[firm] blog logo

IRS Clarifies Taxability of Dependent Care Benefits Provided Pursuant to a Carryover or Extended Grace Period

The IRS recently issued Notice 2021-26 (the ?Ç£Notice?Ç¥), which addresses certain questions that were not specifically answered in the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (enacted as part of the Consolidated Appropriations Act, 2021), and subsequent IRS guidance (collectively, the ?Ç£CAA Guidance?Ç¥). The CAA Guidance addressed the taxability of dependent care benefits provided under a dependent care assistance program (?Ç£DCAP?Ç¥) when a carryover or extended grace period is applied.?á As discussed in our prior blog post here, the CAA Guidance permits employers to adopt (i) a carryover of unused DCAP funds from taxable years 2020 to 2021 and 2021 to 2022 (?Ç£CAA Carryover?Ç¥) or (ii) an extended grace period for incurring DCAP claims for plan years ending in 2020 and 2021 (?Ç£CAA Extended Grace Period?Ç¥). The CAA Guidance confirms that any unused DCAP amounts carried over from one year (?Ç£Prior Year?Ç¥) to, or available in, the subsequent… Continue Reading

New Required COBRA Premium Subsidy

Beginning on April 1, 2021, the American Rescue Plan Act of 2021 (“ARPA“) will provide a 100% COBRA premium subsidy (the ?Ç£Subsidy?Ç¥) to any qualified beneficiary who is entitled to COBRA coverage due to an involuntary termination of employment or reduction in hours of employment. Under the ARPA, the federal government will reimburse the employer, in the form of a tax credit, the cost of the premiums for up to six months, from April 1 to September 30, 2021. Specifically, the Subsidy will end on the earliest of: (i) September 30, 2021; (ii) the date the qualified beneficiary becomes eligible for other health plan coverage or Medicare; or (iii) the date the qualified beneficiary?ÇÖs COBRA coverage period ends. Further, any individual who would have been eligible for the Subsidy, had he or she previously elected, or continued, COBRA coverage, will have another opportunity to elect COBRA coverage under a special… Continue Reading

Big Increase in Dependent Care Flexible Spending Account Limit for 2021

The American Rescue Plan Act of 2021 (?Ç£ARPA?Ç¥), which was enacted on March 11, 2021, temporarily increases the maximum amount that an employee is permitted to contribute to a dependent care flexible spending account (?Ç£FSA?Ç¥) from $5,000 to $10,500 (or from $2,500 to $5,250 for a married person filing a separate return) for the taxable year beginning in 2021. The increased dependent care FSA limit is an optional change that a plan sponsor may choose to incorporate into its dependent care program included under its cafeteria plan. This change, combined with the change under the Consolidated Appropriations Act, 2021 (?Ç£CAA?Ç¥), which authorizes a cafeteria plan to permit participants to make prospective changes to their dependent care FSA contributions (see our prior blog post regarding the CAA here), allows participants to increase contributions to their dependent care FSAs in 2021. In order to implement the new dependent care FSA limit, the… Continue Reading

Target?ÇÖs $1.6 Million COBRA Notice Settlement Offer: Employers, It?ÇÖs Time to Review Your COBRA Election Notices

As we discussed in our prior blog post here, there are many reasons why an employer needs to review its template COBRA election notice, such as for the new extended COBRA deadlines as a result of the COVID-19 pandemic, the new DOL model notice, and dramatically increased class action litigation challenging the legal sufficiency of COBRA election notices. These cases have resulted in significant expenditures being incurred by the targeted employers. These cases typically allege that a deficient or misleading COBRA notice caused a former employee (or other COBRA qualified beneficiary) to lose health coverage because the notice lacked required information or was not written in an understandable manner. For example, plaintiffs recently proposed a $1.6 million class action settlement to resolve allegations that Target Corporation failed to provide adequate COBRA election notices. Many employers use third-party vendors to prepare and distribute their plans?ÇÖ COBRA election notices; however, the employer… Continue Reading

COVID-19 Relief ?Çô Added Flexibility to 125 Cafeteria Plans

Prospective Mid-Year Election Changes IRS Notice 2020-29 allows employers to amend cafeteria plans to permit employees to make the following prospective mid-year election changes (including an initial election) for employer-sponsored health coverage, health flexible spending accounts (?Ç£FSAs?Ç¥), and dependent care FSAs during calendar year 2020, regardless of whether the basis for the election change satisfies the ?Ç£change in status?Ç¥ rules under Treas. Reg.  ?º1.125-4: Make a new election for employer-sponsored health coverage, if the employee initially declined to elect employer-sponsored health coverage; Revoke an existing election for employer-sponsored health coverage and make a new election to enroll in different health coverage sponsored by the same employer (including changing enrollment from self-only coverage to family coverage); Revoke an existing election for employer-sponsored health coverage, provided that the employee attests in writing that the employee is enrolled, or immediately will enroll, in other health coverage not sponsored by the employer; Revoke an… Continue Reading

IRS Proposed Regulations Clarify the Definition of Tax ?Ç£Dependent?Ç¥

The IRS recently issued proposed regulations regarding the definition of ?Ç£dependent?Ç¥ under the Internal Revenue Code (?Ç£Code?Ç¥). The proposed regulations generally update existing regulations to conform to amendments previously made to Code Section 152 and other Code sections by the Working Families Tax Relief Act of 2004 (?Ç£WFTRA?Ç¥) and subsequent legislation. Under WFTRA, Code Section 152 was amended to provide that a federal income tax dependent is either a taxpayer?ÇÖs ?Ç£qualifying child?Ç¥ or ?Ç£qualifying relative.?Ç¥ These definitions are relevant for employers that sponsor (i) group health plans if such plans provide coverage for an employee?ÇÖs dependent who is not his or her spouse or child under age 27, but who is the employee?ÇÖs federal income tax dependent, and (ii) dependent care assistance programs which reimburse covered employees for qualifying dependent care expenses of qualifying children and certain other federal income tax dependents. The proposed regulations also provide new guidance with… Continue Reading

November 2021
S M T W T F S
 123456
78910111213
14151617181920
21222324252627
282930  

Archives