Posts Tagged ‘IRS’

No Change in Pension COLAs, But IRS Ends Strict “Use or Lose” Rule for Health FSAs

It’s the day we all been waiting for. No, not Halloween. I mean the day every year that the IRS raises the contribution levels for pension and retirement plans.

That’s today treat. Except that the IRS did not increase the amount that an employer can tax-defer into his or her 401(k) plan, 403(b) or government 457 plans. Instead, it kept the figure at $17,500–the same as 2013. Why? Because, IRS said, the consumer price index hasn’t gone up enough to warrant an inflation boost in the deferral rate.

But wait- there’s another treat from IRS today. It issued Revenue Procedure 2013-35, in which it ruled for the first time that employees with leftover money in their flexible spending accounts can carry over up to $500 into the next year. It’s no longer strictly “use-or-lose” on those accounts.

Which means employees lucky enough to have a balance in their account in December won’t have to scramble to purchase those extra sunglasses in order to make sure their balance is zero for the new year.

But the trick is that the employer has to amend its plan document to give employees the freedom to carry over money into the new plan year.

Here’s the IRS COLA announcement and Revenue Procedure 2013-35.

IRS Announces Penny Increase in Mileage Reimbursements

A Thanksgiving eve announcement from IRS will benefit taxpayers slightly in 2013 when it comes to personal automobile use for business, medical, or charitable purposes.

Starting January 1, 2013, taxpayers will be allowed to deduct 56.5 cents per mail for business miles driven, the IRS announced yesterday.

Each year the IRS announces the standard milage deduction for operating a car for business, charitable, medical or moving services.

The rate next year for medical-related driving will be 24 cents per mile, and 14 cents per mile for driving for charitable-related purposes.

As an alternative to using the standard mileage rate, the taxpayer has the option of calculating the actual costs of using his or her vehicle.

The announcement was Notice 2012-72.

IRS Won’t Play Post Office Anymore for Missing Retirement Plan Participants

Are you trying to locate a missing participant from your retirement plan? Don’t expect any help from the IRS.

The agency today issued a revenue procedure saying it is discontinuing its practice of “letter forwarding” to missing retirement participants and the like. With the advent of alternative searching resources such as the Internet, the IRS said, there’s no longer a need for its service.

Apparently the IRS–which started this practice in 1994–just got tired of the whole thing.  From now on, it will forward requests only for what it considers “humane purposes.” Helping someone realize a financial benefit–like recovering money due them from a retirement plan–isn’t one of those.

If you’re looking for somone for a specified humane purpose, such as informing them of a relative’s illness, the IRS won’t charge you for a single request. But if you are trying to reach a mass audience–50 or more–it will charge you.

Read for yourself Rev. Proc. 2012-35.

IRS Launches “Voluntary Classification Settlement Program”

As many employers know, classifying employees properly under the wage and hour laws is an exercise fraught with risk. Do it wrong, and you may quickly get the (unwelcome) attention of the Internal Revenue Service, which won’t hesitate to demand your records and come on site to conduct an audit.

But now the IRS is giving employers a way out of this cul-de-sac. It recently launched a voluntary reclassification program as an alternative to an audit. Under the program, an employer can voluntarily resolve the case by making a minimal payment covering past payroll tax obligations rather than waiting for an IRS audit.

To be eligible, an applicant must:

  • Consistently have treated the workers in the past as nonemployees;
  • Have filed all required Forms 1099 for the workers for the previous three
  • Not currently be under audit by the IRS’
  • Not currently be under audit by the Department of Labor or a state agency
    concerning the classification of these workers.

Interested employers can apply for the program by filing Form 8952, Application for
Voluntary Classification Settlement Program, at least 60 days before they want
to begin treating the workers as employees.

Meaning of “Full Time Employee” Under Health Care Law Now Open for Public Comment

Who should be considered a “full time” employee under the health care reform law for whom an employer has to provide health insurance coverage by 2014 or pay a fine?

On that important question the U.S. Treasury Department and Internal Revenue Service would like the public’s input.

Under the Patient Protection and Affordable Care Act, employers with 50 or more full-time employees that do not offer affordable health coverage to their full-time employees would be required to pay a penalty, beginning in 2014. Notice 2011-36, issued on May 3, 2011, solicits public comments on several issues related to the play or pay provisions. In particular, the notice requests comments on possible approaches employers could use to determine who is a full-time employee.

The definitions of employer, employee and hours of service and the rules for calculating hours of service would generally conform to well-established regulatory definitions and rules applicable to employer-provided health and pension benefits, the notice states. For example, under one approach, employees would become eligible to enroll in the employer’s group health plan when they are determined to have worked a specified number of hours (e.g., 30 hours per week) during a specified period (e.g., a quarterly look-back measurement period).

In addition, the notice solicits input on how federal agencies should interpret and apply the law’s provisions limiting the ability of plans to impose a waiting period for health coverage of longer than 90 days, starting in 2014. The notice invites comments on how guidance under the 90-day provisions should be coordinated with the rules that the Treasury Department and the IRS will propose regarding the play or pay provisions.

Comments may be sent by e-mail to (include “Notice 2011-36” in the subject line). The deadline for comments is June 17, 2011.

IRS Issues FAQs on Employer-Provided Health Coverage Information Reporting Requirements

Starting in tax year 2011, employers have to report on the cost of health care they provide to their employees, under a requirement included in the health care reform law, the Patient Protection and Affordable Care Act.

But, as the IRS makes clear in recently posted frequently asked questions, there’s a transition period for employers to start these reports. In fact, no employer will have to report the cost of employer-provided health care coverage on its employees’ W-2 prior to 2013.

Find out more on this and other aspects of the reporting requirement on the IRS web site.

In Reversal, IRS Says Breast Pumps, Other Supplies Are Reimburseable Under a Health FSA

Turns out breast pumps and other supplies women use for breastfeeding are reimburseable under a health flexible spending account after all.

The IRS announced its change of position in a letter from Commissioner Douglas Shulman to Rep. Sander Levin (D-Mich.). Levin and some of his colleagues had written the IRS requesting that it review its position that the costs of breast pumps and other breastfeeding supplies do not qualify as medical care expenses reimburseable under a health FSA.

“After reviewing the matter, we have concluded that breast pumps and supplies that assist lactation are medical care under section 213(d) of the Internal Revenue Code because they are for the purpose of affecting a structure or function of the body of the lactating woman, ” the letter said.

“Therefore, if taxpayers meet the remaining requirements of section 213(a) of the Code, expenses they paid for breast pumps and supplies that assist lactation are deductible medical expenses. These expenses will qualify as medical care expenses reimburseable” under a health FSA.

Shulman said the IRS will include these conclusions in Announcement 2011-13 to be published in Internal Revene Bulletin 2011-8, and that the next revision of Publication 502, Medical and Dental Expenses, will also include this information.

The move makes sense and is consistent with a change made last year to the Fair Labor Standards Act requiring employers give women reasonable break time in order to breast feed and provide a private area for doing so.

5 HR and Benefit Changes Starting in 2011

With the new year nearly upon us, so too are changes in HR and benefits that will go into effect. Here’s a quick rundown of 5 to watch out for:

  1. Starting Jan. 1, 2011, flexible spending accounts will no longer be able to reimburse participants for expenditures on over-the-counter medications and items such as bandages and aspirin.
  2. Also on the health care front, insurance plans with a Jan. 1, 2011 plan year date will have to allow parents to keep a child on their policy until the child’s 26th birthday. This provision of the health care reform law took effect on Sept. 23 of this year, but now becomes a requirement for the 2011 plan year starting tomorrow. (Separately, employers may voluntarily report the value of health benefits they provide on 2011 W-2s; they will have to starting in 2012. The amount reported is not considered taxable income).
  3. Starting on Jan. 1, the standard mileage rate for the use of a car, van or pickup will be 51 cents per mile for business miles driven, up from 50 cents in 2010.
  4. Effective January 1, 2011, Colorado’s minimum wage will increase to $7.36 per hour, up from the 2010 rate of $7.24 per hour. Also, the tipped employee wage will rise to $4.34 per hour, up from the current $4.22 per hour.
  5. Starting in 2011, employers in California will begin filing Unemployment Insurance, Employment Training Tax, State Disability Insurance contributions, and Personal Income Tax withholdings quarterly on the DE 9 instead of annually on the Annual Reconciliation Statement (DE 7). Find out more at the Employment Development Department website.

Happy 2011!

Tax-free Transit Subsidy Will Stay at $230 in 2011

Employees who take public transporation to work can continue to set aside up to $230 tax-free toward their monthly commuting costs under legislation signed into law by President Obama on Friday  – at least through 2011.

The law extends until Jan. 1, 2012 the $230-a-month transit commuter benefit that was included in the 2009 stimulus bill. Without the extension, the benefit would have reverted to $120, which it was prior to 2009.

The extension, part of the law extending the Bush-era tax cuts for two years, also keeps the transit subsidy the same as the parking subsidy, which has been pegged at $230 for quite some time.

The law also gives the Internal Revenue Service another year to implement a separation of parking and transit benefits in SmartBenefit accounts.

The new program will require an estimated 220,000 commuters who receive both transit and parking benefits to decide how much pretax income they want to set aside monthly for each type. Employer will than decide whether any unused benefits will carry into the next month.

In 2006, the IRS ruled that the accounts must be kept separate beginning in 2008; it then granted a two-year delay to give time for transit systems nationwide to comply. The Washington, D.C. metro system requested and was granted a further extension until Jan. 1, 2011 to implement technology and work with employers to prepare their employees for the change.

Once implemented, when commuters tap their SmartTrip cards at the rail gate, bus farebox or parking lot, payment will be automatically processed from the appropriate account.

Breastfeeding Moms Get No Help From FSAs

Breastfeeding mothers now have a guarantee of leave breaks to breastfeed their children at work, but the IRS still refuses to allow the cost of breast pumps to be deemed an eligible expense under Section 213 of the Internal Revenue Code, the New York Times reported today.

Since the costs of such pumps is not an eligible medical expense, neither are they eligible for reimbursement under flexible spending accounts (FSAs) since FSAs are limited to eligible medical expenses.

It’s a Catch 22 for nursing moms and seems to run counter to the goals of the new health care reform law to hold medical costs down by encouraging back-to-basics, good lifestyle practices such as breastfeeding.

Bills introduced last year by Representative Carolyn B. Maloney, Democrat of New York, and Senator Jeff Merkley, Democrat of Oregon, would have allowed nursing mothers to claim the tax break, the Times reported. “But breast-feeding advocates say that effort, like many before, was undone by economic and cultural factors.”