Category Archives: Tax

If the Cadillac Tax causes HSA contributions to become after-tax, what’s the impact?

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By:        Zack Pace, SVP, Benefits Consulting
Bill Smith, Managing Director, National Tax Office

As we discussed earlier this year, if the Cadillac Tax forecast provided via IRS Notice 2015-16 proves accurate, it’s not difficult to predict the impact to most employer sponsored plans, beginning in 2018. For example, it’s likely that:

  1. Flexible Spending Accounts (FSAs) and Health Reimbursement Arrangements (HRAs) will go away.
  2. Employer and pre-tax employee contributions to Health Savings Accounts (HSAs) will end.
  3. Most employers will eventually need to drop all health plans except for Qualified High Deductible Health Plan (HDHPs).

However, regarding #2, even if pre-tax employee HSA contributions via the Section 125 Plan are discontinued, employers may allow employees to continue contributing on an after-tax basis to their HSAs. In my travels, I’ve received many questions from employers about the mechanics and benefits of this available arrangement. In my latest Employee Benefit News column, my colleague Bill Smith and I dove into this topic and flushed out the key Q&A: Cadillac tax hurricane preparation: After-tax HSA contributions. The topic seemed to resonate with readers as it was the #1 most read Employee Benefit News column for some time. We hope you find the essay beneficial.

The full article is available here: Cadillac tax hurricane preparation: After-tax HSA contributions.

What other benefit topics and questions are on your mind? Please let me know, and I’ll write about them in future Employee Benefit News essays. You can reach me on zpace@cbiz.com or via Twitter. My collection of LinkedIn essays is located here.

Zack Pace is a Senior Vice President, Benefits Consulting at CBIZ, Inc. He can be reached at ZPace@cbiz.com. Follow him on LinkedIn and Twitter at @zpace_benefits

Bill Smith is the Managing Director, National Tax Office at CBIZ MHM, LLC.

Save Your Pennies: The ACA PCORI Fee Increases to $2.08

By:
Zack Pace, SVP Benefits Consulting
Jim Brummitt, Senior Tax Manager

Did you catch last month’s retroactive increase to the Affordable Care Act’s Patient Centered Outcome Research Institute fee (AKA ACA’s PCORI fee)? In short, the fee increased from $2.00 per member per year to $2.08 per member per year for certain health plans that end after 9/30/14 and before 10/1/15.  In other words, in most cases, we’re talking about plan years that began between 11/1/2013 and 10/1/2014.

PenniesWhen I first saw this increase, I thought:

  • So much for retiring the penny! Why not just round up to $2.10?
  • Wow, a retroactive fee increase. 11/1/13 was almost a year ago – is this type of retroactivity normal?

But, remembering that the fee is tied to inflation, I then wondered if the ACA, via the Internal Revenue Code, compelled Treasury to issue this non-round increase on a retroactive basis. As you might know, CBIZ is one the leading tax advisors in the country, so I sent a quick e-mail to my colleague Jim Brummitt.

First, I asked Jim why Treasury wouldn’t just round this increase to $2.05 or $2.10.  He responded:

In this instance, Treasury is limited to the rules as originally set in the ACA.  The PCORI fee is statutorily defined as the amount set during the previous year plus the percentage increase in the projected per capita amount of the National Health Expenditures, as determined by the Department of Health and Human Services (HHS) before the beginning of the Federal fiscal year. HHS released the National Health Expenditures statistic on September 3, 2014. 

Then, I asked him if this type of retroactive fee increase is normal.  His response:

The Federal fiscal year starts on Oct. 1st.  The PCORI fee is due by July 31st of the year following the end of the plan year.  The application of the fee increase to plans ending after 9/30/14 and before 10/1/15 is directly related to the Federal budget timing. Because the timing of the payment and filing of form 720 is already a minimum of 7 months after the end of the plan year, the PCORI fee calculation will necessarily be done retroactively, in certain instances.

Though retroactive increases are not “normal”, the fee is being assessed as part of the fiscal year budget and can only be determined after the number of “covered lives” and the inflation adjusted fee are determined. 

So, there you have it.

Save your pennies.

Further Reading: Patient-Centered Outcomes Research Trust Fund Fee (IRC 4375, 4376 and 4377): Questions and Answers

 

Disclaimer: The information contained in this article is provided as general guidance and may be affected at any time by changes in law or regulation. This information is not intended to replace or be a substitute for accounting, legal or other professional advice. This information is provided as-is with no warranties of any kind. CBIZ shall not be liable for any claims or damages whatsoever in connection with its use and assumes no obligation to inform the reader of any changes in laws or other factors that could affect the information contained herein. As required by U.S. Treasury rules, we inform you that, unless expressly stated otherwise, any U.S. federal tax advice contained herein is not intended or written to be used, and cannot be used, by any person for the purpose of avoiding any penalties that may be imposed by the Internal Revenue Service.