Month: October 2013

By Josie Martinez, Senior Partner and Legal Counsel
EBS Capstone, A UBA Partner Firm 

It is becoming more and more common for employers to offer wellness incentives to their employees as motivation for employees to improve their overall health and well-being.  Management has started to buy in to the fact that there is a correlation between healthier employees, lower medical claims and lower medical premiums, but this only works with employee participation. While an effective means to incentivize employees to do something positive about their health, however, there are tax implications to these incentives that are often overlooked and/or misunderstood by both employers and employees.

Wellness incentives can range from nominal in nature to more significant financial rewards.  Employers may offer gift cards or cash, partial or total gym reimbursements, raffles or prizes, free T-shirts,  sneakers or even tickets to a sporting event or show.  Incentives can also include such things as reductions in employee premiums or contributions and employer contributions to HSAs, HRAs, FSAs, etc.  The bottom line is that incentives can come in all forms, shapes and amounts.  The issue is how are these incentives treated for tax purposes?

Many types of incentive awards are treated as taxable wages and subject to payroll taxes.  Exclusions may apply to amounts provided to employees for “medical care” but expenses that are simply for the benefit of a person’s general health or well-being are not expenses for “medical care” and therefore taxable.  The general IRS rule states that any award or prize given by an employer is taxable to an employee as wages, to be included on their W-2 and subject to Federal tax withholdings, as well as Social Security and Medicare taxes unless a tax exemption is explicitly described in the tax code. The most commonly used incentive award that is exempted from taxation in the code is employer contributions to a health plan. So where the wellness program includes an employer reward in the form of lower employee contribution for the health plan, or an employer-funded HRA, these employer paid rewards are tax exempt.

Another exception to the general rule is the “de minimus award” rule.  The value of any property or services provided to an employee that has so little value that accounting for it would be unreasonable or administratively impracticable is not included in employee compensation and is not taxable because it is considered de minimus.  The IRS states that a de minimis award is one of nominal value and is provided infrequently. Unfortunately, there is no bright-line dollar amount as to what qualifies. A safe bet is probably somewhere between $25 and $100, but not $100 every three months.  Again, little guidance is present so employers must use their judgment in deciding whether a particular item is excludable from employee income as a de minimis fringe benefit.   Some employers therefore assume that a gift card in a nominal amount should not be taxable to the employee, but cash is always taxable, regardless of the amount, regardless of the reason and regardless of the frequency. If you want to give cash, it is best paid through payroll as wage-related earnings. Gift cards or certificates are considered cash equivalents and therefore treated the same as cash.  

A creative incentive is when employers award additional paid time off or permit employees to exercise or attend health classes during work hours.  Any wages (i.e., cash) paid with respect to additional “free time” continue to be taxable to the employee and subject to payroll taxes. Finally, the fact that an employer may have a third party to run the wellness program and/or is the one distributing the incentives does not change the rules because ultimately, the third party is really the employer’s agent. 

So, while wellness incentives are an effective tool to engage employees about their health, employers must remember that, if they offer taxable wellness incentives, they must report these rewards on the employee’s Form W-2 and withhold appropriate taxes on these amounts.  

By Linda Rowings
Chief Compliance Officer
United Benefit Advisors

The health marketplaces are starting to accept applications, and with that, interest in the premium subsidy process is increasing.

A person is eligible for a premium subsidy if the person meets all of these requirements:

• Purchases coverage through the government marketplace
• Has a household modified adjusted gross income between 100 to 133 percent (depending on their state) and 400 percent of Federal Poverty Level (FPL)
• Is not eligible for minimum essential medical coverage through a government program such as Medicare, Medicaid, or CHIP
• Is not eligible for minimum essential medical coverage through employer-provided coverage that both is minimum value (60% or greater actuarial value) and affordable (single coverage costs less than 9.5% of household income)
• Has not purchased employer-provided coverage (regardless whether it is affordable and minimum value)
• Is a U.S. citizen, national or alien lawfully present in the U.S. (e.g., on a visa)
• Is not eligible to be claimed as another person’s tax dependent
• Files a tax return (if married, a joint return must be filed)

When a person applies for marketplace coverage he will be screened for possible eligibility for the premium subsidy (or Medicaid). If the person may be eligible for a subsidy he will complete an application that includes information about income and access to affordable, minimum value coverage through an employer. The marketplace will contact the employer to verify that the employee’s information is accurate. Employers will be encouraged, but not required, to respond to these verification requests.

The premium subsidy amount is based on the cost of coverage in the marketplace, not the cost of employer-provided coverage. The subsidy decreases as the person’s income increases, using the following table. (A sliding scale, rounded to the nearest one-hundredth of one percent, applies between the minimum and maximum percentage.) 

The applicable percentage is multiplied by the person’s household income to determine his required share of premiums for the second least expensive silver plan in the marketplace.

The premium subsidy actually is a tax credit that is available in advance. Each month, the government will pay the premium subsidy directly to the insurer. The person will pay his or her share directly to the insurer.

Everyone who receives a premium subsidy must file a federal income tax return. The tax return will be used to true-up the amount of subsidy the person received and the amount they were entitled to. If the subsidy was too large the person will have to pay extra tax (to a maximum). If it was too small, the person will get a refund.  The maximum amount an individual who received too great a subsidy would repay is:

• $300 if filing single and $600 if filing other than single if household income is less than 200 percent of FPL
• $750 if filing single and $1,500 if filing other than single if income is 200 percent up to 300 percent of FPL
• $1,250 if filing single and $2,500 if filing other than single if income is 300 to 400 percent of FPL.

Recipients will be encouraged to notify the marketplace of mid-year changes in income and number of dependents that might impact the amount of subsidy the person is eligible for.

UBA has prepared a FAQ to address these questions and more. Request a copy of the Frequently Asked Questions about the Health Marketplace now.

The IRS has issued the long-awaited rules on required reporting of minimum essential coverage (under Code Section 6055) and affordable, minimum value coverage (under Code Section 6056).  These rules will first apply to the 2015 calendar year, wit…

By Mick Constantinou, Advisor, Employee Benefits
Connelly, Carlisle, Fields, & Nichols, A UBA Partner Firm

A recent UBA blog outlined some compelling reasons why some employers are proceeding with the 10/1 exchange notices despite the postponement of the penalty. For those who are doing that, we’ve uncovered some glaring issues with the questions in the model Exchange Notices recently released by the Department of Labor.

In preparation for a recent seminar on health care reform, my colleague, benefit advisor Justin Treece contacted the DOL to clarify these issues. 

Part A (page one) of the notice is essentially a Q&A/marketing piece about the exchanges.  Part B (pages two and three) of the version for employers that currently offer group health insurance requires the employer to provide information about the health coverage offered to employees.

What happened to questions #1 and #2?

The Part B section of the notice begins with question #3 (Employer Name) and not #1. In its current version, there is no question #1 or #2 anywhere on the form. So the mystery begins.

When Justin contacted the DOL to be sure we were downloading the correct version, the DOL representative’s response was, “Well, that’s weird.” 

The DOL representative did confirm that this was the right form and that employers should proceed and ignore the incorrect numbering.

The form instructions state, “This information is numbered to correspond to the Marketplace application.”  Upon review of the current draft of the Exchange Application, Appendix A on page 9 and 10 of the 12-page application provides the tie to the Exchange Notice. Question #1 is “Employee name” and Question #2 is “Employee Social Security number” on both pages. The remaining questions 3 – 16 match the Exchange Notice. Mystery solved.

Can you explain the check box on Part B? Should I check the box?

On the same Part B page, the employer is advised as follows about a check box:

“If checked, this coverage meets the minimum value standard, and the cost of this coverage to you is intended to be affordable, based on employee wages.”

Considering that Minimum Value Plans have not been released for employer small groups, and many employers have non-calendar year renewals, how would it be possible for a small group employer to check this box as part of the October 1, 2013 notice?

When asked the question by Justin, the DOL representative did not quite understand. Justin clarified, stating that generally speaking, all employers with a current group health insurance plan do not currently have a Minimum Value Plan. 

When the DOL representative asked Justin if he wanted to change the form, Justin indicated that while this would be the most logical action, Justin doubted he had the authority to make such a change. The DOL representative confirmed Justin’s doubt and suggested that Justin speak to Health and Human Services (HHS) or local politician. 

So what should employers do?

While it is not completely clear on how employers should be completing Part B of the Exchange Notice, one benefits attorney has suggested that if it is the employer’s intention to offer Minimum Value Plans and make them affordable at their 2014 renewal, the employer should check the box to indicate this. It has also been recommended to leave questions 13-16 blank since they are optional and could potentially add confusion to the employer/employee communication regarding the exchanges. UBA has an expanded FAQ that provides additional detail on the notices and filling out the form.