This is from a Section 125 TPA we work with (FlexPlan Services, Inc.) and it is well stated. In short, the info you will be interested in is:
1. Beginning with your 2011 Tax Years, employers were going to have to report the full cost of medical insurance premiums to the IRS for each of its employees. THIS HAS BEEN DELAYED UNTIL 2012 TAX YEARS.
By the way, many employers have been misunderstanding this reporting. The reporting of the premiums does not mean they are taxable compensation; the IRS is gathering the info for analytical reasons, we assume, but also as a means to determine who does or does not have health insurance, which will be required in 2014.
2. FSA, HSA, HRAs, beginning 2011, cannot reimburse over the counter medicines, such as aspirin, cold formulas, and sleep aids, etc., without a doctor’s prescriptions. This has not changed and is being restated for convenience.
(By the way, please do not encourage your employees to go to their doctor to get such prescriptions–there needs to be a level of personal financial responsibility of assuming the cost of each person’s health care by that person. In addition, going to the doctor to get such a prescription does what? You guessed it. It increases the benefit plan’s cost because it created a doctor’s visit that otherwise would not have been there.)
Here is FlexPlan’s announcement:
IRS Announces Delay of Health Care Reporting on W-2s
Link to IRS Notice 2010-69 here
Link to draft form W-2 (for informational purposes only—subject to change) here
Link to IRS New Release here
Today The IRS announced that it will delay the requirement for employers to report the cost of health care on employees’ W-2s.
As background Section 9002 of Patient Protection and Affordable Care (“PPACA”) amended section 6051(a) of the Internal Revenue Code to include a new W-2 reporting requirement. That reporting requirement was set to be effective for the 2011 taxable year, meaning that W-2s issued in January of 2012 would need to include the aggregate cost of employer sponsored coverage. This reporting is now optional for 2011 W-2s.
Employer sponsored coverage includes your fully insured group health plan; however, it is unclear what other benefits must be reported. The law appears to exclude FSAs and the reconciliation bill excluded dental and vision plans from the “Cadillac” excise tax—therefore dental and vision benefits may also be excluded. Additional guidance is welcomed as the amount to report is also ambiguous for certain benefits like HRAs. The IRS continues to stress that the amounts reportable are not taxable.
IRS Announces Guidance on Over-the-Counter Medicines and Drugs
For a link to Notice 2010-59 click here http://www.irs.gov/pub/irs-drop/n-10-59.pdf
For a link to the IRS youtube video click here http://www.youtube.com/watch?v=wWN4XF5NuVg
IRS Notice 2010-59 provides guidance on § 9003 of the PPACA, which revises the definition of medical expenses as it relates to over-the-counter (“OTC”) medicines and drugs. As background Section 9003 of PPACA adds new § 106(f) of the Internal Revenue Code, which revised the definition of medical expense for employer-provided accident and health plans, including health flexible spending arrangements (“FSAs”), health reimbursement arrangements (“HRAs”), and health savings accounts (“HSAs”).
OTC Medicines and Drugs Require a Prescription after December 31, 2010
The guidance provides that OTC medicines or drugs purchased after December 31, 2010, may be reimbursed through an FSA only if such OTC medicine or drug is prescribed. This new rule excludes insulin. OTC medicines or drugs purchased without a prescription before January 1, 2011, may be reimbursed pursuant to the terms of the employer’s plan.
The guidance also provides that a “prescription“ is a written or electronic order for a medicine or drug that meets the legal requirements of a prescription in the state in which the medical expense is incurred and that is issued by an individual who is legally authorized to issue a prescription in that state.
Consequently, participants must submit a copy of the prescription (or other document certifying that a prescription was issued) along with their claim information to receive reimbursement for OTC medicines and drugs purchased after December 31, 2010. Flex-Plan will honor the prescription for one year from the date the prescription was issued. If no date is provided we will honor the prescription for one year beginning on the date received by Flex-Plan.
To assist participants, we have updated our Letter-of-Medical Necessity (“LMN”) to include options for health care providers to certify that a prescription has been issued. The updated LMN is now available on our Participant Form Page. Participants should know that they will not be permitted to make election changes due this change in the law.
BennyTM Card Changes
The benefits industry is gearing up for this significant change effective January 1, 2011. The list of eligible expenses, provided to merchants by the non-profit group SIGIS, has been updated and will be released on December 15, 2010. IRS guidance gives merchants until January 15, 2011, to update their systems to comply with the new rules. If your plan provides access to the BennyTM Card, card functionality will change. Employers and participants should anticipate that cards will not function when purchasing OTC medicines and drugs as of January 1, 2011.
What Items are Medicines or Drugs?
Medicines and drugs include the items listed below. Keep in mind that OTC medicines and drugs purchased after December 31, 2010, are still reimbursable; however, new rules require an additional step by participants before reimbursement will be made—participants must submit or have on file with Flex-Plan a prescription for the OTC item or an LMN certifying the prescription exists.
Items Requiring a Prescription after January 1, 2011
• Acid Controllers
• Allergy & Sinus medicine Antibiotics
• Anti-Gas Products
• Anti-Parasitic Treatments
• Cold Sore Remedies
• Digestive Aids
• Hemorrhoidal Preps
• Motion Sickness
• Respiratory Treatments
• Stomach Remedies
• Anti-Itch & Insect Bite
• Baby Rash Ointments/Creams
• Cough, Cold & Flu
• Feminine Anti-Fungal/Anti-Itch
• Pain Relievers
• Sleep Aids & Sedatives
Keep in mind that these rules do not apply to items that are not OTC medicines or drugs, including equipment such as crutches, or supplies such as bandages, saline solution, reading glasses and diagnostic devices such as blood sugar test kits.
Changes to the Tax Treatment of Adult Children Permits Reimbursement of Adult Children Expenses
Link to IRS Notice 2010-38 here
Health care reform expanded the definition of “dependent” for purposes of tax-free health coverage. This change means that participants can immediately receive reimbursement for expenses incurred by Adult Children from their Health Care Flexible Spending Arrangement (“FSA”) or Health Reimbursement Arrangement (“HRA”) for expenses incurred on or after March 30, 2010.
Adult Child includes children, stepchildren, adopted children and eligible foster children who do not reach age 27 within the relevant taxable year. Under prior law expenses of an Adult Child could not be reimbursed from a parent’s FSA unless that person met the definition of “qualifying child” or “qualifying relative” (see IRS Publication 501).
Keep in mind that the restrictions are limited—yet tricky. Participants may not be reimbursed expenses incurred by the child in the year in which the child turns 27. For example, assume the adult child is 26 today and will turn 27 on November 13, 2010. Your employee cannot be reimbursed expenses incurred by that child during the entire 2010 taxable year (unless they otherwise meet the definitions in publication 501).
We will be communicating this information to participants contemporaneous with the OTC communications listed above.
Health Care Reform Limits Health FSA to $2500 effective January 1, 2013
Now is the time to increase your FSA maximum! Section 9005 of the Patient Protection and Affordable Care Act (“PPACA”) limits the amount employees can set aside in their Health Care FSA. In the past employers could set any Health Care FSA maximum—limits were self imposed with origins in nondiscrimination testing or reducing risk of loss. Effective January 1, 2013, PPACA will limit the amount participants can allocate toward their Health Care FSAs to $2500.
This rule sounds similar to the Day Care FSA but functions in a very different way. The new rule only limits employee contributions, therefore employers can “seed” or “fund” above the $2500 employee contribution limit. For example, an employer could match employee’s contributions of $2500 ($2500 from the employer and $2500 from the employee with a maximum total benefit of $5000).
Although the employer and employee could each contribute $2500 for a maximum benefit of $5000, Flex-Plan recommends that employers simply reduce their total Plan maximum to $2500 to avoid confusion and ensure that no employee exceeds the maximum as the penalties of exceeding the maximum are significant.
The new law states that, “such benefit shall not be treated as a qualified benefit unless the cafeteria plan provides that an employee may not elect for any taxable year to have salary reduction contributions in excess of $2,500 made to such arrangement.’’ Translation: if any employee contributes more than the $2500 threshold the entire plan could lose its pre-tax status. Of course, more guidance is welcomed.
Tell Us What You Think
Tell us what you think. Is this good news to your company or simply one more tidbit of info that you need to digest, implement, and then file?
CAREY Benefit Associates and Chase Carey has been helping people and employers for more than 20 years to reduce the cost of employee benefits. Please give us a call at 770.751.6460. You want your benefits to operate seamlessly in the background, providing good value but no distraction. And we want the same thing for you and your business.
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