Compliance Webinar | Medicare: a Timeless Topic

In 2018 an estimated 36 million workers, or about 23% of the US labor force, continued working past age 65, according to recent data published by the US Dept. of Labor’s Bureau of Labor Statistics (BLS).

By 2024, baby boomers (born between 1946 and 1964) will reach ages 60 to 78, many of whom will continue working even after they qualify for Social Security retirement benefits (and Medicare).  As compared to 2014 labor force data, BLS projects that the number of older workers (aged 65 and older) will increase by 10.9%, compared to a projected 5% increase in the entire US labor force.

With these changes to employee demographics, employers face challenges and are increasingly asked to provide employees with information about how Medicare eligibility and entitlement affect group health plans.

This 1-hour webinar, presented by Hays Companies Research and Compliance Department, covers Medicare: a Timeless Topic.

Other topics addressed include:

  • What are the various components of Medicare, and what are the costs?
  • When can/should disabled individuals and individuals who are age 65 or older enroll in Medicare?
  • For active employees, does eligibility for Medicare affect group health plan coverage?
  • How do the plans coordinate benefits?
  • How does Medicare entitlement affect eligibility to contribute to an HSA?
  • Does gaining new Medicare entitlement permit employees to change their health coverage elections?
  • How does Medicare entitlement impact eligibility for COBRA continuation coverage?
  • When employees have coverage under our health plan and are also eligible for or covered by Medicare, what are our reporting and disclosure obligations as the employer/plan sponsor?

Please click here to watch the webinar. 

Please contact your Hays Companies representative for further information. 

Compliance Webinar: FMLA and its Impact on Health and Welfare Benefits

The Family and Medical Leave Act (FMLA) has been around since 1995.  On February 6, 2013, the United States Department of Labor (DOL) published final regulations that expanded the protections under the FMLA.  Although many employers understand the job protection aspect of FMLA, protecting and maintaining employee welfare benefits during FMLA leave can be just as, if not more, challenging.

This 1-hour webinar, presented by Hays Companies Research and Compliance Department, covers FMLA and its Impact on Health and Welfare Benefits

Other topics addressed include:

  • What employers are subject to FMLA?
  • What employees are eligible for FMLA?
  • What rules specifically apply to military service members and airline personnel?
  • What are the job protections under FMLA?
  • What are the proper steps to ensure benefit protections during and after an FMLA leave?

Please click here to watch the webinar.

Please contact your Hays Companies representative for further information. 

Quick Reference Guide: 2018 ACA Employer Reporting Requirements

The Hays Research and Compliance Team has assembled a quick reference guide for 2018 calendar year reporting. This guide is specifically relating to 2018 ACA Employer Reporting Requirements.


Section 6055 & 6056 Reporting

Non-ALEs sponsoring insured plans are not required to report
under either Section 6055 or Section 6056



Forms 1094-A & 1095-A
  • Marketplace (exchange)
Forms 1094-B & 1095-B
  • Issuers, non-ALE (less than 50 FTE) that are self-insured
Forms 1094-C and 1095-C
  • Applicable Large Employer (ALE)


Due Dates

Form 1095: March 4, 2019
  • Paper delivery
  • Electronic only if the individual has consented to electronic delivery of the 1095 (in writing)
Form 1094: February 28, 2019
  • April 1, 2019 if filing electronically
  • Electronic filing required for ALE with 250 or more 1095s

 Employers may file for an automatic 30 day extension via Form 8809


Form 1095-C Line 14 Codes

1A     Qualifying Offer: MEC/MV offered to employee, self-only coverage < than 9.56% single – 2018 federal poverty line and at least MEC offered to spouse & dependent(s)

1B     Minimum essential coverage providing minimum value offered to employee only

1C     MEC/MV offered to employee and at least MEC offered to dependent(s) (not spouse)

1D     MEC/MV offered to employee and at least MEC offered to spouse (not dependent(s))

1E     MEC/MV offered to employee and at least MEC offered to dependent(s) and spouse

1F     MEC but NOT MV offered to employee, or employee and spouse or dependent(s), or employee, spouse and dependents

1G     Offer of coverage to employee who was not full-time for any month of the calendar year and who enrolled in self-insured coverage for one or more months of the calendar year

1H     No offer of coverage (or employee offered coverage that is not MEC)

1I     Reserved

1J     MEC/MV offered to employee and at least MEC conditionally offered to spouse (but no MEC offered to dependents)

1K    MEC/MV offered to employee and at least MEC offered to dependents and at least MEC conditionally offered to spouse


Form 1095-C Line 16 Codes

2A     Employee not employed during the month

2B     Employee not a full-time employee

2C     Employee enrolled in coverage offered

2D     Employee in a section 4980H(b) Limited Non-Assessment Period

2E     Multiemployer interim rule relief

2F     Section 4980H affordability Form W-2 safe harbor

2G     Section 4980H affordability federal poverty line safe harbor

2H     Section 4980H affordability rate of pay safe harbor

2I     Reserved



COBRA for terminated employee:
  • Coverage goes to end of the month in which employee terminates (1E, 2C)
  • Coverage does not go to the end of the month in which employee terminates (1H, 2B)
  • All months following the month in which the employee terminates (1H, 2A)
  • COBRA participants who have not been employed at any time during the calendar year (1G)
COBRA for drop in hours:
  • For a person who had family coverage and was therefore offered COBRA for self, spouse and dependents: (1E, 2C) fill in line 15
  • For a person who had self only coverage and was therefore offered COBRA for self only: (1B, 2C) fill in line 15
  • For a person who had coverage for self and a dependent and was therefore offered COBRA for self, and their dependent: (1C, 2C) fill in line 15
  • For a person who had coverage for self and their spouse and was therefore offered COBRA for self and their spouse: (1D, 2C) fill in line 15

Use 2B if COBRA is not elected


Self-Insured Employers

Former Employees and Other Non-Employees
  1. Retirees
  2. COBRA beneficiaries
  3. Non-employee directors
    • No requirement to certify OFFER of coverage, but still must report coverage provided
      • Self-insured sponsors may use either Forms 1094/1095-C or Forms 1094/1095-B
      • If using 1094/1095-C, use Code 1G on line 14

Code 1G goes in all the 12 months column on line 14


Special Rules for HRAs

Self-insured major medical plan and an HRA
  • Report only the major medical plan information
Insured major medical plan and an HRA
  • Not required to report if the individual is eligible for the HRA because the individual enrolled in the insured major medical plan
Part III
  • HRA must be reported in Part III for any individual who is not enrolled in a major medical plan of the ALE Member
  • Applicable to the employers with less than 50 FT/FTEs too



2018 Instructions for Forms

2018 Form 1095-C

2018 Form 1094-C



These quick reference materials are provided for general information purposes only and should not be considered legal or tax advice or legal or tax opinion on any specific facts or circumstances. Readers and participants are urged to consult their legal counsel and tax advisor concerning any legal or tax questions that may arise.

Any tax advice contained in this communication (including any attachments) is not intended to be used, and cannot be used, for purposes of (i) avoiding penalties imposed under the U.S. Internal Revenue Code or (ii) promoting, marketing or recommending to another person any tax-related matter.

Compliance Webinar | Employer Reporting: a 1094-C and 1095-C Refresher

2018 marks the fourth year for which Applicable Large Employers (ALEs) must report offers of health coverage to full-time employees to the IRS on Form 1094-C and provide Employee Statements (Form 1095-C). The deadline for providing Form 1095 to employees is March 4, 2019. Employers must file Form 1094-C and copies of Form 1095-C by February 28, 2019 if paper forms are filed, or April 1, 2019 if the forms are filed electronically. Final forms and instructions have been released by the IRS. This webinar will provide a refresher intended to help employers complete these forms.

This webinar, presented by Hays Companies Research and Compliance Department, covers Employer Reporting: a 1094-C and 1095-C Refresher

Other topics this webinar will address include:

  • Employers subject to reporting
  • Deliver and filing requirements
  • General reporting method and required information
  • Reporting codes
  • Reporting scenarios

You can watch the webinar here.

Please contact your Hays Companies representative for further information. 

Updated DOL Guidance on Indexed Statutory Penalties for ERISA Plans

On January 15, 2019, the US Department of Labor issued pre-publication guidance on the indexed statutory penalties for certain violations applicable to ERISA welfare plans, under the Civil Penalties Inflation Adjustment Act. The 2019 inflation-adjusted penalties that are applicable to health and welfare plans for 2019 include (but are not limited to) the following key compliance items:

The DOL inflation-adjusted penalties for violations of various other labor and employee benefits laws are also addressed in the updated guidance and will be published shortly in The Federal Register. These include, but are not limited to, the following:

  • Federal Mine Safety and Health Act
  • ERISA (with respect to qualified retirement plans)
  • Occupational Safety and Health Act (OSHA)
  • Wage and Hour (Fair Labor Standards Act, Immigration & Nationality, Public Service Contracts Act, FMLA)
  • Office of Workers Compensation Programs (OWCP)

Hays Companies is here to help with your compliance needs. If you have any questions, contact your Hays representative or get in touch with us today.

Hays Companies Employee Benefits Presents: Upcoming Webinars in 2019

We are pleased to announce the upcoming Hays Companies Webinar schedule for the first half of 2019. Registration information for each webinar, actual dates, and complete details will be made available closer to the event.

As always, please reach out to your Hays Companies representative with any questions.

Date Topic
January Employer Reporting: a 1094-C and 1095-C Refresher
February FMLA and its Impact on Health and Welfare Benefits
March Medicare: a Timeless Topic
April ERISA: Why Does Everyone Keep Talking Wrap Documents?
May Planning for Mergers and Acquisitions
June HIPAA: Protecting Your PHI and Protecting You From Penalties

Note: additional webinars may be added due to legislative changes, rulings, guidance or other developments impacting employee benefits.

Topics and dates are subject to change due to unforeseen circumstances

Entire ACA Ruled Invalid

On December 14th, a judge in the United States District Court for the Northern District of Texas, Fort Worth Division, ruled that the Affordable Care Act’s (ACA) individual mandate is unconstitutional and that the remaining provisions of the ACA are inseverable and therefore invalid.

The ruling is based upon the change to the individual mandate contained within the 2017 tax reform bill that eliminated the individual mandate’s tax consequences. Under the new law, people who decide against insurance coverage no longer must pay a fine. The District Court’s decision hinged on that change.

While the ruling puts the ACA’s future in jeopardy, the federal government is making no immediate changes to laws and regulations. According to a statement from the Department of Health and Human Services (HHS), the government “will continue administering and enforcing all aspects of the ACA as it had before the court issued its decision. They added that the decision “does not require that HHS make any changes to any of the ACA programs it administers…at this time.”

In short, it’s business as usual until Judge O’Connor’s decision makes its way through the court system. A group of states led by California vowed to appeal the ruling and the issue will most likely make its way to the Supreme Court.

The ACA was previously upheld as constitutional by the Supreme Court in 2012. However, the same result is not certain today given the changes in individual mandate laws and a more conservative court.

That said, businesses should continue to comply with the various requirements under the ACA including 1095 reporting, W-2 reporting and minimum essential coverage offerings that meets the value and affordability requirements under the ACA.

IRS Announces Employee Benefit Plan Limits for 2019


  • The IRS recently announced cost-of-living adjustments to the annual dollar limits for employee benefit plans.
  • Many of these limits will increase for 2019.
  • In 2019, employees may contribute more money to their HSAs, health FSAs and 401(k) accounts.


Many employee benefits are subject to annual dollar limits that are periodically increased for inflation. The Internal Revenue Service (IRS) recently announced cost-of-living adjustments to the annual dollar limits for various welfare and retirement plan limits for 2019. Although some of the limits will remain the same, many of the limits will increase for 2019.

The annual limits for the following commonly offered employee benefits will increase for 2019:

  • High deductible health plans (HDHPs) and health savings accounts (HSAs);
  • Health flexible spending accounts (FSAs);
  • Transportation fringe benefit plans; and
  • 401(k) plans.

Action Steps

Employers should update their benefit plan designs for the new limits and make sure that their plan administration will be consistent with the new limits in 2019. Employers may also want to communicate the new benefit plan limits to employees.

HSA and HDHP Limits

HSA Contribution Limit
Limit 2018 2019 Change
Self-only HDHP coverage $3,450 $3,500 Up $50
Family HDHP coverage $6,900 $7,000 Up $100
Catch-up contributions* $1,000 $1,000 No change

*Not adjusted for inflation

HDHP Limits
Limit 2018 2019 Change
Minimum deductible Self-only coverage $1,350 $1,350 No change
Family coverage $2,700 $2,700 No change
Maximum out-of-pocket Self-only coverage $6,650 $6,750 Up $100
Family coverage $13,300 $13,500 Up $200

FSA Benefits

FSA Limits
Limit 2018 2019 Change
Health FSA (limit on employees’ pre-tax contributions) $2,650 $2,700 Up $50
Dependent care FSA (tax exclusion)* $5,000 ($2,500 if married and filing taxes separately) $5,000 ($2,500 if married and filing taxes separately) No change

*Not adjusted for inflation

Transportation Fringe Benefits

Transportation Benefits
Limit (monthly limits) 2018 2019 Change
Transit pass and vanpooling (combined) $260 $265 Up $5
Parking $260 $265 Up $5

Adoption Assistance Benefits

Adoption Benefits
Limit 2018 2019 Change
Tax exclusion (employer-provided assistance) $13,840 $14,080 Up $240

Qualified Small Employer HRA (QSEHRA)

Limit 2018 2019 Change
Payments and Reimbursements Employee-only coverage $5,050 $5,150 Up $100
Family coverage $10,250 $10,450 Up $200

401(k) Contributions

401(k) Contributions
Limit 2018 2019 Change
Employee elective deferrals $18,500 $19,000 Up $500
Catch-up contributions $6,000 $6,000 No change


This Compliance Bulletin is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice.

HSAs & FSAs: Eligibility and Contribution Limits


HSAs (Health Savings Accounts) and FSAs (Flexible Spending Accounts): Are both accounts designed to help employees put aside money to pay for extra medical expenses on a pre-tax basis, both have rules around maximum contributions and permissible distributions, and both have remarkably similar sounding acronyms. However, the similarities for the most part, stop here.

The Hays Research and Compliance Department often answers questions from employers who are confused as to how these two types of accounts impact each other. Most of these questions are a result of misunderstanding HSA eligibility rules, or applying these rules to FSAs. In this article, we will briefly discuss both HSAs and FSAs independently, and then discuss how they impact each other in terms of eligibility.

Health Savings Accounts (HSAs)

What is an HSA?

A Health Savings Account (HSA) is often referred to as a Consumer Driven Health Plan (CDHP). An HSA is an account through which eligible individuals can make contributions, and receive employer contributions, on a tax-free basis through an employer’s cafeteria plan. Whether an individual is eligible to contribute to an HSA does not impact whether the individual is eligible for the underlying high deductible health plan. Further, the individual and his or her spouse and dependents do not need to be eligible to contribute to an HSA, to take tax-free distributions from the HSA for qualified medical expenses. An HSA account is owned by the individual, not by the employer. Therefore, individuals will have access to the account after employment with an employer ends.


To be eligible to contribute to (or receive contributions to) an HSA, two things must be true: 1. The individual must be covered under a qualified high deductible health plan (QHDHP). 2. The individual must not be covered by disqualifying other coverage.

A high deductible health plan is considered qualified, and allows a person to contribute to an HSA, if it meets both the minimum annual deductible standards and the maximum out-of-pocket limit standards set by the IRS.

Qualified HDHP 2017 2018 2019
Minimum Annual Deductible Self Only: $1,300

Family: $2,600

Self Only: $1,350

Family: $2,700

Self Only: $1,350

Family: $2,700

Out of Pocket Limit Self Only: $6,550

Family: $13,100*

Self Only: $6,650

Family: $13,300*

Self Only: $6,750

Family: $13,500*

*The individual limitation on cost-sharing under the ACA applies regardless of whether the individual is covered by a self-only plan or a plan that is other than self-only. The ACA individual cost-sharing limit is customarily lower than the QHDHP out of pocket limit for families. Therefore, it may be necessary to embed an individual out-of-pocket maximum for individuals covered under a family HDHP, no higher than the ACA limit for individuals. In no case, should this embedded limit be smaller than the family minimum annual deductible.

In addition to being enrolled in a QHDHP, an individual may not be enrolled in any other health care plan that is not a QHDHP, before the minimum annual deductible is met, to be HSA eligible. Examples of other coverage that will cause a person to lose HSA eligibility are other major medical coverage, general purposes health FSAs, HRAs (Health Reimbursement Arrangements), and Medicare.

Maximum Annual Contribution

Contributions to an HSA are subject to limits set by the IRS. The limits are updated annually, and are impacted by the number of people covered by the qualified HDHP, the number of months out of the year an individual is eligible for an HSA, and the individual’s age. Both employee contributions and employer contributions count toward the maximum annual contribution.

In general, an individual’s annual limit is calculated by dividing the annual limit by 12 and multiplying by the number of months the individual was eligible to contribute. An individual is eligible to contribute for a month, if they have HDHP coverage, and no disqualifying other coverage as of the first day of that month. As an exception to this general rule, if an individual is HSA eligible as of the first day of the last month of the taxable year (December 1st), the individual can contribute up to the annual maximum, if they remain HSA eligible for the rest of the month and the entire next year.

An individual who is at least age 55 may make an extra $1,000 contribution for a year. This additional contribution is calculated in the same manner as the base contribution. In other words, it is calculated monthly, unless the full-contribution rule applies. An individual does not have to be age 55 for every month in the year to make the full $1,000 contribution. Each spouse age 55 or older, with their own HSA account, is eligible to make a full HSA catch-up contribution regardless of whether either spouse has family HDHP coverage.

HSA Contribution Limits* 2017 2018 2019
Self-Only HDHP $3,400 $3,450 $3,500
Family HDHP (anything other than self-only coverage) $6,750 $6,900 $7,000

*If both spouses have self-only HDHP coverage, both can contribute the self-only maximum. If one or both spouses have family coverage, the family annual limit is divided between them.

Flexible Spending Accounts (FSAs)

What is an FSA?

A Flexible Spending Account (FSA) is an account through which eligible individuals can contribute amounts on a tax-free basis through an employer’s cafeteria plan. An FSA account is often referred to as a Flex-Account. FSA funds can be distributed tax free if used for qualifying medical expenses. An FSA account is owned by the employer plan sponsor, not the by the individual. Further, FSAs are subject to a “use it or lose it” rule. Therefore, if an employee leaves employment with the employer plan sponsor before the account is emptied, or does not use the amount elected by the end of the plan year, they will (with certain exceptions) lose the portion of their contribution remaining in the account.


Unlike HSAs, there are no requirements under the tax-code about what other coverage an individual must be enrolled in to take advantage of an FSA. However, an employer may require an employee to be enrolled in one of their major-medical plans to enroll in the FSA. Further, unlike HSA eligibility, FSA eligibility is not conditioned on the individual not having disqualifying other coverage.

Maximum Annual Contribution

The maximum annual contribution an individual may make to an FSA is set by the employer, and is subject to IRS regulations. The contribution limit is applicable to employee salary reductions. Employer contributions to a health FSA are only subject to the limit where an employee could have elected to receive that amount as taxable cash (or some other taxable benefit). All contributions to any FSA sponsored by an employer within the same controlled group will count toward the annual maximum. If an individual makes contributions to multiple FSAs, through employers who are not a part of the same controlled group, the entire contribution limit will apply separately to each of the FSAs.

If a single employer has both a limited-purpose and a general-purpose health FSA, the maximum contribution limit is shared between the two FSAs. Whether an individual is enrolled in self-only coverage, or coverage that includes any other individuals, does not impact the maximum annual contribution under a health FSA.

FSA Contribution Limits

2017 2018 2019
$2,600 $2,650 $2,700


HSAs and FSAs

Most of the confusion surrounding the way HSAs and FSAs impact each other, are a result of misunderstanding HSA eligibility rules, or applying these rules to FSAs. If an employer can remember a few simple things, most of this confusion can be alleviated.

  1. HSA contributions do not impact eligibility for coverage under an FSA.
  2. Coverage under an FSA results in ineligibility to contribute to or receive contributions to an HSA.
  3. Coverage under an FSA can come from unexpected places (such as a spouse’s coverage, or an extension of the FSA coverage through a grace period or rollover).

FSA as Disqualifying Other Coverage

If an employee is enrolled in a general-purpose health FSA through his or her employer, that employee is not HSA eligible. However, if the health FSA is what we refer to as “limited purpose,” or in other words covers only certain excepted benefits such as dental and vision, it will not preclude HSA eligibility. Further, if the FSA is set up to be a “post-deductible FSA,” so that it will not reimburse medical expenses until after the deductible has been satisfied, it will not preclude HSA eligibility.

One often overlooked source of disqualifying other coverage, is a spouse’s FSA. If a spouse is covered under a general purposes FSA that reimburses expenses before the deductible is satisfied, it is likely that the employee’s medical expenses could also be covered under that FSA. Where this is the case, neither the employee nor the spouse is HSA eligible. This is true even where the employee’s spouse does not actually use his or her FSA on the employee’s expenses.

In most cases, if an individual does not use his or her FSA funds by the end of the plan year, he or she will forfeit the amount remaining in the account. However, there are certain ways that a plan sponsor can design the account to give the individual extra time to use the left-over amount.* The first option, is to allow for what is called a “rollover.” If an employer allows any amount to “rollover” into an FSA for the individual into the next year, that individual will be ineligible for an HSA for the entire next year, unless they opt-out-of receiving that rollover. The person remains ineligible for an HSA for the entire year, regardless of when the individual actually exhausts his or her FSA funds that rolled over.

Instead of a rollover, some employers allow for what is referred to as a “grace-period.” A grace-period is a period of time after the close of the plan year, where individuals can continue to incur medical expenses to be used for whatever is still remaining in their FSA account from the prior year. If an individual did not elect an FSA for a given year but has greater than a $0 balance at the end of the coverage period, he or she will be HSA ineligible for the duration of the grace-period.

*HSA eligibility is not precluded by a run-out period, where an individual has not elected an FSA for the subsequent plan year. A run-out period is a period of time designated into the next plan year, during which the individual can submit expenses for reimbursement that were incurred during the prior plan year.


The Hays Research and Compliance Department would like to suggest the following approach to clients to help them ensure their employees’ compliance with HSA eligibility provisions.

  1. Ensure no employees are permitted to enroll in a general-purpose FSA, and at the same time contribute to an HSA.
  2. Ensure that any individual who will be taking advantage of a grace-period or a rollover provision under an FSA, is not also planning on contributing funds to an HSA as if they are eligible for those months.
  3. Advise employees that if their spouse (or parent for dependent children) is covered under an FSA which could reimburse their medical expenses, they are not eligible to make or receive contributions to an HSA.

For more information on HSAs, please check out the following webinar, recorded by the Hays Research and Compliance Department: Health Savings Accounts: What You Need to Know

2018 W-2s and Your Employee Benefits

The January 31st W-2 deadline will be here before you know it, and there’s a lot your team needs to prepare between now and then. There are employee health and wellness benefits to keep in mind, much of which is outlined in the IRS’s 2018 General Instructions for Forms W-2 and W-3.

Below are the top six reporting issues that employers generally encounter:

Employee health coverage

The ACA requires that employers who issue at least 250 W-2s reflect the value of health coverage on Box 12 of Form W-2. Reporting of health care costs is optional for employers issuing fewer than 250 W-2s but is encouraged by the IRS. The 250 W-2 threshold is based on the reporting employer’s Federal Employer ID Number (FEIN), regardless of the aggregate size of a controlled group. This information does not increase the employees’ taxable income (Box 1 wages).

  • For fully-insured plans, the total premium rate (employer and employee contributions) is reported.
  • For self-insured plans, the COBRA rate (exclusive of the 2% COBRA administration fee) may be used, per the IRS.
  • Employee elective contributions to a health FSA are not required to be reported; however, if the employer makes contributions to the employee’s health FSA over and above the employee’s election, that amount should be included in the Box 12 calculation.
  • Stand-alone dental and vision benefits may be excluded from the calculation (their inclusion is optional).

Employer-provided group term life insurance (See IRS Publication 15-B)

  • After excluding the first $50,000 in benefit, the “premium” value (based on Table I rates) for non-discriminatory plans that provide either the same flat dollar death benefit or multiple of earnings benefit for all eligible employees is included in employees’ taxable earnings (Boxes 1, 3 and 5).
  • For discriminatory (class-specific) benefits that differentiate by class, the entire value is taxable for key employees (the income exclusion for the first $50,000 in death benefit does not apply). For non-key employees, the exclusion is still applicable.
  • Voluntary term life insurance policies that “straddle” the Table I rates (i.e., at least one employee pays more than Table I and at least one employee pays less) are employer-provided group term life insurance and must be imputed. However, the employer can deduct the employee’s actual cost of the coverage from the imputed amount.

Health care benefits for domestic partners and other non-dependents

  • Internal Revenue Code Section 105(b) permits certain qualified benefits provided to employees or former employees, their spouses and dependents to be excluded from taxable income.
  • Employers offering domestic partners health care (medical, dental and vision) coverage must include the fair market value of the coverage provided (employer and employee contributions) for domestic partners (unless the partner is considered the employee’s tax dependent) and other non-dependents in W-2 earnings, Boxes 1, 3 and 5, for income tax purposes.

Dependent Care Assistance Plans (DCAPs)

Employee salary reduction elections are excluded from taxable earnings. Report the fair market value of dependent care benefits paid by the employer (including amounts paid directly to a daycare facility, reimbursed to an employee, or provided in kind by the employer), as well as employee elections under a dependent care FSA in Box 10.

Health Savings Accounts (HSAs)

Employer contributions (including employee contributions through the employer’s cafeteria plan) should be reported in Box 12. Employer HSA contributions that are not excluded from employees’ income (i.e., they are outside the employer’s cafeteria plan) are also taxable income and are reportable in boxes 1, 3 and 5.

Third Party Sick Pay Reporting for Disability Benefits

Disability benefits are subject to payroll tax (FICA and FUTA) for the first six months of benefit when the coverage is employer-paid. Generally, the employer is responsible for the employer match and must report the value of the benefit as third-party sick pay. However, some exceptions may apply (for example, if the insurer is making the employer and employee FICA matching contribution and providing the employee with a W-2 on behalf of the employer). (Refer to IRS Publication 15-B for more details)

The applicable codes to be used are described in the General Instructions (see the link in the first paragraph, above).

This information is a high-level overview and should not be considered legal or tax advice. If you have specific questions, you should contact your legal or tax advisor. For more information about your benefits offerings, reach out to your Hays Companies service team.

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