Wipfli Alerts & Updates: Action Required for Employers Sponsoring Health Flexible Spending Accounts With Salary Reduction Limit Greater Than $2,500


September 13, 2012
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Recently, guidance was issued under Internal Revenue Service (IRS) Notice 2012-40 to employers sponsoring health flexible spending accounts (Health FSAs) with limits in excess of $2,500 for salary reduction contributions. Under the Patient Protection and Affordable Care Act (PPACA), plans must operationally comply with the law effective for plan years beginning on or after January 1, 2013. The $2,500 limit is indexed for years beginning after December 31, 2013.  
 
The due date of the required amendment is December 31, 2014, provided that the cafeteria plan operates in accordance with the law as of the effective date. Note that the $2,500 limit applies only to employee salary reduction contributions and not to employer non-elective contributions, sometimes called flex credits. Also, all employers are treated as a single employer for this purpose under the controlled group rules. In other words, if you have employees working for multiple related companies, they are limited to $2,500 in the aggregate among all related companies. Furthermore, if a cafeteria plan fails to operate in compliance with the law or fails to satisfy the written plan requirements for Health FSAs, the plan is not a Code Section 125 cafeteria plan, and an employee’s election of nontaxable benefits results in taxable income to the employee.
 
For current clients where Wipfli provides plan document services, we will be contacting you regarding the required amendment. If Wipfli is not currently providing plan document services, and you would like us to, please contact one of the individuals listed below or your Wipfli relationship executive.
 
Required W-2 Reporting for Major Medical Plans
 
Many employers may be aware that they need to begin reporting the cost of major medical plans on employees’ W-2s. The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act (together known as the Health Reform legislation) added the requirement for employers to report the cost of group health insurance coverage beginning in 2011. The IRS has since phased in the reporting requirements and made 2011 reporting optional. In 2012, this reporting is required only for employers that filed at least 250 W-2s for 2011. In 2013, it will be mandatory for all affected plans/employers. The IRS has recently described the requirements in detail in Notice 2012-9. This notice, along with a helpful chart, is available on the IRS's website at http://www.irs.gov/uac/Form-W-2-Informational-Reporting-of-the-Cost-of-Employer-Sponsored-Group-Health-Plan-Coverage. If you don’t currently have payroll processed by Wipfli and would like guidance with this process, please contact us. 
 
Please contact Pam Branshaw, Tom Krieg, Bob Buss, or your Wipfli relationship executive with questions or for guidance as it relates to the above topics.

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