Please Read. Action Required. Steps Provided.
On September 13, 2013 the IRS changed the rules with Notice 2013-54 for Flexible Spending Accounts (FSA). The IRS in verbal comments, to clarify their position, stated they are stopping pre-tax (tax free) status of individual health policies purchased at home, and employers without group health insurance plans can no longer have a Health Flexible Spending Account (Health FSA).
Because of these new changes our goal is to create an easy to read guide for your review.
PREMIUM REIMBURSEMENT ACCOUNT (PRA)
Definition: This is an account or FSA that allows employees to tax free their premiums individually purchased and billed to their home.
Tax free dollars are to be discontinued for the PRA starting with your plan year beginning on or after January 1, 2014. However, many employers are continuing the PRA even though dollars are no longer tax free. Here are some reasons for keeping the PRA with after tax dollars:
- The PRA is a valued benefit employees appreciate. Employers and employees can continue to fund the PRA with after tax dollars which assists employees with the purchase of their coverage.
- By continuing the deduction under the PRA, the participants will not have to worry about their insurance premiums being paid timely.
Action item: When your plan renews is when the after tax of the PRA takes effect.
Action item: Have payroll continue the deductions for the PRA but on an after tax basis. This requires notifying your payroll software or provider.
HEALTH FLEXIBLE SPENDING ACCOUNT (Health FSA)
Definition: This is an account or FSA that allows employees to tax free their medical expenses up to $2,500 per year.
If your firm is not carrying a group health policy, employees can no longer pre-tax (tax free) salary reductions for eligible 213(d) medical expenses which is the Health FSA.
- For further information regarding the a Health FSA that is excepted see http://benefitblog.com/?p=76393
HEALTH REIMBURSEMENT ARRANGEMENT (HRA)
Definition: A health reimbursement arrangement is an account the EMPLOYER funds for medical expenses similar to the Health FSA, or for specific benefits that the health plan doesn’t cover or can encompass paying premiums and operates similarly to the PRA.
Do you offer a stand-alone Health Reimbursement Arrangement? ACA law and the IRS state that an employer with a free standing HRA to cover medical expenses for employees can no longer be offered after your plan year ends.
In addition, those HRAs that offer employer money to pay for individually purchased and billed to their home premium is no longer allowed.
HRAs are that are tied to or “integrated” into the group health plan are ALLOWED.
Step 1: Are you offering a PRA? If so, when your plan year renews inform employees that their election for premiums will now be taxed.
Step 2: Are you offering a free standing HRA that is not working with your group health plan? If yes, then this benefit will cease when your plan year renews. Please inform your employees. If you need language from eflex for a news blast, please let us know.
Step 3: For the Health FSA, are you offering a group health plan for your employees? If no, then the current regulations say that employers cannot offer the Health FSA to employees.
Please contact us for questions if you are in doubt about which type of plan you carry with eflex.
We are planning a compliance seminar to explain this in more detail so please watch www.benefitblog.com for those details and emails.