Compliance and Tax Round-Up (CA, DC, MA, NJ, RI, VT) – State Mandates and FSA/DCAP Changes for 2020
Individual State Mandates (CA, DC, MA, NJ, RI, VT)
How did we get here? The US Supreme Court ruled that the ACA individual mandate penalty (tax) was constitutional in 2012, and in December of 2017, Congress passed the Tax Cuts and Jobs Act, which reduced the individual mandate penalty to zero as of January 1, 2019. Meanwhile, individual states are permitted to tax their citizens if they acquire and maintain health coverage for themselves, their legally married spouse, and their dependent children. In fact, Massachusetts has been taxing its citizens since 2007.
In 2019, New Jersey and the District of Columbia joined the ranks of states with penalties (taxes) imposed for people without health coverage. And, effective for 2020, CA, RI and VT have joined the effort.
Here’s a summary of the states that have enacted individual mandate requirements. When you waive health coverage on your employer’s plan, and you waive health coverage under your spouse’s employer’s plan, and you fail to make a purchase on healthcare.gov or on any state health exchange you may owe significant penalties (taxes) when you file your state income tax returns. Please consult with your accountant and/or tax adviser about how your situation is impacted by you not having health coverage. (Also note: DC, NJ, CA and MA also require employers to communicate about coverage offerings through mechanisms similar to the 1094/1095 processes. Please discuss those requirements with your Account Manager.)
California – Two Messages Required about Flex Spending Account Deadlines
On August 30, 2019, Governor Gavin Newsom of California enacted Bill No. 1554. While existing CA law requires all employers to notify employees of information relating to employment and benefits, this new bill requires employers to notify employees, who participate in flexible spending accounts and work in California, of any deadlines applicable to withdrawing funds before the end of the plan year.
Generally, flexible benefits plans are written to accommodate a “run-out” period, after the formal end of the plan year, for participants to turn in claims incurred during the plan year. Some plans may allow a 2.5 month extended period of coverage (grace period), after the end of the plan year, in which to incur expenses during the current year and use left-over funds from the previous plan year. Additionally, plans may allow participants to carry over up to $500 from a previous plan year to the current year from their healthcare flexible spending accounts. (Subject to whatever limitations the plan administrator imposes to protect their plan, their spend and perhaps how their next year’s Health Savings Accounts operate. Please check with your account manager for details.)
The deadline to withdraw funds may be different according to the benefits selected. For instance, the dependent care portion of the plan may have a run-out period for turning in claims incurred in the previous plan year, while the healthcare flexible spending account (FSA) may allow for a grace period or carry over, and thus a separate run out period. These factors should be taken into consideration when creating and distributing employee notices including, whether the FSA account is for dependent care, healthcare or adoption assistance.
The Notice needs to be delivered to participants before the plan’s year end advising them of all deadlines to withdraw funds. The Notice also must be provided in two different forms, one of which may be electronic.
Notices may be provided as outlined below, but are not limited to the following:
- Electronic mail communication
- Telephone communication
- Text message notification
- Postal mail notification
- In-person notification
When does this take effect?
For plans that end anytime in 2020, up to and including December 31, 2020, the employer is required to provide the two (2) notices to CA employees prior to their plan’s year-end.
Please contact your Account Manager or Sales Executive for additional details. Thank you.
- 2012 US Supreme Court finds ACA taxes to be Constitutional
- 2017 Tax Cuts and Jobs Act
- 2018 MA and NJ Mandates:
- CA Assembly Bill No. 1554 (FSA/DCAP -2 medium reminders in 2020)
For more information, contact firstname.lastname@example.org. The information contained in this post, and any attachments, is not intended and should not be misconstrued as legal advice. You should contact your employment, benefits or ERISA attorney for legal direction.
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