IRS Notice 2013-53 announced that the “applicable percentage” for 2012 for purposes of determining percentage depletion for oil and gas produced from marginal properties is 15%, which is the same as it has been every year since 2001. We have no use for this information, and we’re guessing you don’t either. IRS Notice 2013-55 contains a list of 70 Indian tribes that have settled tribal trust cases against the U.S. Again, we have no use for this information, and we’re guessing you don’t either. The point is that we all can generally gloss over things in IRS Notices because they don’t have much applicability to the broad base of U.S. businesses and citizens.
Not so with IRS Notice 2013-54… On Friday the 13th of September 2013, the IRS made a major change in the landscape of employer-provided health benefits, and they did it in a very low-key way. Generally, issues with major interpretations of law, or subject to some controversy, are handled by IRS through Regulations, which require a public comment period before they become final and effective. Although IRS Notices require taxpayers to abide by them just as if they are Regulations, those taxpayers get very little lead time and absolutely no input on the content of the IRS Notice. It is almost as if the IRS is trying to sneak one by taxpayers.
So what exactly did the IRS do in Notice 2013-54, which was effective January 1, 2014? Let’s look at three major areas:
- Does your company have a health reimbursement arrangement (HRA) (otherwise known as a Medical Expense Reimbursement Plan), for purposes of reimbursing employees for their out-of-pocket medical costs like deductibles, co-pays and prescriptions? If so, you now need to also offer a group health insurance plan, and limit participation in the HRA to those who are participating in your group health insurance plan or a group health insurance plan provided by a spouse’s employer. If you don’t do these things, then the HRA can only provide limited benefits, such as dental, vision and long-term care.
- Does your company provide tax-free payments for health insurance premiums to your employees for policies they purchase individually? If so, depending on who you believe, you either have to stop immediately, or you have to run these as an employee salary redirect through a written cafeteria plan. We believe the cafeteria plan scenario works, but there are significant penalties if it doesn’t, so you will want to be very careful with this area and may want to hire a third-party to administer the cafeteria plan. Also, it definitely cannot be used to reimburse premiums for individual policies purchased through the Exchange.
- Does your company allow employees to redirect part of their pay through a health FSA in order to pay up to $2,500 per year of medical expenses using pre-tax dollars? If so, you now must also offer your employees a group health insurance plan, or limit the FSA to only reimbursing for limited expenses, such as dental and vision.
Are you in compliance with all of the above? If not, you should take steps immediately to explore the options to come into compliance with Notice 2013-54. The penalty for failure to comply can go as high as $100 per affected employee per day. We can help you analyze your options, so contact us today if you need assistance.