAs are governed by Internal Revenue Code § 223.  

To be eligible to contribute to an HSA, the individual must not be another individual’s tax dependent, must not be enrolled in Medicare, must have current coverage under a HDHP, and must not be covered by any other health plan that provides coverage for a benefit prior to satisfying the regulatory minimum annual HDHP deductible unless it is permitted coverage.  Permitted coverage includes coverage provided for preventative care, dental or vision services (whether through an insurance plan...

Guest Contributor: Peter Antonie

An election for a cafeteria plan benefit can be corrected during the plan year in the context of a mistake if an employer can verify and confirm that a mistake was made in the election, either by the employer or employee.



Treasury Regulation 1.125-2 provides that a cafeteria plan election must be made in advance of the plan year, or eligibility date, and is irrevocable during the plan year. Treasury Regulation 1.125-4 provides 14 Permitted Election Change events for which an irrevocable election can be changed mid-year so long as the requested change is on account of the event and consistent with that event. Making a mistake in the election made is not a recognized Permitted Election Change event. However, IRS officials have offered guidance that, where there is clear and convincing evidence that an individual has made a mistake in an election or that the employer has made an administrative mistake in recording that election, the election can be undone,...

April is National Autism Awareness Month.  Autism is a complex developmental disability that typically appears during the first three years of life and affects a person’s communication and social interaction abilities.  The disorder occurs on a spectrum, in that it affects individuals differently and to varying degrees.  The prevalence of autism has risen to 1 in every 110 births in the United States and almost 1 in 70 boys. 

Did you know that health care reform contains important provisions for individuals with autism? The law prohibits insurers from denying coverage for children with autism or other pre-existing conditions and prohibits lifetime dollar limits on coverage.  Additionally, new plans must cover autism screening at no cost to parents and young adults without employer-provided insurance may stay on their parents’ insurance until they turn 26.  Starting in 2014, individuals with autism will have expanded access to affordable insurance options under the insurance exchanges and Medicaid. ...

On Wednesday, March 14^th the Senate passed a bill (S. 1813) that authorizes Federal-aid highway and highway safety construction programs, and for other purposes, including a provision that restores parity for exclusion from income for employer-provided mass transit and parking benefits.   

Last year, Congress failed to extend parity between the two benefits and the mass transit benefit reverted from $230 to $125.  This bill increases the monthly amount that individuals may elect pre-tax for mass transit from $125 to $240, to match the parking benefit that began in 2012. 

Currently, the bill awaits consideration in the House of Representatives.  

Employers, employees, insurers and the courts have wrestled with this topic for years. At issue is whether various voluntary plans are subject to ERISA and COBRA; or whether the plans are only subject to state insurance law. Insurance plans that employees purchase on their own and pay for outside of work are clearly voluntary plans. Once the employer enters the picture, however, the issue gets murkier. Even if an employee pays the entire cost of an insurance plan through the employer, the plan may still not be voluntary.

An HRA (Health Reimbursement Arrangement) is an employer-funded arrangement that reimburses employees for qualified eligible medical care expenses under section 213 of the Internal Revenue Code (Code).  HRAs are health plans under the Code and are governed by section 105.  Because the HRA is a health plan, it is also subject to the following regulations: ERISA, COBRA, HIPAA, FMLA, Mental Health Parity Act and Medicare Secondary Payer Rules.  HRAs offer a number of tax advantages for both employees and employers.  Employees are not taxed on the value of their HRA accounts or on the reimbursements they receive from the HRA.  Employers are usually entitled to a deduction for reimbursements under an HRA as well. 

While an HRA is similar to a Health Care FSA, there are several key differences.  For example, an HRA is not subject to the following restrictive rules that govern Health Care FSAs:

the prohibition against carrying unused benefits into future plan years; the mandatory 12-month...

According to a new employer survey, most U.S. companies plan to increase the dollar value of the incentives they offer employees to participate in health improvement programs in 2012. The survey found that nearly three-fourths of companies (73%) use incentives to engage employees in health improvement programs. In 2011, the average incentive value was $460, up from an average of $430 in 2010, and nearly twice as much as the 2009 average, $260. And that $460 figure is expected to climb in 2012 for the majority of employers.

The IRS lowered the Medical Mileage rate from 23.5 cents per mile to 23 cents per mile, effective January 1, 2012 to December 31, 2012.

Participants can use their BESTflex Plan – Health Care FSA to be reimbursed for mileage costs associated with traveling to and from doctor’s visits, dental appointments, eye exams and to pick up prescription medications as long as the primary purpose of travel is for and essential to obtaining medical care.

There are four types of leaves of absences: (i) Paid Leave of Absence; (ii) Unpaid Family and Medical Leave Act (FMLA) Leave of Absence; (iii) Non-FMLA Unpaid Leave of Absence; and (iv) Uniformed Services Employment and Reemployment Rights Act (USERRA) Unpaid Leave of Absence. Each type of leave is subject to different regulations and will affect a participant’s benefits differently.

Paid Leaves of Absence are easy. A participant on a Paid Leave of Absence, regardless of whether the leave is covered by FMLA, is regarded as being employed throughout the leave because they are still receiving a paycheck. Thus, because the participant has not lost eligibility for the Plan, the participant may NOT make any changes to their cafeteria plan election amounts.

Enacted in 1993, FMLA was one of the first major pieces of legislation that President Bill Clinton signed into law. FMLA protects individuals from losing their jobs and benefits while taking leave from work for their own serious medical condition...

Participants can make mid-year election changes to their Health Care FSA due to a status change for the employee, their spouse or dependents. See Treas. Reg. §1.125-4. When a status change event occurs, such as a spouse gaining or losing employment or eligibility for their employer’s plan, our participant is allowed to make changes to their Health Care FSA that are on account of and consistent with the event.



When a participant’s spouse gains employment or becomes eligible for benefits, our participant can MAINTAIN, DECREASE, or DROP their Health Care FSA election – all of which would be consistent with their spouse gaining employment or becoming eligible for benefits.



When a participant’s spouse loses employment or loses eligibility for their employer’s plans, our participant can MAINTAIN or INCREASE their current election or ELECT a Health Care FSA – all of which would be consistent with their spouse losing employment or losing eligibility for benefits.



Here,...

2011 certainly kept us busy with health care reform taking up the bulk of our efforts. As we kickoff 2012, I thought I would highlight some of the upcoming issues affecting the benefits world.

Supreme Court & Health Care Reform – The Supreme Court will hear challenges to health care reform just as the presidential election swings into high gear. Expect oral arguments in March 2012 and a possible decision in June. W-2 Reporting – Beginning with tax year 2012, employers who file more than 250 Form W-2s must report the aggregate cost of applicable employer-sponsored health coverage on W-2s provided to employees (using Box 12 and code DD). Employers who file less than 250 Form W-2s get a pass until the IRS issues further guidance. See IRS Notice 2012-9 (http://www.irs.gov/pub/irs-drop/n-12-09.pdf). $2,500 Limit on Health Care FSA Salary Reductions – Although the limit is effective beginning in tax year 2013, non-calendar year Health...

This week, the United States Senate Committee on Finance approved legislation that would reverse cuts to the monthly pre-tax transit benefits available to commuters who use public transportation and vanpools. If approved by Congress, the bill will restore the monthly amount that can be set aside for public transportation expenses to $240 a month, rather than $125, saving commuters annual costs of up to an additional $550 this year.

Q.  Employer: We’ve had a question come up a couple of times at our meetings this week regarding dependent care.  One of the points on our slides is that the employee and spouse must either be working or full time students to be able to use the dependent care account.  Are there a minimum number of hours that they need to be working? 

A.  No.  Under the regulations, there is not a minimum hourly requirement that an employee and spouse need to be working to be eligible for reimbursement from the Dependent Care FSA. 

Dependent care expenses must be incurred in order to allow an employee and spouse to work or look for work, hat is, “to be gainfully employed.”  See Code §§129(e) and 21(b)(2).  Work can on a full-time or part-time basis.  The regulation considers one hour of work in a day as a day of work.

So, commonly, a part time employee works each day, but not the full day (e.g., 4 hours per day). If the day care provider charges for a full day, the participant can claim the entire expense,...

The issue

With open enrollment season upon us, we’ve received several questions regarding anticipatory elections.  We also receive calls throughout the year on the related topic of election changes based on an anticipatory election that did not come to fruition. 

The short answer

A certain amount of risk is inherent and unavoidable with elections for the Health Care FSA and Dependent Care FSA because of the irrevocability rule and the use or lose rule.  In order to balance the risk associated with anticipatory elections, participants may consider a number of options. 

The compliance answer

All elections under a cafeteria plan are irrevocable during the period of coverage.  See Prop. Treas. Reg. §1.125-2(a).  The irrevocability rule is fundamental to the qualified status of a cafeteria plan and therefore, its tax-advantaged status. 

The use-or-lose rule can be found in the 2007 proposed cafeteria plan regulations, but is derived from Code §125.  See Prop. Treas. Reg....

On Friday November 4, 2011 Wisconsin Governor Scott Walker signed into law legislation that adopts the federal income tax treatment of employer-provided health coverage of adult children who have not attained age 27 as of the end of the tax year for Wisconsin state income tax purposes.   Prior to this recent change, Wisconsin was the only remaining state that had not adopted the federal income tax treatment.  The change is effective retroactive to January 1, 2011. 

Federal Income Tax Treatment

Effective March 30, 2010, under health care reform, the value of employer-provided health benefits for employee’s dependents that have not attained age 27 as of the end of the tax year is excluded from the employee’s gross income. 

What does this mean for administration of the BESTflex Plan and EBC HRA?

·         Reimbursement from a Health Care FSA or EBC HRA for expenses incurred by an eligible child, are excluded from the employee’s gross income for Wisconsin state income tax purposes, retroactive...

Remember that a cafeteria plan is a plan that offers employees a choice between taxable benefits and qualified benefits.  Only qualified nontaxable benefits can be offered under a cafeteria plan. IRC §125(f)(1) defines the types of benefits that can be offered under a cafeteria plan.  Under Code §125(f)(1) a qualified benefit is “any benefit which . . . is not includable in the gross income of the employee by any reason of an express provision of this chapter (other than section 106(b) [medical savings accounts], 117 [qualified scholarships], 127 [ educational assistance programs] or 132 [fringe benefit programs])."

What does “not includable in the gross income by any reason of an express provision of this chapter” mean?  “This chapter” means Chapter 1 (addressing normal taxes and surcharges) of Subtitle A (income taxes) of the Code.  “Express provision[s] of this chapter” refers to certain items, excludable from gross income, found in Code §§101 through 138. 

Thus, qualified benefits under a cafeteria plan include the following:

...

The Uniform Coverage Rule requires that “the maximum amount of reimbursement from a health FSA must be available at all times during the period of coverage (properly reduced as of any particular time for prior reimbursements for the same period of coverage).”  Prop. Treas. Reg. §1.125-5(d)(1).  Under the regulations, the maximum amount of reimbursement at any particular time during the coverage period cannot relate to the amount that has been contributed to the FSA at any particular time prior to the end of the plan year.  Thus, once the employee makes an election, the employee has uniform coverage of the entire amount, including the employer’s contribution as well. 

Essentially, the Uniform Coverage Rule causes the health FSA to operate like insurance, with the employer bearing risk similar to an insurance company that provides full coverage for a premium.  However, sometimes employers try to reduce their risk by limiting reimbursements to the amount of contribution or requiring repayment of excess reimbursements...

The IRS released their project plan for 2011-2012.  The plan includes items that the IRS and Treasury would like to address.  Here are some of the items in the plan that impact employee benefits:

Finalize the 2007 proposed cafeteria plan regulations under §125;

 Guidance on the $2,500 annual limit on salary reduction contributions to cafeteria plan health flexible spending arrangements under §125(i);

Guidance under §132(f) on the use of smart cards, debit cards and credit cards in providing qualified transportation fringe benefits;

Address comparable contributions rules for HSAs, especially those relating to the cafeteria plan exception;

Regulations on the Medicare Tax for 2013.

...

According to Investment News, health savings account (HSA) balances and the number of HSAs jumped this past summer as employers continued to implement high deductible health plans (HDHPs).  Health care reform and the lagging economy seem to be impacting interest in HDHPs and consequently, HSAs.  In light of such interest, a quick review of HSAs and a comparison to other common benefit offerings – health reimbursement arrangements (HRAs) and flexible spending accounts (FSAs) – is in order. 

An HSA is a tax favored medical savings account that can be contributed to by, or on behalf of eligible individuals who are covered by certain HDHPs.  The account may reimburse certain medical expenses of eligible individuals, their spouses and tax dependents.  Because the individual owns their HSA and the account is not tied to an employer or to employment status, the account is transferrable and amounts will not be forfeited. 

Eligible individuals must meet several criteria.  For any month that an individual...

September 1, 2011, not only marks the beginning of a new month, but the end of the federal COBRA subsidy, which covered 65 percent of COBRA premiums for eligible individuals.

The IRS has announced that, effective July 1, 2011, the medical mileage reimbursement rate will increase to 23.5 cents per mile. This is a 4.5-cent increase from the rate the IRS originally set for 2011 and stems from recent rises in gas prices.

Health Savings Accounts were created in 2003, under the Medicare Prescription Drug, Improvement and Modernization Act. Since then, they've competed with Health Reimbursement Arrangements as the go-to spending account option for employers that implement a high-deductible health plan. In part one of our series on Health Savings Accounts, we explain how the accounts work and who can participate.