:::: MENU ::::

Posts Categorized / What’s New

  • Aug 19 / 2020
What's New

IRS Announces 2021 Health Savings Account Contribution Limits, Still Time To Make 2019 And 2020 HSA Contributions


Forbes.com

The Internal Revenue Service announced new, higher contribution limits for health savings accounts for 2021 today. You’ll be allowed to contribute $3,600 for individual coverage for 2021, up from $3,550 for 2020, or $7,200 for family coverage, up from $7,100 for 2020.

In the meantime, you can still top off health savings account contributions for 2019 through the Covid-19-related extended tax day deadline of July 15, 2020. And it’s as good a time as ever to check that your contributions for the 2020 calendar year are on track.

While more and more Americans are opening up these triple-tax-advantaged accounts, few are fully embracing the potential tax savings they offer. Some accounts go unfunded. And only 6% of accountholders choose to invest the money they contribute, according to the Employee Benefit Research Institute.

Recommended For You

Is it really worth the hassle of keeping track of a savings and investing account dedicated to healthcare? Absolutely. With an HSA, you save whether you use the money in the account for current out-of-pocket healthcare expenses, or invest it with the intention of using it to help cover your healthcare costs in retirement.

You can even used an HSA to save on a typical trip to the CVS. Thanks to a tax relief provision tucked in the last Covid-19 stimulus package, you can use money you stash in an HSA or FSA (more on those later) for over-the-counter medications like Tylenol or Flonase as well as menstrual products like tampons and pads. That reverses Obamacare restrictions on OTC meds requiring a doctor’s prescription for them to be eligible for reimbursement. Lively, an upstart HSA and FSA provider, has an updated list of eligible expenses here.

As of January 2020, there were 29.4 million HSAs, holding $71.7 billion in assets, according to the 2019 Year-End Devenir HSA Research Report. Contributions and asset growth has been accelerating. As of year-end 2019, investment account holders had a $16,012 total balance on average, Devenir found.

Most HSAs are offered as an employee benefit. But Lively and Fidelity Investments also offer fee-free individual HSAs for self-employed folks, independent contractors and gig workers.

Here are the details on how HSAs work. You put money in on a taxfree basis (usually through salary deferrals), it builds up tax free (you can invest it), and it comes out taxfree to cover out-of-pocket healthcare expenses.

You can contribute to an HSA if you’re in a qualifying high-deductible health plan. (For 2021, that means a plan with a minimum annual deductible of $1,400 for individual coverage or $2,800 for family coverage.) If you’ll be 55 or older by December 31, you can sock away an additional $1,000 for that year. (That catch-up amount isn’t subject to inflation adjustments.) If you’re married, have family coverage and your spouse will be 55 by the end of the year, he or she can also put away the $1,000 catch-up—but only into his or her own HSA, which can be set up specifically to accept these contributions. Here’s a link to the IRS Revenue Procedure 2020-32with the official numbers.

At a minimum, you should put enough money in your HSA to cover your annual health plan deductible. If you lowballed your annual contribution, you can top it off up until the tax year filing deadline. Say you get a big unexpected doctor’s bill. You can put money into your HSA, take it right out, and the government just paid maybe 25% of the bill. The higher your tax bracket, the bigger your savings.

A savvy strategy for high-income earners is to invest the money in your HSA for the long haul. Once you’re 65, you can take out taxfree distributions to cover Medicare premiums. If you withdraw money at that point for non-medical uses, you pay the same tax as you would on withdrawals from a pretax 401(k). But you can also take money out tax-free to reimburse yourself for prior years’ out-of-pocket medical expenses if you have the old receipts.

Note HSAs are a different beast than healthcare FSAs (sometimes confusingly called health spending accounts). FSAs have lower contribution limits and are riskier because you have to spend the money down in one year or you forfeit it (some FSAs have a $500 carryover provision). By contrast, the money you put in an HSA is yours to keep forever: you can spend it when you want. If you have an HSA-eligible health plan, you can’t also put away money in a regular FSA but you can put money in a limited FSA for dental and vision care expenses only.

See also, IRS Covid-19 Fix For Workplace Health And Dependent Care Flexible Spending Accounts: Mid-Year Changes Now Allowed.

  • Aug 18 / 2020
What's New

IRS Releases Revised Form 941 for COVID-19-Related Tax Relief


The IRS released a revised Form 941, Employer’s Quarterly Federal Tax Return, and its instructions to be used beginning with the second quarter of 2020 (due July 31, 2020). The form has been updated to accommodate reporting of COVID-19-related employment tax credits and other relief.

The revised Form 941 includes lines to report the:

  • Credit for qualified sick leave and expanded family and medical leave wages
  • Employee retention credit
  • Deferrals of the employer share of social security tax during the quarter
  • Credits received from filing Form 7200, Advance Payment of Employer Credits Due to COVID-19, for the quarter

The revised instructions include a new Worksheet 1, which will be used to figure the credit for qualified sick and family leave wages. The credit will then be reported on Lines 11c and 13d of the Form 941.

  • Aug 13 / 2020
What's New

3 Deceptively Easy Mistakes to Make if You Deferred Your Deposits of Social Security Taxes


The IRS released Form 941 instructions and instructions to Schedule B for the second, third and fourth quarters of 2020 in late June. Several issues have now arisen with the deferral of the employer’s 6.2% share of Social Security taxes.

Designating Deferrals

Although employers can’t defer a deposit of Social Security taxes they’ve already made, employers may be able to claw back some of the deferral from taxes already deposited by designating those funds as employees’ withheld income and FICA taxes and the employer’s portion of Medicare taxes.

Why:The Form 941 instructions state that regardless of how deposits are identified for EFTPS purposes, employers can consider prior deposits during a quarter as first being deposited for employment taxes other than the employer’s share of Social Security taxes.

The IRS used strikingly similar language to define “federal employment taxes” in its FAQs on claiming pandemic-related tax credits. There, the IRS defined the phrase as including employees’ withheld income and FICA taxes and your portion of Medicare taxes.

Makeup Deposits

Employers must repay half the deferral by Dec. 31, 2021, and the other half by Dec. 31, 2022. According to the IRS, payments made before Dec. 31, 2021, are first applied against payments due on Dec. 31, 2021, and then applied against the payment due on Dec. 31, 2022.

Upshot:If the deferral is more than the deposit, the makeup deposit may not be split evenly; the lion’s share may need to be paid by Dec. 31, 2022.

Flip side: If the deferral is less than the deposit, nothing would be due Dec. 31, 2021, and everything would be due Dec. 31, 2022.

Corporate Deductions

If employers choose to defer their deposits of Social Security taxes, corporate deductions for those taxes are also deferred.
This is courtesy of the Payroll Legal Alert found in the APA website

 

  • Aug 13 / 2020
What's New

President Signs Memorandums Deferring Payroll Tax Obligations, Extending Student Loan Relief


On August 8, 2020, President Trump signed memorandums directing the Secretary of the Treasury “to defer the withholding, deposit, and payment” of the employee share of social security tax on wages paid between September 1 and December 31, 2020; and directing the Secretary of Education to extend student loan relief until December 31, 2020.

Payroll Tax Deferral

The Memorandum on Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster directs the Secretary of the Treasury “to defer the withholding, deposit, and payment” of the employee share of social security tax on wages paid between September 1 and December 31, 2020.

The deferral is applicable to employees who are paid wages for a biweekly pay period that are generally “less than $4,000, calculated on a pre-tax basis, or the equivalent amount with respect to other pay periods.” This limits the deferral to employees earning under $104,000 per year.

This is a deferral of the tax liability, not a waiver. The memorandum directs the Secretary of the Treasury to use his authority pursuant to IRC §7508A, which allows the Secretary to postpone certain tax deadlines for up to one year during a federally declared disaster. The memorandum also directs the Secretary to “explore avenues, including legislation, to eliminate the obligation to pay the “deferred taxes.”

Student Loan Relief Extended

The Memorandum on Continued Student Loan Payment Relief During the COVID-19 Pandemic directs the Secretary of Education “to continue the temporary cessation of payments and the waiver of all interest on student loans held by the Department of Education until December 31, 2020.”

Courtesy of the APA

  • Jul 15 / 2020
What's New

IRS Allows Flexibility in §125 Plan Rules for 2020; Increases Maximum FSA Carryover

The IRS is allowing employers to extend the claim period for flexible spending arrangements (FSAs) and dependent care assistance programs and also allowing employees to make mid-year changes to §125 cafeteria plans [IR-2020-95, 5-12-20]. The changes may be applied retroactively to January 1, 2020. This guidance is due to COVID-19.

The IRS also raised the maximum carryover amount for health FSAs from $500 to $550 [Notice 2020-33]. This permanent change will be based on inflation indexing, which is used to determine the limit on salary reduction contributions under §125 cafeteria plans.

Mid-Year Elections Allowed

The IRS is allowing mid-year changes to elections during 2020 to §125 cafeteria plans for eligible employees. Employers may allow employees to:

  • Make a new election on a prospective basis, if the employee initially declined to elect employer-sponsored health coverage
  • Revoke an existing election and make a new election to enroll in different health coverage sponsored by the same employer on a prospective basis
  • Revoke an existing election, provided that the employee attests in writing that the employee is enrolled or immediately will enroll in other health coverage

Employees may also revoke an election, make a new election, or decrease or increase an existing FSA election for health or dependent care assistance.

Courtesy of APA.

  • Jul 15 / 2020
What's New

IRS Releases Guidance on Form W-2 Reporting of FFCRA Qualified Leave

The IRS released guidance on how employers must report the amount of emergency sick leave wages and expanded family leave wages (together, qualified leave) paid to employees under the Families First Coronavirus Response Act (FFCRA) between April 1 and December 31, 2020 [Notice 2020-54, 7-8-20].

Employers are required to report these amounts either on Form W-2, Wage and Tax Statement, in Box 14 (Other), or on a separate statement. The notice instructs employers how to separately label the qualified leave. The notice also includes language employers may use for employee instructions to provide additional information about qualified leave wages.

Using Separate Statements

If an employer uses a separate statement to report the wages, and the employee receives a paper Form W-2, then the statement must be included with the Form W-2 provided to the employee. If the employee receives an electronic Form W-2, then the statement should be provided in the same manner and at the same time as the Form W-2.

Courtesy of the APA

  • Jul 15 / 2020
What's New

IRS Requires Separate Reporting of FFCRA Wages on 2020 Forms W-2

The Internal Revenue Service (IRS) issued Notice 2020-54, which requires employers to separately report Qualified Sick Leave Wages and Qualified Family Leave Wages paid under the Families First Coronavirus Response Act[1](FFCRA) on 2020 Forms W-2, Box 14, or on a separate statement.

This reporting is intended to provide employees who are also self-employed with information necessary to properly claim any FFCRA sick or family leave credits. There are three types of paid sick or family leave wages that should be separately reported (if applicable) in Box 14:

  • Sick leave wages subject to the $511 per day limit because of care the employee required;
  • Sick leave wages subject to the $200 per day limit because of care the employee provided to others; and
  • Emergency family leave wages up to $200 per day and $10,000 in the aggregate.

Background

The FFCRA requires employers with fewer than 500 employees to provide paid leave if an employee is unable to work or telework due to circumstances related to COVID-19. Paid leave requirements and the related tax credit vary depending on the reason for leave:

  1. Sick leave wages up to $511 per day ($5,110 in the aggregate) because of care required for the employee; i.e., the employee:
    • is subject to a federal, state or local quarantine or isolation order related to COVID-19;
    • has been advised by a health-care provider to self-quarantine due to concerns related to COVID-19;
    • is experiencing symptoms of COVID-19 and seeking a medical diagnosis;
  2. Sick leave wages at two-thirds of the employee’s regular rate of pay, up to $200 per day and $2,000 in the aggregate, for care that the employee provided to others; i.e., the employee:
    • is caring for an individual who is subject to a quarantine or isolation order related to COVID-19, or has been advised by a health-care provider to self-quarantine related to COVID-19;
    • is caring for a son or daughter if the school or child-care facility has been closed or the child-care provider is unavailable due to COVID-19; or
    • is experiencing any other substantially similar condition specified by the Department of Health and Human Services (HHS).[2]
  3. Expanded paid family and medical leave at two-thirds of the employee’s regular rate of pay, to a limit of $200 per day and $10,000 in aggregate, if the employee is unable to work or telework because the employee is caring for a son or daughter whose school or child-care facility is closed related to COVID-19.

FFCRA Tax Credits Fully Offset Paid Leave

Eligible private-sector employers are entitled to fully refundable tax credits toward employment taxes to cover the cost of FFCRA leave, including qualified sick and family leave wages, plus allocable qualified health-plan expenses. FFCRA wages are exempt from employer Social Security taxes but are subject to employer Medicare taxes. However, the tax credit is increased by the employer’s share of Medicare tax on qualified leave wages.

Reporting Requirements

In order to provide self-employed individuals who also receive wages or compensation as employees with the information they need to properly claim any qualified sick or family leave credits for which they are eligible, IRS Notice 2020-54 requires employers to report to employees the amount of qualified sick leave wages and qualified family leave wages paid to the employees.

Self-employed individuals are also eligible for a refundable tax credit for qualified sick and family leave amounts. If a self-employed individual is eligible for a refundable credit for FFCRA sick leave and also receives qualified sick leave wages as an employee, the credit amount for the self-employed individual is reduced.

FFCRA amounts must be separately reported either in Box 14 of Form W-2 or on a separate statement, with the following descriptions (or similar language):

  • Sick leave wages paid because of care required for the employee; described as “sick leave wages subject to the $511 per day limit.”
  • Sick leave wages for care the employee provided to others, described as “sick leave wages subject to the $200 per day limit.”
  • Qualified family leave wages, described as “emergency family leave wages.

Employers must separately state each of these wage amounts either on Form W-2, Box 14 or on a separate statement. If a separate statement is provided and the employee receives a paper Form W-2, the statement must be included with the Form W-2 sent to the employee.  If the employee receives an electronic Form W-2, then the statement must be provided in the same manner and at the same time as the Form W-2.

Model Language for Employee Instructions

As part of the Instructions for Employee, under the instructions for Box 14, for Forms W-2 or in a separate statement sent to the employee, the employer may provide additional information about qualified sick and family leave wages and explain that these wages may limit the amount of credits to which the employee may be entitled with respect to any self-employment income. The following model language (modified as necessary) may be used:

“Included in Box 14, if applicable, are amounts paid to you as qualified sick leave wages or qualified family leave wages under the Families First Coronavirus Response Act. Specifically, up to three types of paid qualified sick leave wages or qualified family leave wages are reported in Box 14:

  • Sick leave wages subject to the $511 per day limit because of care you required;
  • Sick leave wages subject to the $200 per day limit because of care you provided to another; and
  • Emergencyfamily leave wages.

If you have self-employment income in addition to wages paid by your employer, and you intend to claim any qualified sick leave or qualified family leave equivalent credits, you must report the qualified sick leave or qualified family leave wages on Form 7202, Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals, included with your income tax return and reduce any qualified sick leave or qualified family leave equivalent credits by the amount of these qualified leave wages.”

For further information, see IRS Notice 2020-59.
Courtesy of “ADP”

  • Jul 15 / 2020
What's New

IRS Releases Revised Form 941 for COVID-19-Related Tax Relief

 

The IRS released a revised Form 941Employer’s Quarterly Federal Tax Return, and its instructions to be used beginning with the second quarter of 2020 (due July 31, 2020). The form has been updated to accommodate reporting of COVID-19-related employment tax credits and other relief.

The revised Form 941 includes lines to report the:

  • Credit for qualified sick leave and expanded family and medical leave wages 
  • Employee retention credit
  • Deferrals of the employer share of social security tax during the quarter
  • Credits received from filing Form 7200Advance Payment of Employer Credits Due to COVID-19, for the quarter

The revised instructions include a new Worksheet 1, which will be used to figure the credit for qualified sick and family leave wages. The credit will then be reported on Lines 11c and 13d of the Form 941.

  • May 10 / 2020
What's New

DOL Issues Temporary Regulations to Implement the FFCRA


The U.S. Department of Labor (DOL) released a temporary rule to implement the emergency paid sick leave and expanded family and medical leave requirements included in the Families First Coronavirus Response Act (FFCRA) [85 F.R. 19326, 4-6-20]. The rule is effective April 1, 2020, until December 31, 2020.

In general, the FFCRA requires covered employers to provide eligible employees up to two weeks (80 hours) of paid sick leave for certain COVID-19-related reasons. The leave must be paid at either full pay or 2/3 pay, depending on the employee’s reason for taking leave.

The FFCRA also requires covered employers to provide up to 12 weeks of expanded family and medical leave, up to 10 weeks of which must be paid at 2/3 pay, when an eligible employee is unable to work because of a need to care for a son or a daughter whose school or place of care is closed, or whose child care provider is unavailable, due to COVID-19-related reasons.

The temporary rule explains what emergency paid sick leave and expanded paid family and medical sick leave benefits must be provided, which employees are eligible, employer notice requirements, and employer recordkeeping responsibilities.

Courtesy of the APA

Pages:1234567...22
OCCAPA: Network. Learn. Succeed.