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The IRS has released Revenue Procedure 2023-34 confirming that for plan years beginning on or after January 1, 2024, the health FSA salary reduction contribution limit will increase to $3,200.
The adjustment for 2024 represents a $150 increase to the current $3,050 health FSA salary reduction contribution limit in 2023.
What About the Carryover Limit into 2025?
The indexed carryover limit for plan years starting in calendar year 2024 to a new plan year starting in calendar year 2025 will increase to $640.
Other Notable 2024 Health and Welfare Employee Benefit Amounts
The IRS has issued relief from certain Form 1094-C and 1095-C reporting requirements under the Affordable Care Act relating to employee health plans, as well as relief from certain reporting-related penalties.
As a refresher, the ACA generally requires four forms to be produced each year, and the names are anything but intuitive:
Which form your plan would be required to file or furnish depends on whether you are an ALE, and how you fill out the form and whether you offer fully insured or self-insured coverage.
The IRS has extended the deadline for furnishing Forms 1095-B and 1095-C to individuals. The typical deadline to report 2020 plan information is January 31, 2021. However, the new relief extends the deadline to March 2, 2021. The extension is automatic, and the IRS has indicated that no further extensions will be granted, and it will not respond to such requests.
Be aware that this extension does not apply to the 1094-B and 1094-C filings with the IRS. The deadline for submitting these filings to the IRS will remain March 1, 2021 (since the original due date of February 28 falls on a Sunday), for paper filings and March 31, 2021, for those filing electronically. However, while the automatic extension does not apply to these deadlines, filers may still request an extension from the IRS.
Recognizing that the main purpose of Forms 1095-B and 1095-C was to allow an individual to compute his or her tax liability relating to the individual mandate, and because the individual mandate has been reduced to zero, the IRS has granted relief from furnishing certain documents to individuals.
The IRS indicated that it will not assess penalties for failure to furnish a Form 1095-B if two conditions are met. First, the reporting entity must post a prominent notice on its website stating that individuals may receive a copy of their 2020 Form 1095-B upon request, along with an email address, physical address, and phone number. Second, the reporting entity must furnish the 2020 Form 1095-B to the responsible individual within 30 days of receipt of the request. The statements may be furnished electronically if certain additional requirements are met.
The same reporting relief does not extend to ALEs that are required to furnish Form 1095-C. This form must continue to be furnished to full-time employees, and penalties will continue to be assessed for a failure to furnish Form 1095-C. However, the relief does generally apply to furnishing the Form 1095-C to participants who were not full-time employees for any month of 2019 if the requirements above are met. This would typically include part-time employees, COBRA continuees, or retirees.
Note that while these requirements for furnishing the 1095-B and 1095-C to individuals has been modified, these forms must still be transmitted to the IRS along with their Form 1094 counterparts.
In the final piece of good news from the IRS, it announced relief from penalties for incorrect or incomplete information on any of these forms. This relief applies to both missing and inaccurate taxpayer identification numbers and birthdays, as well as other required information.
The reporting entity must be able to show that it made a good faith effort to comply with the reporting requirements. A successful showing of good faith will show that an employer made reasonable efforts to prepare for the reporting requirements and the furnishing to employees, such as gathering and transmitting the necessary information to the person preparing the forms.
However, the relief does not apply to reporting entities that completely fail to file or furnish the forms at all.
Finally, and importantly, the IRS has indicated that this will be the last year that it will provide this good faith reporting relief.
Repeal and replacement of the Affordable Care Act (ACA) by the American Health Care Act (AHCA) may be underway in Washington D.C., but until a final version of the AHCA is signed into law, the ACA is the law of the land. In fact, the IRS is currently issuing notices to employers that require them to disclose whether they complied with ACA large employer reporting duties, or their excuse for not doing so, where applicable.
The ACA required large employers to furnish employee statements (Forms 1095-C) and file them with the IRS under transmittal Form 1094-C, and the Internal Revenue Code (“Code”) imposes separate penalty taxes for failing to timely furnish and file the required forms. Large employer reporting was required for 2015 and 2016, even if transition relief from ACA penalty taxes applied for 2015. The potential penalties can be very large – up to $500 per each 2015 Form 1095-C statement ($250 for not furnishing the form to the employee and $250 for not filing it with IRS) – up to a total annual penalty liability of $3 million. The penalty amounts and cap are periodically adjusted for inflation.
Employers that failed to furnish Form 1095-C and file copies with Form 1094-C may receive the IRS notices, called “Request for Employer Reporting of Offers of Health Insurance Coverage (Forms 1094-C and 1095-C)” and also known as Letter 5699 forms. Forms may be received regarding reporting for 2015 or 2016. Employers that receive a Letter 5699 form will have only thirty days to complete and return the form, which contains the following check boxes:
The Letter also provides: “[i]f you are required to file information returns under IRC Section 6056, failure to comply may result in the assessment of a penalty under IRC Section 6721 for a failure to file information returns.”
Employers receiving Letter 5699 forms should contact their benefit advisors immediately and plan to respond as required within the thirty-day limit; it may be necessary to request an extension for employers that are just realizing that they have reporting duties and need to prepare statements for enclosure with their response. In this regard, the IRS offers good faith relief from filing penalties for timely filed but incomplete or incorrect returns for 2015 and 2016, but relief from penalties for failures to file entirely for those years is available only upon a showing of “reasonable cause,” which is narrowly interpreted (for instance, due to fire, flood, or major illness).
Large employers should not look to coming ACA repeal/replacement process for relief from filing duties and potential penalties. The House version of the AHCA does not change large employer reporting duties and it is unlikely the Senate or final versions of the law will do so. This is largely because procedural rules limit reform/repeal provisions to those affecting tax and revenue measures, which would not include reporting rules. Thus the reporting component of the ACA will likely remain intact (though it may be merged into Form W-2 reporting duties), regardless of the ACA’s long-term fate in Washington.
On Feb. 15, the IRS announced on its ACA Information Center for Tax Professionals webpage that it would not reject taxpayers’ 2016 income tax returns that are missing health coverage information.
This information is supposed to be included on line 61 of the Form 1040 and line 11 of the Form 1040EZ to demonstrate compliance during the year with the Affordable Care Act’s (ACA’s) mandate that individuals have health insurance that meets ACA standards, or else pay a penalty.
Two crucial points regarding the IRS announcement should be stressed:
The IRS indicated that it will accept tax returns lacking this information in light of President Donald Trump’s executive order directing agencies to minimize the ACA’s regulatory burden. While the requirement to have ACA-compliant coverage or pay a tax penalty has been in place since 2014, starting this year the IRS was to have begun automatically flagging and rejecting tax returns missing that information.
“This action by the IRS doesn’t mean it won’t enforce the individual mandate,” said Lisa Carlson, senior Employee Retirement Income Security Act (ERISA) attorney at Lockton Compliance Services in Chicago. “This action simply means the IRS won’t reject a taxpayer’s return outright if the taxpayer doesn’t answer the health coverage question. The IRS reserves the right to follow up with a taxpayer, at a future date, regarding his or her compliance with the individual mandate, if the person’s tax return doesn’t provide information about his or her health insurance coverage during 2016.”
For those individuals who previously filed without providing health insurance information or who indicated that they did not carry coverage as was required, “whether the IRS will assess penalties depends on the retroactive nature of [a possible future] repeal of the individual mandate or its penalties,” Carlson said.
While the IRS announcement does not suggest that the agency won’t be strictly enforcing the individual mandate tax penalty, “we just don’t know” what enforcement actions the agency might take, said Garrett Fenton, an attorney with Miller & Chevalier in Washington, D.C., whose practice focuses on employee benefits, tax and executive compensation.
While it’s unclear how strenuous IRS enforcement actions might be, “the individual mandate and its related tax penalties are certainly still on the books, and it would require an act of Congress to change that,” Fenton noted. If tax filers leave unchecked the box indicating that they have ACA-compliant coverage, “the IRS may come back and ask them follow-up questions, and they still may get audited and potentially owe the tax penalty.”
The ACA is still the law of the land and prudent employers will want to continue to comply with the ACA, including the play-or-pay mandate and reporting requirements, including furnishing Forms 1095-C to employees and making all required filings with the IRS, until formal guidance relieves them of those compliance obligations.
Despite the IRS announcement, employers are still required to file their ACA reporting forms and those forms will be rejected if they do not contain the requisite information. Because the President has indicated that we may not see a repeal until 2018, employers will still be required to operate their health plans in an ACA-compliant manner until notified otherwise.
In the context of the employer mandate, waiver of penalties seems unlikely because these penalties are written into law and are a significant source of revenue for the federal government.
The bottom line: Those who are responsible for issuing and filing 1094s and 1095s on behalf of their organizations should continue to comply with all relevant laws, regulations, reporting requirements and filing specifications during the repeal-and-replace process.
The IRS issued Notice 2016-70 in November 2016, giving employers subject to the ACA’s 2016 information-reporting requirements up to an additional 30 days to deliver these forms to employees. The notice affected upcoming deadlines for ACA information reporting as follows:
The Treasury Department and the IRS determined that a substantial number of employers and other insurance providers needed additional time “to gather and analyze the information [necessary to] prepare the 2016 Forms 1095-C and 1095-B to be furnished to individuals,” Notice 2016-70 stated. This extension applies for tax year 2016 only and does not require the submission of any request or other documentation to the IRS.
Although the date for filing with the IRS was not extended, employers can obtain a 30-day extension by submitting Form 8809 (Application for Extension of Time to File Information Returns) by the due date for the ACA information returns.
Note: For small businesses with fewer than 50 full-time equivalent employees that provide employees with an ACA-compliant group plan, the rules are a bit different. If fully insured, the insurance company that provides coverage is required to send enrollees a copy of Form 1095-B and to submit Forms 1995-B (along with transmittal Form 1094-B) to the IRS in order to report minimum essential coverage.
If a small company is self-insured and provides group coverage, it must also provide employees and the IRS with Form 1095-B. But small business that offer insurance are not required to send Form 1095-Cs to employees or to the IRS.
Small business that do not provide group coverage are not subject to ACA reporting.
While Congress considers options to repeal and replace the ACA, businesses should prepare to comply with the current employer mandate through 2018. Businesses should pay close attention to decisions over the next few weeks, but be prepared to stay patient because significant details on employer obligations are unlikely to take shape for some time.
In July 2015, President Obama signed into law the Trade Preferences Extension Act of 2015. Included in the bill was an important provision that affects welfare and retirement benefit plans. The Act sizably increases filing penalties for information return and statement failures under the Internal Revenue Code, effective for filings after December 31,2015. Employers now face significantly larger penalties for failing to correctly file and furnish the ACA forms 1094 and 1095 (shared responsibility reporting requirements) as well as Forms W-2 and 1099-R.
Background
Sections 6721 and 6722 of the IRC impose penalties associated with failures to file- or to file correct- information returns and statements. Section 6721 applies to the returns required to be filed with the IRS, and Section 6722 applies to statements required to be provided generally to employees.These penalty provisions apply to the ACA shared responsibility reporting Forms 1094-B, 1094-C, 1095-B, and 1095-C (Sections 6055 & 6056) failures as well as other information returns and statement failures, like those on Forms W-2 and 1099.
For ACA:
The Sections 6055 & 6056 reporting requirements are effective for medical coverage provided on or after January 1, 2015, with the first information returns to be filed with the IRS by February 29, 2016 (or March 31,2016 if filing electronically) and provided to individuals by February 1, 2016.
Increase in Penalties
The Trade Preferences Extension Act of 2015 (Act) contains several tax provisions in addition to the trade measures that were the focus of the bill. Provided as a revenue offset provision, the law significantly increases the penalty amounts under Sections 6721 and 6722. A failure includes failing to file or furnish information returns or statements by the due date, failing to provide all required information, as well as failing to provide correct information.
The law increases the penalty for:
Other penalty increase also apply, including those associated with timely filing a corrected return. Penalties could also provide a one-two punch under the ACA for employers and other responsible entities. For example, under Sec 6056, applicable large employers (ALE) must file information returns to the IRS (the 1094-B and 1094-C) as well as furnish statements to employees (the 1095-B and 1095-C). So incorrect information shared on those forms could result in a double penalty- one associated with the information return to the IRS and the other associated with individual statements to employees.
Final regulations on the ACA reporting requirements provide short-term relief from these penalties. For reports files in 2016 (for 2015 calendar year info), the IRS will not impose penalties on ALE members that can show they made a “good-faith effort” to comply with the information reporting requirements. Specifically, relief is provided for incorrect or incomplete info reported on the return or statement, including Social Security numbers, but not for failing to file timely.