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IRS Private Letter Ruling Allows a VEBA to Reimburse Medical Benefits for Domestic Partners

Private letter ruling (?Ç£PLR?Ç¥) 201415011 held that the tax-exempt status of a voluntary employees?ÇÖ beneficiary association (?Ç£VEBA?Ç¥) trust would not be jeopardized by the VEBA?ÇÖs reimbursement of medical benefits incurred by a participant?ÇÖs domestic partner. This is true regardless of whether the domestic partner qualifies as a dependent under the Internal Revenue Code. However, the IRS?ÇÖ ruling with respect to non-dependent domestic partners turned in part on the VEBA?ÇÖs representation that the total amount of medical benefits that would be paid to non-dependent domestic partners would constitute 3 percent or less of the total amount of benefits paid to all participants and beneficiaries, and thus be a de minimis amount. A PLR is non-binding except on the parties to the PLR and may not be relied on as precedent.?á A copy of the PLR is available here.

Courts Allow Third-Party Exhaustion of Policy Deductibles/SIRs

Disputes often arise over whether proceeds from a third-party, including a co-insurer, can satisfy an insured?ÇÖs deductible or self-insured retention (SIR) obligations under a policy.?á A recent decision from the Florida Supreme Court resolved this question in the affirmative.?á In doing so, the Florida Court joins other jurisdictions, including Texas, which also allow third-parties to satisfy policy deductibles and SIRs on behalf of a policyholder absent express policy terms prohibiting indirect exhaustion. In Intervest Construction of Jax, Inc. v. General Fidelity Insurance Company, a residential contractor sought to apply a $1 million payment from its subcontractor toward the exhaustion of $1 million SIR owed under a general liability policy in connection with an underlying personal injury lawsuit.?á After an initial decision from the trial court finding that the contractor, ICI, could not use the subcontractor?ÇÖs indemnity payment to satisfy the SIR, the Florida Supreme Court ruled (on a certified question… Continue Reading

Correct Worker Classification Critical to Avoid Penalties under the ACA

Final regulations recently issued by the U.S. Department of the Treasury (the ?Ç£Final Regulations?Ç¥) reaffirmed that the definition of ?Ç£employee?Ç¥ for purposes of the employer shared responsibility provisions of the Affordable Care Act (the ?Ç£ACA?Ç¥), also known as the ?Ç£play-or-pay?Ç¥ rules, is determined by reference to the common law standard for determining employee status.?á?áIn general, a ?Ç£common law employee?Ç¥ is subject to the will and control of the employer – not only as to what should be done but how it should be done.?á The Final Regulations declined to adopt suggestions by some commenters under the previously proposed regulations that relief from the play-or-pay penalties should be provided for employers that misclassify workers who are later determined to be common law employees. To avoid what could be substantial penalties under the ACA, employers should carefully assess their workforces to ensure that all common law employees have been properly identified and… Continue Reading

Offer of Coverage on Behalf of Another Entity under the ACA

To avoid the play-or-pay penalties under the ACA, an employer must offer ?Ç£minimum essential coverage?Ç¥ to a certain percentage of its full-time employees (determined under the common law standard discussed above). The Final Regulations provide certain circumstances under which an offer of coverage by another entity could be considered to have been made on behalf of the common law employer. For example, where an entity is the common law employer of a worker whose services are provided through a staffing agency, an offer of health plan coverage by the staffing agency may be treated as an offer of coverage by the common law employer, but only if the common law employer pays a higher fee to the staffing agency for a worker who enrolls in health coverage than the employer would pay if the worker did not enroll in the plan.?á The Final Regulations can be found here.

IRS Releases Guidance on the Treatment of Same-Sex Spouses for Retirement Plan Purposes

On April 4, 2014, the IRS released Notice 2014-19, which provided new guidance on the application of the Windsor decision to qualified retirement plans.?á Notice 2014-19 clarified that a qualified retirement plan is not required to recognize the same-sex spouse of a participant prior to June 26, 2013 (the date of the Windsor decision) or to recognize such same-sex spouse prior to September 16, 2013, if the participant resided in a state that did not recognize same-sex marriages.?á A plan amendment is only required to the extent the plan?ÇÖs terms are inconsistent with the Windsor decision and related guidance (for example, if the plan?ÇÖs definition of ?Ç£spouse?Ç¥ refers to the Defense of Marriage Act or applies the marriage laws of a participant?ÇÖs state of domicile).?á A plan amendment also is required if the plan chooses to apply the Windsor decision for some or all plan purposes prior to June 26,… Continue Reading

IRS Issues Guidance Regarding Improper Payments from Health FSAs

On March 28, the Internal Revenue Service (the ?Ç£IRS?Ç¥) released a Memorandum from the Office of the Chief Counsel of the IRS which addressed several issues regarding correction procedures to follow in the event that improper payments are made from an employee?ÇÖs health flexible spending account arrangement (?Ç£HFSA?Ç¥).?á The following guidance was provided: (1) the correction procedures for debit cards in the proposed cafeteria plan regulations may be used to correct improper payments from HFSAs; (2) an employer may apply the correction procedures in those proposed regulations in any order, except that the employer may only forgive an improper payment from an HFSA as an uncollectible business debt after all other permissible correction methods have been attempted; and (3) if an employer does forgive an improper HFSA payment as an uncollectible business debt, the amount forgiven is to be reported as wages on Form W-2 and is subject to withholding… Continue Reading

Supreme Court Holds that Severance Payments are Subject to FICA

In rejecting the decision of the U.S. Court of Appeals for the Sixth Circuit, the U.S. Supreme Court recently ruled unanimously in favor of the IRS and held in United States v. Quality Stores, Inc. that severance payments for involuntary terminations of employment are generally subject to Federal Insurance Contributions Act (?Ç£FICA?Ç¥) taxes (i.e., Social Security and Medicare taxes). In taking a broad view of the FICA statute, the Court concluded that severance payments are ?Ç£remuneration for employment?Ç¥ within the meaning of the FICA statute and in consideration for employment. The Court also ruled that the payments made by Quality Stores, which were based on individuals?ÇÖ positions with the company and their years of service, were specifically tied to their employment, and thus, wages for purposes of FICA.?á United States v. Quality Stores, Inc., No. 12-1408 (U.S. Mar. 25, 2014).

April 2014
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