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Compliance Briefing Center

Regulatory Updates

Making it Easier for You
to Manage Benefits

What’s New in the New Year?

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January 21, 2020

Great news for employers arrived just in time for the New Year. President Trump signed into law the Consolidated Appropriations Act of 2020 and the Further Consolidated Appropriations Act. These two spending bills will fund the government through September 30, 2020 and the Further Consolidated Appropriations Act included provisions to lighten employers’ loads.

“Cadillac Tax” Repealed
The High Cost Health Coverage Excise Tax, informally known as the Cadillac Tax, was first enacted as part of the 2010 Affordable Care Act (ACA). It called for a 40% excise tax on each employee’s benefit costs that exceeded the annual limitation set by the Federal government each year. It applied to each employee, former employee, surviving spouse, or other primary insured individual. The total excess benefit was to be calculated by the employer on a per person basis with the allocated sums provided to insurers, administrators, and employer plan sponsors for payment of the excise tax to the IRS.

Generally, this employer-sponsored coverage included any health coverage excludable from income, including Health Reimbursement Arrangements (HRAs), employer and employee contributions to health savings accounts (HSAs), healthcare flexible spending accounts (FSAs), the total cost of health care premiums (whether paid by the employer or the employee on a tax-favored basis), some onsite clinics and Employee Assistance Programs (EAPs), and some wellness programs.

The sheer labor involved in calculating the excess benefit, coupled with the employer paying a 40% excise tax on excess benefits was egregious.

For years, WageWorks has lobbied Congress to eliminate the Excise Tax or at a minimum to carve out employee contributions to HSAs and healthcare FSAs from the calculations. After all, these types of flex plans were put in place by employers to make medical expenses less burdensome for employees.

The good news? The entire High-Cost Health Coverage Tax, scheduled to begin in 2022, has been repealed and afforded employers and employees a much-needed reprieve.

Repeal of Tax on Nonprofit Organizations for Parking and Transit
The Tax Cuts and Jobs Act (TCJA) signed into law December 22, 2017 provided that employers could no longer deduct costs for subsidized or paid commuter benefits such as parking and transit programs. For nonprofit organizations, this meant an increase in their unrelated business income tax (UBIT).

Good news– UBIT on qualified transit and parking expenses has been repealed for nonprofit organizations and the repeal is retroactive to 2018. It’s important to note that employers are still not able to deduct costs for subsidized or paid commuter benefits such as parking and transit programs.

Health Insurance and Medical Device Taxes Repealed
Two other taxes were repealed. The health insurance tax paid by fully-insured health plans will take effect at the beginning of 2021. This may mean a reduction in premiums passed on to covered individuals in 2021.

The repeal of the medical device excise tax of 2.3% on medical appliances, such as pacemakers, takes effect on January 1, 2020.

Tax Extender for Patient-Centered Outcomes Research Institute (PCORI) Fees
Under the ACA, funds for a nonprofit corporation to assist in clinical effectiveness research was created. To aid in the financial support for this endeavor, certain health insurance carriers and health plan sponsors are required to pay fees based on the average number of lives covered by welfare benefits plans. These fees are referred to as PCORI or Clinical Effectiveness Research (CER) fees.

The applicable fee for plan years ending on or after October 1, 2018 and before October 1, 2019, is $2.45. Indexed each year, the fee amount is determined by the value of national health expenditures. Fees are reported and paid once per year with the submission of Form 720 (Quarterly Federal Excise Tax Return). Fees are due by July 31 of the year following the end of the plan year and must be submitted with the Form 720 filing.

The fee was to be phased out and not apply to plan years ending after September 30, 2019; however, this newest legislation extended the PCORI fees for another 10 years.

The information contained in this memo is not intended to be legal, accounting, or other professional advice. We assume no liability whatsoever in connection with its use, nor are these comments directed to specific situations.