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IRS Issues Federal Guidance Regarding Tax Issues for Legal Same-Sex Marriages
By Laura Kerekes, Chief Knowledge Officer for ThinkHR Corporation
Following up with the promise to issue clarifying guidance after the Supreme Court overturned the Defense of Marriage Act on June 26, 2013, the U.S. Department of the Treasury and the Internal Revenue Service announced on August 29th that same-sex couples, legally married in jurisdictions that recognize their marriages, will be treated as married for federal tax purposes. This decision applies regardless of whether the couple lives in a jurisdiction that recognizes same-sex marriage or one that does not.
According to the announcement, same-sex couples will be treated as married for ALL federal tax purposes, including income, gift, and estate taxes. The ruling goes on to state that this applies to all federal tax provisions where marriage is a factor, including filing status, personal/dependent exemptions, and standard deductions, employee benefits, contributing to an IRA and claiming tax credits.
This ruling does not apply to registered domestic partnerships, civil unions or any other similar formal relationships recognized under state laws.
The Treasury and the IRS will begin applying this ruling on September 16, 2013 but have said that “taxpayers who wish to rely on the terms of the Revenue Ruling for earlier periods may choose to do so (as long as the statute of limitations for the earlier period has not expired)”.
What does this really mean?
Legally-married same-sex couples generally must file their 2013 FEDERAL income tax returns using either the “married filing jointly” or “married filing separately” filing status. State rules will govern state tax filings. Employers offering spousal benefits to legally married same-sex couples may stop calculating the imputed income for federal tax purposes.
The Impact for employers and what you can do:
We recommend that you review your benefits and other employment policies, procedures, and forms to ensure compliance with the updated guidance. We will continue to monitor and report on developments in this area.
You can review the entire Revenue Ruling 2013-17 at http://www.irs.gov/pub/irs-drop/rr-13-17.pdf and the frequently asked questions at www.irs.gov/uac/Answers-to-Frequently-Asked-Questions-for-Same-Sex-Married-Couples for more information.
DOL Issues FMLA Guidance on DOMA Decision
By Rick Montgomery, JD, Senior Legal Editor for ThinkHR Corporation
On August 9, 2013, U.S. Department of Labor (DOL) issued regulatory guidance on the Family and Medical Leave Act (FMLA) regarding benefits of same-sex couples. The guidance comes on the heels of the United States Supreme Court’s decision in United States v. Windsor that struck down section 3 of the Defense of Marriage Act (DOMA). The new guidance comes in the form of an updated Fact Sheet #28F: Qualifying Reasons for Leave under the Family and Medical Leave Act. The updated Fact Sheet now defines “spouse” as “a husband or wife as defined or recognized under state law for purposes of marriage in the state where the employee resides, including ‘common law’ marriage and same-sex marriage.”
Under FMLA regulations (29 CFR 825.122), the term “spouse” is defined as “a husband or wife as defined or recognized under state law for purposes of marriage in the state where the employee resides, including ‘common law’ marriage and same-sex marriage.” However, prior to the Supreme Court’s decision in Windsor, the FMLA’s provisions were also controlled by Section 3 of DOMA, which provided that “…the word ‘marriage’ means only a legal union between one man and one woman as husband and wife, and the word ‘spouse’ refers only to a person of the opposite sex who is a husband or wife”. Therefore, even if a state recognized same-sex marriage, DOMA did not recognize the marriage and employers could lawfully deny employees in same-sex marriages FMLA leave to care for their same-sex spouse with a serious health condition.
What does this really mean? The updated guidance simply clarifies that an employee in a same-sex marriage who was married and resides in a state that allows same-sex marriage is entitled to take FMLA leave to care for the employee’s same-sex spouse with a serious health condition.
The Impact: Here’s what we know:
Employers are strongly encouraged to review their FMLA policies, procedures and forms to ensure compliance with the updated guidance.
We will continue to monitor and report on developments in this area.
Click here to visit the U.S. Department of Labor’s FMLA resources.
From the Blues Office of National Health Reform
Patient Protection and Affordable Care Act
Taxes and Fees
Frequently Asked Questions
The following answers are for general educational and informational purposes only and not for the purpose of providing legal, actuarial, accounting or other advice. The information in this document is based on the Michigan Blues’ current understanding of the Patient Protection and Affordable Care Act; however, interpretations of PPACA vary and the federal government continues to issue guidance on how it should be interpreted and applied.
Blue Cross Blue Shield of Michigan and Blue Care Network are working to determine how best to comply with PPACA’s taxes and fees mandate, so these answers are subject to change as we get further guidance from the federal government.
Please advise customers to consult with their attorney for legal advice on complying with PPACA mandates.
As required by United States Treasury Regulations, we also inform you that any tax information contained in this communication is not intended to be used and cannot be used by any taxpayer to avoid penalties under the Internal Revenue Code.
April 2013Click Here to View FAQ's
Employers express concerns over costs and disruption of exemption litigation; majority have faced employees who misrepresented exempt job duties
Zombies, Ghouls, and Unpaid Wage Claims: The Top 5 HR Horrors This Season
by Hera Arsen - Ogletree, Deakins, Nash, smoak & Stewart, P.C.
As the group that shepherds employees from the application stage through the end of the employment relationship, human resources (HR) departments administer programs and policies that could greatly impact a company if a misstep results in litigation. HR regularly has to deal with some of the creepiest, crawliest issues for any employer—hiring, firing, leave, discipline, handbooks, payroll, benefits, and employee classifications. Here are the top five trendiest, most bloodcurdling issues your HR department might be dealing with on this, the spookiest (or sexiest) day of the year.
Employer “Medicare Part D” Notices are due before October 15
Are you an employer that offers or provides group health coverage to your workers? Does your health plan cover outpatient prescription drugs – either as a medical claim or through a card system? If so, be sure to distribute your plan’s “Medicare Part D” notice before October 15.
To help Medicare-eligible persons make informed decisions about whether and when to enroll for a Part D drug plan, they need to know if their employer’s group health plan provides “creditable” prescription drug coverage. That is the purpose of the federal requirement for employers to provide an annual notice – commonly called the “Employer’s Medicare Part D Notice” – to all Medicare-eligible employees and spouses.
Preparing the Notice(s)
Employers that offer multiple group health plans options, such as PPO, HDHP and HMOs, may use one notice if all options are creditable (or all are noncreditable). In this case, it is advisable to list the names of the various plan options so it is clear for the reader. On the other hand, employers that offer a creditable plan and a noncreditable plan, such as a creditable HMO and a noncreditable HDHP, will need to prepare separate notices for the different plan participants.
Distributing the Notice(s)
The notice is intended to be a stand-alone document. It may be distributed at the same time as other plan materials, but it should be a separate document. If the notice is incorporated with other material (such as stapled items or in a booklet format), the notice must appear in 14 point font, be bolded, offset or boxed, and placed on the first page. Alternatively, in this case, you can put a reference (in 14 point font, either bolded, offset or boxed) on the first page telling the reader where to find the notice within the material. Here is suggested text from CMS for the first page:
“If you (and/or your dependents) have Medicare or will become eligible for Medicare in the next 12 months, a Federal law gives you more choices about your prescription drug coverage. Please see page XX for more details.”
E-mail distribution is allowed but only for employees who have regular access to e-mail as an integral part of their job duties. Employees also must have access to a printer and be notified that a hard copy of the notice is available at no cost upon request.
CMS Disclosure Requirement
Disclosure to CMS also is required within 30 days of termination of the prescription drug coverage or within 30 days of a change in the plan’s status as creditable coverage or non-creditable coverage.
The CMS online tool at http://www.cms.hhs.gov/creditablecoverage is the only method allowed for completing the required disclosure. Click on the link then follow the prompts to respond to a series of questions regarding the plan. The link is the same regardless of whether the employer’s plan provides creditable or noncreditable coverage. The entire process usually takes only 5 or 10 minutes to complete.
This material is offered for general information only. It does not provide, and is not intended to provide, tax or legal advice.
HIPAA’s HITECH and Omnibus Rule Compliance Deadlines Fast Approaching
By Erin DeBartelo, PHR, Lead HR Advisor, ThinkHRLive
With the deadline fast approaching for compliance changes in health information privacy under the Health Information Portability and Accountability Act of 1996 (HIPAA), employers and “business associates” must take additional precautions with the new rules.
What is HITECH and the Omnibus Rule?
In short, the Health Information Technology for Economic and Clinical Health Act (HITECH Act) adds new changes under HIPAA that provide the public with increased protection and control of personal health information. The Health Information Technology for Economic and Clinical Health (HITECH) Breach Notification requirements clarify when breaches of unsecured health information must be reported.
The final omnibus rule sets new limits on how information is used and disclosed for marketing and fundraising purposes and prohibits the sale of an individuals’ health information without their permission.
What are the compliance deadlines?
Important Dates Under HIPAA’s HITECH Omnibus Final Rule (Source: Office of the Secretary for the US HHS OCR) include:
According to the US Department of Health and Human Services (HHS), the HIPAA Privacy Rule establishes national standards to protect individuals’ medical records and other personal health information and applies to health plans, health care clearinghouses, and those health care providers that conduct certain health care transactions electronically. The Rule requires appropriate safeguards to protect the privacy of personal health information, and sets limits and conditions on the uses and disclosures that may be made of such information without patient authorization. The Rule also gives patients’ rights over their health information, including rights to examine and obtain a copy of their health records, and to request corrections.
For non-health care industry private employers, there is no explicit simple guidance on policy, procedure, and training under HIPAA’s Privacy Rule. If the employer is in the healthcare industry, then the requirements are more specific, as they are specifically dealing with patients and patient records. There is not a one-size-fits-all solution, but a number of resources are available to assist employers. HHS is the agency that regulates and enforces the Privacy Rule under HIPAA, offers extensive information including FAQs at www.hhs.gov/ocr/privacy. You can also find online training materials and courses from various vendors, including benefits industry groups, law firms and accounting firms, etc.
Who Does This Affect?
This information is geared to the majority of our business partners and end user clients that are non-healthcare industry private employers. If the employer is in the healthcare industry, then the requirements are more specific, as they are specifically dealing with patients and patient records. If your company is an insurance brokerage firm, healthcare benefits third party administrator (TPA) or if you use the services of an insurance broker or TPA, you probably already have most of your bases covered.
Group health plans are typically exempt from some of the Privacy Rule requirements because group health plans are providing health benefits exclusively through an insurance contract with a health insurance issuer or a Health Maintenance Organization (HMO), and the only Protected Health Information (PHI) exchanged is usually limited to summary health information or enrollment information.
One of the biggest changes related to the HITECH rules is regarding Business Associate Contracts. A Business Associate Contract is basically a document between the 2 parties that clearly demonstrates both entities’ responsibilities and commitment to maintaining the HIPAA privacy rule because the parties are sharing information regarding healthcare coverage about individuals through the employer sponsored group health plans.
HHS says a business associate is “a person or organization, other than a member of a covered entity’s workforce, that performs certain functions or activities on behalf of, or provides certain services to, a covered entity that involve the use or disclosure of individually identifiable health information”. Business associate functions or activities on behalf of a covered entity include claims processing, data analysis, utilization review, and billing. Also according to HHS, when a covered entity uses a contractor or other non-workforce member to perform ”business associate” services or activities, the Rule requires that the covered entity include certain protections for the information in a business associate agreement (in certain circumstances governmental entities may use alternative means to achieve the same protections). In the business associate contract, a covered entity must impose specified written safeguards on the individually identifiable health information used or disclosed by its business associates.
According to the Official HHS News Release on January 17, 2013, “some of the largest breaches reported to HHS have involved business associates. Penalties are increased for noncompliance based on the level of negligence with a maximum penalty of $1.5 million per violation. The changes also strengthen the Health Information Technology for Economic and Clinical Health (HITECH) Breach Notification requirements by clarifying when breaches of unsecured health information must be reported to HHS.
Individual rights are expanded in important ways. Patients can ask for a copy of their electronic medical record in an electronic form. When individuals pay by cash they can instruct their provider not to share information about their treatment with their health plan. The final omnibus rule sets new limits on how information is used and disclosed for marketing and fundraising purposes and prohibits the sale of an individuals’ health information without their permission.”
What Should You Do?
Where Can You Go For More Information?
HHS has some specific information available regarding Business Associate Contracts and the final omnibus rule.
Employer Notification of Exchange / Marketplace
CERF Fee Periods and Payment Schedule
2011 New & Renewal Plan Dates
2012 New & Renewal Plan Dates
Click Here to view the full schedule.
Employer Notification of Exchange / Marketplace
Among the key changes in health care reform is an employee's option, if eligible, to choose a plan from a state-run exchange. Beginning this Fall, you are required to inform all employees and new hires of the new exchanges. Employers will need to provide notice with information about the exchanges and an employee's ability to shop for coverage. The notice should also include eligibility rules for Premium credits and the differences between an exchange plan and an employer-sponsored plan.
On Thursday, May 9, 2013 the Employee Benefits Security Administration (EBSA) which is part of the Department of Labor, issued a “model notice” that employers may use to fulfill this requirement. You can find the notice for your customers that offer a health plan here: www.dol.gov/ebsa/pdf/flsawithplans.pdf.
For employers that do not offer a plan, they must still provide notice and that model notice can be found at www.dol.gov/ebsa/pdf/FLSAwithoutplans.pdf.
These notices must be provided to existing employees on or before October 1, 2013. Notice must be given to new employees within 14 days of their start date.
Topics covered and Information that must be provided includes:
Additional information can be found at www.dol.gov/ebsa/newsroom/tr13-02.html.
Our advice is that employer‘s tailor their notice as closely as possible to the model notice provided by the Employee Benefits Security Administration to avoid running afoul of the Fair Labor Standards Act and to avoid any potential for fines.
The Federal Government Has Delayed The Exchange Notification Requirement
as of January 25, 2013
The Affordable Care Act requires employers to notify their employees of the existence of health benefits exchanges. The original act required the notification be issued by March 1, 2013. Information released on Thursday postpones the requirement likely until late summer or fall 2013. The goal is to coincide with open enrollment on the Exchanges, which begins Oct. 1, 2013 (for a Jan. 1, 2014 effective date.)
Two reasons were cited for the delay:
The Department of Labor is considering providing model, generic language that could be used to satisfy the notice requirement. Alternately, the government may make a template available on the Exchanges, which employers could download, complete and issue to employees.
Employee Exchange Notification - March 2013
Description: Employers must notify new employees in writing at the time of hire (or current employees no later than March 1, 2013) with information regarding:
Although we expect model notices to be provided, none have been issued to date. We will provide new information as it becomes available.
Health Care Reform: Post--Election PPACA Implementation: What Employers Should Be Thinking about for 2013
President Obama has been reelected, and although there were some changes in Congress, the political make--up of the House and Senate remains the same, with Democrats controlling the Senate and Republicans controlling the House of Representatives.
For employers and plan sponsors that have been adopting a "wait and see" approach before focusing on compliance with the Patient Protection and Affordable Care Act (PPACA), the time to wait is over. PPACA's insurance mandates, market reforms, and employer requirements generally will move ahead as scheduled, with most of PPACA becoming fully effective just a short year from now, in 2014. Since the law left the task of working out many of the details to the regulatory agencies (the Department of Labor, the IRS and the Department of Health and Human Services), employers can now expect that an enormous number of Regulations on many of the unanswered questions and other types of guidance will be issued between now and the end of 2013.
WHAT TO THINK ABOUT IN 2013
New 3.8% Medicare Tax Effective In 2013
In addition to the 0.9% increase to the existing Medicare payroll tax discussed above, there is a new, nonpayroll Medicare tax effective starting in 2013. This new Medicare tax of 3.8% applies to the lesser of (A) net investment income (defined below) or (B) the excess of modified adjusted gross income (AGI) over $200,000 ($250,000 for joint filers). Note that these threshold amounts are not indexed to inflation in future years, which means that this tax may apply to more taxpayers in future years. Also, for most taxpayers, their modified AGI is simply their AGI.
Generally, "net investment income" is the excess of gross income from interest, dividends, annuities, royalties, rents, passive activity income and capital gains, over any deductions allowed by the IRS that are allocated to such income. As such, net investment income does not include, for example, tax--exempt interest or distributions from tax qualified plans.
Note that this new 3.8% tax applies to an individual's investment income in excess of the $200,000 / $250,000 threshold described above on an uncapped basis. Individuals who may be subject to this 3.8% Medicare tax should consult with their personal tax advisor to determine if it might be advantageous to recognize capital gains in 2012, thus avoiding the 3.8% tax. This also may be attractive in light of the possibility of the maximum federal income tax rate increasing to 39.65% in 2013 and thereafter.
Mandates Taking Effect In 2014
Mandates and market reforms taking effect in 2014 include:
Now that the election is over, the federal regulators who have been holding off on issuing regulations that may have been viewed as controversial during the election will begin the process in earnest. Plan sponsors should expect a flood of regulations (maybe as early as the next 6--8 weeks) to be released that have been long anticipated, including:
When new guidance is released, the issuing agencies often extend a comment period, during which interested parties can comment on the guidance and recommend changes favorable to their position. We encourage employers and plan sponsors to take advantage of any comment periods and engage counsel for assistance with drafting comments.
Obviously with new guidance will come new compliance concerns. In addition, cost containment is going to be critical. Premiums, which increased significantly across the nation in 2011 when the initial mandates became effective, will rise, likely dramatically, in 2014 when PPACA is fully implemented. Fees (including those enforced through the Tax Code) will be levied against health plans to help pay for the new programs, particularly for coverage in the individual market. For example, beginning in 2013, health plans pay a fee to fund research to study outcomes of various medical approaches. In 2014, plans will be assessed a fee to help stabilize rate increases in the individual market. These fees (and others), of course, will be passed on to employers and employer-- sponsored group health plans and these costs may be passed through in part to covered participants via increased costs and premiums.
In addition, 2014 sees the commencement of the shared responsibility payment, often referred to as the "pay--or--play" provisions. Employers will be required to play (by providing quality health care to their employees and dependents) or pay a "shared responsibility payment" to the federal government.
A shared responsibility payment generally applies when a full--time employee (using a 30--hour per week standard under PPACA) receives a federal premium subsidy and obtains coverage in a public health insurance exchange. The payment will be assessed against employers that either (A) fail to offer health coverage to all full--time employees and their dependents (an "opt--out" payment), or (B) provide coverage that fails to satisfy certain quality and affordability standards under PPACA (an "affordability" payment). To satisfy the standard for affordability, the plan's premiums for single coverage cannot exceed 9.5% of an employee’s household income (or W--2 wages as reported in Box 1, per the IRS' "affordability safe harbor"). The quality standard is satisfied if the plan has at least a 60% actuarial value, which is a measure of the plan's overall level of financial protection. A plan with a 60% actuarial value is designed to cover at least 60% of health care costs for the average participant, which assumes that the plan has both low and high utilizers of covered services. The 60% measure is not based on actual claims experience; rather, it is an actuarial estimate based on the design of the plan (e.g., its cost--sharing features, such as deductibles, copayments, coinsurance, and out--of--pocket limits). An employer's premium contribution is not considered for purposes of determining actuarial value, although it is considered for purposes of the affordability standard.
Some employers that have considered these provisions are already contemplating whether to reduce the number of full--time employees (30 hours or more under PPACA) in order to avoid the share responsibility payment with respect to those employees. But preplanning may be necessary to ensure compliance with the employer mandate, which is effective January 1, 2014 regardless of plan year. Under recent IRS guidance, employers with "variable hour" employees will use a "look back" period to determine who is full--time. Obviously, employers considering workforce realignment strategies should be discussing approaches now, with an eye toward implementation in 2013, so that they will have reduced numbers during the look back for 2014. Some employers who are contemplating whether to "pay" rather than "play" also are considering expanding the offering of nonmedical voluntary benefit options, such as dental, vision, accident, life and cancer policies. However, employers should be aware of the peril of making employment--related decisions without thoroughly examining the implications under employment law and ERISA.
State Action On Health Insurance Exchanges
Because employees may choose to obtain coverage through an exchange even if they have access to employer--sponsored group health plan coverage (although they’ll lose their employer's contribution toward its group health plan coverage) and because the health insurance exchanges are required to provide information to prospective enrollees about their eligibility for premium tax credits (and likely will request information from employers to determine such eligibility), employers also should have an understanding of whether the states in which they operate will have a state--run health insurance exchange. The health insurance exchanges are scheduled to begin operation in January 2014.
As of the date of this alert, a number of states (California, Colorado, Connecticut, District of Columbia, Hawaii, Kentucky, Maryland, Massachusetts, Nevada, New York, Oregon, Rhode Island, Utah, Vermont, Washington and West Virginia) have established state exchanges. Arkansas, Delaware and Illinois are planning for a partnership exchange with the federal government. Several states have affirmatively decided not to create a state exchange (including Alaska, Florida, Louisiana, Maine, New Hampshire, South Carolina and South Dakota), which means the federal government will run the exchange on the state's behalf. The remaining states are studying their options but could end up with a federally run exchange at least for 2014 since the deadline to submit the state's plan for implementing an exchange is December 14 (recently extended from November 16). It remains to be seen whether the federal government will be able to implement so many exchanges on behalf of states electing not to operate an exchange. It also remains to be seen whether a change of various state public officers (such as governor or insurance commissioner) or control of a state legislature, will change a state's position on the implementation of an exchange.
Employers that have not begun work on cost containment and other strategies should begin now by talking with their Proskauer lawyer. Proskauer is committed to monitoring developments and providing its clients with the latest, up--to--date information on new developments under PPACA. Please contact your Proskauer lawyer for answers to your questions on health care reform.
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