Route To: Partners Managers Staff File LIST OF SUBSTANTIVE CHANGES AND ADDITIONS PPC's Guide to Compensation and Benefits 16th Edition (March 2015) Highlights of this Edition The following are some of the important update features of the 2015 edition of PPC's Guide to Compensation and Benefits. Transportation Fringe Benefits. Qualified transportation fringe benefits are a popular method for employers to provide employees with a tax free benefit, when certain requirements are met. The IRS has issued guidance explaining when a vanpool can be provided for employees on a tax free basis, and on the use of smartcards or debit cards to provide qualified transportation benefits. This edition of the Guide includes a discussion of the new guidance and how to offer these benefits on a tax free basis. Cafeteria Plan Election Changes. Recent IRS guidance allows participants to make changes in their health care benefits under a cafeteria plan in two additional situations: (1) when they enroll in healthcare through a state insurance marketplace or (2) when their work hours are reduced to less than a certain number of hours per week. A discussion of the requirements for these scenarios is included in this update. Health Flexible Spending Accounts (Health FSAs). As a result of several Affordable Care Act market reform provisions, participation in health FSAs should generally be limited to certain employees. The discussion on interaction between health FSAs and the Affordable Care Act has been updated in this edition of the Guide. Employer Payment Plans. Arrangements where employers reimburse employees for health insurance premiums or medical expenses, also known as employer payment plans, are generally no longer a viable option for employers unless integrated with a group health plan. Employers that continue to provide these types of arrangements to employees may find themselves subject to a hefty penalty under IRC Sec. 4980D. The Guide has been updated with a discussion of alternative arrangements for employers, as well as the details of transition relief from the penalty. My Retirement Accounts (myras). The Treasury Department introduced a new retirement savings account called the myra for individuals who do not have access to an employer sponsored retirement plan or who want to supplement their retirement savings. This edition contains information about how a myra works. Retirement Plan Rollovers. Qualified plans are required to offer participants direct rollover options, but are not required to accept direct rollovers. However, new IRS rules make it easier for plan administrations to accept rollovers from another plan. The new guidance is discussed in this edition of the Guide. In addition to these featured items, your Guide includes the following update items detailed below. 1 Overview 1. The IRS has begun a limited compliance initiative project to assess taxpayer compliance with Section 409A requirements for nonqualified deferred compensation plans. This chapter provides information on the focus of the initiative and possible implications. Section 102 1
2 Basic Principles of Employee Compensation 3 Standard Items of Compensation 4 Executive Compensation Plans 1. In a recent tax court case, a deduction for a bonus payment to a corporation s CEO was disallowed because the corporation did not have sufficient funds to honor the payment. This section has been updated for the case. 1. Final regulations have been issued under IRC Sec. 162(m), which places a $1 million cap on the amount of compensation a publicly held corporation can deduct for certain employees. The discussion in this section has been updated for the clarification provided in the final regulations. 2. A compensation deduction limit of $500,000 applies to payments made by certain health insurance providers to applicable individuals. Recently issued final regulations that are effective for tax years beginning after September 23, 2014, have been included in this edition of the Guide. 3. The practice of grossing up wages is a tactic employers can use to absorb employee payroll taxes. This edition includes a caution to employers for a Chief Council Advice that determined the employer was not entitled to a refund for employment taxes overpaid on grossed up wages. 4. This section has been updated for a tax court decision that held a student s stipend award was taxable income. 5. In light of the Quality Stores decision, the IRS announced that it will reject all claims for refund of payroll taxes related to severance payments unless they qualify for the narrow exception provided. This update contains a discussion of this announcement. 6. Virtual currency has gained recognition not only as an investment, but in some cases, also a means for payment of compensation. This appendix has been updated to include an explanation of how virtual currency paid as wages is treated for federal tax purposes. 1. Proposed regulations recently issued by the DOL would require electronic filing of top hat plan statements. This edition includes a discussion of the guidance and the effective date of the electronic filing requirement, if finalized. 2. This edition contains the details of a recently announced compliance initiative project focused on nonqualified deferred compensation plan compliance with IRC Sec. 409A. 3. The definition of separation from service is an important concept for purposes of the distribution requirement of IRC Sec. 409A. This chapter covers details from the Section 409A regulations on when a separation from service has occurred. 4. The IRS has issued guidance on whether a stock option or stock appreciation right exempt from IRC Sec. 409A is also exempt from IRC Sec. 457A. This chapter contains a discussion of the guidance. Section 204 Section 303 Section 303 Section 304 Section 307 Appendix 3A Appendix 3A Section 401 Section 402 Section 402 Section 402 2
5 Section 132 Fringe Benefits 8 Employee Expense Reimbursement Plans 9 Employee Travel and Entertainment as Compensation 5. This edition includes information on a Court of Federal Claims case in which a participant was not entitled to a refund of FICA tax paid on benefits the participant will never receive because the employer s obligation to pay the deferred compensation benefits was discharged in bankruptcy. 6. A federal district court found an employer was liable to plan participants for failure to properly withhold FICA taxes on nonqualified deferred compensation according to the terms of the plan. This edition has been updated for implications of the case. 7. This chapter examines whether the 3.8% net investment income tax (NIIT) applies when the stock acquired through the exercise of an incentive stock option (ISO) is disposed of in either a qualifying or disqualifying disposition. 8. In a recent private letter ruling, the IRS addressed whether the failure to submit a copy of the Section 83(b) election related to restricted stock affected the validity of the Section 83(b) election. The IRS s position regarding the Section 83(b) election is included in this edition. 1. Meal money provided to an employee may be excludable as a de minimis fringe benefit if certain conditions are met. This section includes clarification on the treatment of meal allowances and reimbursements provided pursuant to a company or union policy. 2. A revenue ruling recently issued by the IRS provides guidance on the use of electronic media (e.g., smartcards and debit cards) to provide qualified transportation fringe benefits to employees. A discussion has been added to this Guide that explains the new guidance. 3. The Tax Increase Prevention Act of 2014 retroactively extended for one year the parity provision that requires the monthly exclusion limits for commuter transportation and transit passes be the same as the parking limit. This chapter has been updated for that extension. 4. The IRS released an information letter that explains when a vanpooling arrangement may be provided to employees on a tax free basis. This chapter discusses the information letter. 1. In general, adjustments cannot be made on Form 941 X for an over collection of FITW or the additional 0.9% Medicare tax that occurred in a prior year. However, updated form instructions, which are noted in this section, allow a correction in circumstances that involve an administrative error. 1. Recently issued final IRS regulations allow certain local lodging expenses to be treated as deductible business expenses. An expanded discussion on the local lodging regulations, including a safe harbor for business meeting and conference lodging, has been added to this edition. Section 403 Section 403 Section 405 Section 407 Section 510 Section 512 Section 512 Section 512 Section 804 Section 903 3
10 Per Diem Travel Allowance Plans 11 Regulatory Issues for Welfare and Fringe Benefit Plans 12 Cafeteria Plans 13 Dependent Care Assistance Programs 15 Adoption Assistance Programs 2. This edition includes discussion of the Snellman case, which illustrates how a temporary work assignment did not change a taxpayer s tax home for purposes of deducting travel expenses. 3. A practice tip has been added to this section to emphasize the importance of maintaining documentary evidence to support deductible travel and entertainment expenses. 4. The IRS s 2014 2015 Priority Guidance Plan identifies guidance on employer provided meals as one of its priorities. This edition alerts practitioners that additional guidance in this area could soon be released. 1. This chapter includes the updated per diem rates for travel after October 1, 2014. 1. The IRS recently finalized regulations regarding electronic filing requirements for certain benefit plan administrators. This section has been updated for these regulations. 2. Beginning with the 2015 reporting year, a new paper Form 5500 SUP, will be required from certain taxpayers. This edition discusses plans that need to file this new form. 3. This edition contains an update on the final disposition of the Amara case concerning equitable relief available due to misrepresentations on a summary plan document. 4. The Affordable Care Act requires employers to report certain information on health care coverage and offers of coverage to employees. This edition includes an expanded discussion on the information required to be reported. 1. The IRS has issued guidance that allows participants to make changes in their health care benefits under a cafeteria plan in two additional situations. This section has been updated for the new guidance. 2. This section includes an alert to practitioners on the interaction of premium only plans with provisions of the Affordable Care Act. 3. A discussion has been added to this chapter regarding which employees should be allowed to participate in a general purpose health FSA so that the employer does not run afoul of the Section 4980D rules. 1. This section has been updated to clarify that employees who are separated from their spouses may qualify for the $5,000 dependent care exclusion if certain tests are met. 1. This edition includes a discussion of a recent district court case holding that whether or not a child meets the special needs criteria must be determined by a state on a child by child basis in order for the parents to be allowed the maximum adoption credit. Section 903 Section 908 Section 910 10 Section 1112 Section 1112 Section 1113 Section 1113 Section 1204 Section 1207 Section 1208 Section 1306 Section 1502 4
16 Health Plans 17 Disability Income Plans 20 Qualified Retirement Plans 1. The IRS, DOL, and HHS issued proposed regulations for the Summary of Benefits and Coverage (SBC) that generally will apply for enrollments in plan years beginning on or after January 1, 2016, if finalized. The proposed regulations are discussed in this chapter. 2. This chapter has been reorganized to more clearly present the income tax, payroll tax, and Affordable Care Act rules regarding health care benefits for employees. 3. This section includes a discussion on employer payment plans and explains the guidance and transition relief provided in IRS Notice 2015 17. 4. The definition of the term protected health information and a discussion on how employers could be affected when providing information on employees covered under the employer s group health plan has been added to this edition of the Guide. 5. The 2015 average wage amounts applicable for the small employer health insurance credit have been included in this section. 1. In final regulations, the IRS provided that disability insurance premium payments made by a qualified retirement plan [e.g., a 401(k) plan] are not taxable distributions to the participant if certain requirements are met. This section includes a discussion of these requirements. 2. The IRS, instead of the SSA, is now responsible for reconciling payroll taxes on sick pay that is paid by a third party. This section has been updated for the new Form 8922 used by the IRS for reconciliation. 1. The Treasury Department published additional details about the new retirement savings account called myra (My Retirement Account) that employers may offer to employees. A discussion about this program has been added to this section. 2. Bankruptcy protection is provided for assets held in qualified retirement arrangements. However, traditional and Roth IRAs are not afforded the same level of protection as qualified plans. This section has been updated to clarify the protection available to traditional and Roth IRAs. 3. The IRS issued final regulations that allow purchases of longevity annuities through qualified plans and IRAs for the purpose of postponing payouts otherwise necessary under the required minimum distribution rules. This chapter has been updated for these new rules. 4. A new revenue ruling provides safe harbors that allow qualified plans to accept rollover contributions without extensive documentation. Information on that ruling is included in this update. Section 1606 Section 1608 Section 1608 Section 1614 Section 1616 Section 1701 Section 1704 Section 2001 Section 2002 Section 2003 Section 2003 5
5. New final regulations issued by the IRS clarify that a payment from a qualified plan for an accident or health insurance premium is generally a taxable distribution. This section includes a discussion of these new rules. 6. Under new rules, employers who file at least 250 returns with the IRS will be required to file Form 5500 series returns electronically beginning in 2016, even though they are currently eligible to file on paper. This chapter contains a caution about this future change. Section 2003 Section 2004 6