The Vita Blog Pre-Tax

The IRS and Treasury department have released Notice 2022-41 which corrects an inconsistency in the regulations for non-calendar year plans. This inconsistency follows along with the regulatory corrections of the “family glitch” for ACA coverage that were just finalized by the DOL. 
 

Which employers does the change apply to?

The change is only relevant for employers with non-calendar year Section 125 plans. Employers who have a calendar year Section 125 plan do not need to pay attention to this.
 

What is the change?

The newly permitted election change applies to individuals covered under a non-calendar year cafeteria plan who have elected family coverage and have dependents who become newly eligible to enroll in a Qualified Health Plan under an Exchange. The new guidance allows plans to allow participants to revoke family coverage under the group health plan to enroll dependents in coverage through the Exchange (thus changing their own election to self-only coverage under the plan.) Note that the change only applies to health plan election changes; it does not allow participants to make a change in a health FSA plan.
 

Why was this necessary?

Existing regulations allow for this election change opportunity for calendar year plans; however, the wording of the regulations constricted a parallel election change opportunity for participants in non-calendar year plans. The issue here is that, when dependents become newly eligible for Exchange coverage, the tax credit available to the family may make it more advantageous for the participant to opt dependents off of the group health plan in favor of Exchange coverage. This type of election change was previously prohibited under non-calendar year plans. The newly issued regulations conform to this type of election change for non-calendar year plans.
 

Effective Date

The effective date of this guidance is January 1, 2023.
 

Vita Plans

Vita will amend all Vita-created Section 125 Plan Documents to reflect this updated guidance for medical plan election changes.

The Internal Revenue Service has announced the 2023 dollar limitations for Health Savings Accounts as well as underlying qualifying High Deductible Health Plans. All limits are increasing significantly in response to the recent inflation surge.
 

High Deductible Health Plan Policy Limits

2023 Minimum Deductible

• Individual: $1,500  (2022 - $1,400)
• Family: $3,000  (2022 - $2,800)

2023 Maximum Out of Pocket Limit

• Individual: $7,500  (2022 - $7,000)
• Famiily: $15,000  (2022 - $14,000)

Health Savings Account Limits

2023 Maximum HSA Contribution

• Individual: $3,850  (2022 - $3,650)
• Family: $7,750  (2022 - $7,300)

Over Age 55 Catch-Up Contribution

• 2023: $1,000  (2022 - $1,000)

High Deductible Health Plan Policy Limits

Any amount can be contributed to an HSA up to the maximum annual contribution, regardless of the actual deductible of the underlying HDHP plan.
 
The general rule is that HSA contributions are calculated on a monthly basis (reflecting the number of months that an individual was covered under a qualified HDHP).

For individuals covered under an HDHP for only a portion of the calendar year, there is a special rule that allows them to contribute the full annual maximum to an HSA. This is known as the “full contribution rule.” The catch is that individuals who make contributions in reliance upon the full-contribution rule must remain HSA-eligible (that is, covered under an HDHP without other disqualifying coverage) during a 13-month period from December of that year through the following calendar year) to avoid adverse tax consequences.
 

A Reminder about Embedded Deductibles

HDHPs are typically structured with an aggregate family deductible. This means that when any dependents are covered on the plan, the deductible applies collectively to all family members, and the individual deductible is not taken into account.

However, there are some plans that have an embedded individual deductible. Notably, California law requires that HDHPs have an embedded individual deductible. This means that once an individual covered on a family plan meets the embedded individual deductible, the plan coinsurance would start to pay for that individual (but not for other family members). In order for such a plan to remain a qualified HDHP, the embedded individual deductible must be at least the minimum family deductible outlined above. As an example, the minimum embedded individual deductible on a family plan in 2023 would be $3,000.

 

In March 2022, Congress passed, and the President signed, a $1.5 trillion omnibus spending bill (the Consolidated Appropriations Act, 2022). This law includes a temporary extension of the ability for HDHP plans to provide telehealth and other remote care services without being subject to the deductible. Importantly, this avoids the problem of having that no-deductible coverage disqualify contributions to health savings accounts (HSA). This provision restores employers’ option to adopt pre-deductible telehealth visits in their HDHP plans (but it does not mandate it).

Since the early days of the COVID-19 pandemic, telehealth has been an important way to obtain necessary medical care while maintaining recommended social distancing. Because of this, most employers adopted these provisions to enhance access to COVID-safe office visits for participants in HDHP plans.
 

Background

By way of background, tax-advantaged contributions generally cannot be made to an HSA unless the account holder is covered by a qualifying high-deductible health plan (HDHP) and does not have disqualifying non-HDHP coverage. The CARES Act (signed in March 2020) created exceptions to those rules to facilitate the use of telehealth during the COVID-19 pandemic, however, those exceptions applied only to plan years beginning on or before December 31, 2021. The new legislation restores these exceptions for the last nine months of 2022.

The vast majority of employer-sponsored HDHPs with HSAs elected to cover telehealth services on a pre-deductible basis. Specifically, 83% of fully insured plans and 81% of self-insured plans, according to a study from the trade group America's Health Insurance Plans (AHIP). As a reminder, the HDHP minimum statutory deductible for 2022 is $1,400 for single coverage and $2,800 for family coverage.
 

Two Key Provisions

The new legislation amends two key provisions for HSAs:
 

1. Telehealth and other remote care services will be considered disregarded coverage; therefore, such pre-deductible coverage will not cause a loss of HSA eligibility. This new provision applies from April 1, 2022 through December 31, 2022.
    
2. Plans may provide coverage for telehealth and other remote care services before the HDHP minimum deductible is satisfied without losing their HDHP status during that nine-month period.

Both amendments apply only to the nine-month period from April 1, 2022 through December 31, 2022, without regard to the HDHP’s plan year. Importantly, the relief does not apply for the first three months of 2022, therefore some plans (specifically, calendar-year plans) must still apply the minimum deductible to telehealth and other remote care services during those months to remain compliant.
 

Not Retroactive - A Few Wrinkles

Permissive, Not Mandatory: The legislation offers permission for plans to adopt these changes, but the changes are not mandatory. Thus, HDHPs are not required to waive their minimum deductible for telehealth and other remote services during the additional relief period. As a result, some plan sponsors may conclude that a midyear change to take advantage of the restored exception is too difficult to communicate and administer, and not worth the effort.

Pre-Deductible Coverage Gap: The legislation also is expressly not retroactive, and this leaves an unfortunate gap in first-dollar coverage for participants. HDHP participants in plans that previously adopted this provision have enjoyed telehealth services not being subject to the deductible in 2021 and may do so for nine additional months (April 1, 2022 through December 31, 2022), but this leaves a 3-month gap in first-dollar coverage for these services. This could create confusion for plan participants and certainly would require careful communication.

Not Retroactive: Plan sponsors, who expected that Congress would extend the CARES Act relief without a gap and thus continued providing telehealth services during the first three months of 2022 without applying the minimum deductible, have a unique problem. Specifically, determining whether their plans can and should apply the minimum deductible to telehealth and other remote services retroactively to the gap period. Some covered individuals may be able to avoid the adverse HSA-eligibility consequences of their plan’s failure to satisfy the minimum deductible requirement during the first three months of 2022 by using the full contribution rule, which allows a full year’s worth of HSA contributions to be made by someone who is HSA-eligible for only a portion of the year. However, that rule may not be available to all plan participants because some may not remain HSA-eligible through December 1, 2022, and some may not remain HSA-eligible throughout the 13-month testing period beginning on that date. If an employer wanted to take corrective action, participants could be billed for any telehealth visits between January 1, 2022 and March 31, 2022. Those billed charges would then apply to the deductible. This solution would require re-adjudicating telehealth claims incurred during those interim months.

The Internal Revenue Service has announced the 2022 dollar limitations for Health Savings Accounts as well as underlying qualifying High Deductible Health Plans. The maximum HSA contribution and out of pocket maximum limits saw increases at both the family and individual levels.

High Deductible Health Plan Policy Limits

		2021	2022
Minimum Deductible	Individual	$1,400	$1,400
	Family	$2,800	$2,800
Maximum Out of Pocket Limit	Individual	$7,000	$7,050
	Family	$14,000	$14,100

 

Health Savings Account Limits

		2021	2022
Maximum HSA Contribution	Individual	$3,600	$3,650
	Family	$7,200	$7,300
Over Age 55 Catch-Up Contribution		$1,000	$1,000

 

High Deductible Health Plan Policy Limits

Any amount can be contributed to an HSA up to the maximum annual contribution, regardless of the actual deductible of the underlying HDHP plan. The HSA contribution rules assume that you will be enrolled on a high deductible health plan for 12 consecutive months.

Embedded Deductibles on an HSA-Qualified HDHP

Many qualified high deductible health plans have an aggregate family deductible, so that if an employee covers any dependents on the plan, the family deductible applies and the individual deductible is not taken into consideration. However, there are some plans that have an embedded individual deductible such that if one member of the family meets the embedded individual deductible, then the plan coinsurance would start to pay once that individual deductible is met. In order for such a plan to be a qualified HDHP, the embedded individual deductible must be at least the minimum family deductible outlined above. As an example, these types of plans would need to have an embedded individual deductible of $2,800 to remain HSA qualified in 2022.

There are an increasing number of over-age-65 individuals who are contributing to their HSA accounts.

Is this a problem?

Sometimes, yes. Sometimes, no. It is possible to remain eligible and make contributions to an HSA after age 65, however, the details of accomplishing this can be tricky. The key is to understand when making contributions after age 65 works and when it does not.

The Rule

The HSA contribution rules say that if an individual has any other disqualifying coverage (meaning any coverage other than or in addition to a qualifying HDHP plan), they cannot make contributions to an HSA.

Medicare is Disqualifying Coverage

Importantly, Medicare is considered such disqualifying coverage. Medicare has multiple parts which include Part A, Part B, and Part D for traditional Medicare and Part C (Medicare Advantage or Medicare HMO plans, Medicare Supplement/Medigap plans). Being covered by any part of Medicare is considered disqualifying coverage and thus makes individuals ineligible to contribute to an HSA.

Eligible vs. Entitled vs. Enrolled

Medicare terminology can be confusing but understanding the definition and application of these three terms is critically important.

• Eligible means eligible to sign up for Medicare benefits but it does NOT presume any actual enrollment.
• Entitled means actually enrolled in Medicare coverage such that benefits would be payable (under any part). This is the term that is used by the Medicare program.
• Enrolled means the same as entitled in Medicare-speak.
  
  

Social Security Payments and Medicare Part A are Linked

Enrollment in Medicare Part A is oftentimes automatic, and thus can create an unintended consequence of disqualifying future HSA contributions. The Social Security Administration automatically enrolls individuals in Medicare Part A at age 65 if Social Security benefits payments commence. There are five potential scenarios to consider:

1. Social Security Prior to Age 65: When Social Security benefit payments began prior to age 65, enrollment in Medicare Part A is automatic at age 65. In this case, individuals lose the ability to make HSA contributions.
2. Social Security at Age 65: When Social Security benefits begin concurrently with turning age 65, enrollment in Medicare Part A is automatic concurrently at age 65. In this case, individuals lose the ability to make HSA contributions.
3. Social Security Deferred: When Social Security benefit payments are deferred, enrollment in Medicare Part A is also deferred until the beneficiary activates Medicare Part A (and other parts of Medicare). In this case, individuals retain the ability to make HSA contributions.
4. Elective Opt Out from Social Security and Medicare: When Social Security benefits are activated but an individual does NOT want current coverage under Medicare Part A, the individual may complete a form to actively disenroll themselves from Medicare Part A. In the absence of completing the SS form, HSA contributions would be disqualified, even if an individual did not “want” to have or intend to use Medicare Part A benefits. Notably, it is not possible to retain Social Security benefits and electively opt out of Medicare Part A. If an individual wants to opt out of Medicare Part A, they must opt out of both. When an elective opt out form is completed, individuals preserve the ability to make HSA contributions.
5. Employed at Small Employer: Individuals that work for smaller employers (fewer than 20 employees) have Medicare as their primary insurance at age 65, therefore it would not work to “opt out” of Medicare in favor of retaining HSA eligibility. In this case, individuals do not have the ability to make HSA contributions.
   
   

Medicare Part B and Part D Require Action

Enrollment in Medicare Part B and Part D require participant action and there are premiums that must be paid pursuant to enrollment in these parts. These coverages still disqualify HSA contributions, but because they require specific action to enroll, they are less often the subject of inadvertent coverage entitlement.

Stopping Medicare to Reclaim HSA Eligibility

Medicare Part A coverage can be declined (if coverage was activated either previously or unintentionally) by submitting a request form to the Social Security Administration.

If Social Security benefit payments have not commenced, this action will reestablish eligibility for making HSA contributions proactively. If Social Security benefit payments have commenced, a Social Security/Medicare Part A opt out requires repayment to the government of all Social Security payments received and all monies received as reimbursement for Medicare claims. Part A benefits may be activated after group health benefits are terminated in the future.

Pro-Rata Contribution for Year Individual Turns 65

HSA contributions are pro-rated in the year an individual turns age 65. The proration is based on the months of actual eligibility, after turning age 65 and enrolling in disqualifying coverage (in this case, Medicare). Beginning with the first month of Medicare enrollment, the contribution limit is zero. This rule also applies to periods of retroactive Medicare coverage.

Example: Bonnie was covered by a self-only HDHP and eligible for an HSA in 2020. She turned 65 on July 2, 2020 and enrolled in Medicare, effective July 1, 2020. Bonnie lost eligibility for her HSA as of July 1, 2020 and thus was only eligible for six (6) months of the year. Her federal HSA limit was $4,550 ($3,550 individual HSA limit plus a $1,000 catch-up). Accordingly, Bonnie’s maximum contribution is 6/12 X $4,550 = $2,275. Bonnie has until April 15, 2021 to make this contribution.

If a delay occurred in applying for Medicare and an enrollment is later backdated, any HSA contributions made during the period of retroactive coverage are considered excess contributions.

Anticipating Post Age 65 Enrollment in Medicare Part A

Individuals who have deferred enrolling in Medicare Part A for HSA eligibility purposes must plan ahead for the reality that, upon activation, the effective date of Part A coverage will be up to six months retroactive (no earlier than the first month of Medicare eligibility or the individual’s age 65). This means that HSA contributions must be stopped six months prior to Medicare Part A enrollment since the retroactive nature of Part A coverage will disqualify HSA contributions during that six-month period.

Excess Contributions

The IRS annual contribution limits for HSAs for 2021 is $3,600 for individual coverage and $7,200 for family coverage. Individuals age 55+ can contribute an additional $1,000 per year as a “catch-up” contribution. These limits are based on inflation, and generally increase by moderate amounts every year.

Excess contributions also include any amount in excess of the pro-rated monthly amount for an individual who was only eligible to make HSA contributions for a portion of the full tax year (such as for someone who turns 65 mid-year).

Excess contributions are not tax deductible and must be reported as "Other Income" on an individual’s tax return. Excess contributions made by an employer must be included in gross income (Box 1 of Form W-2).

6% Excise Tax

If excess contributions are left in an HSA, a 6% excise tax must be paid on the contributions. For example, if an excess contribution of $100 was made, the penalty tax would be $6.00. If an excess contribution of $1,000 was made, the penalty tax would be $60.

Importantly, the excise tax applies to each tax year the excess contribution remains in the account. This means the 6% excise tax applies annually until the excess contributions are withdrawn from the account. Alternatively, a reduction in future year contributions may be made to offset a prior year’s excess contribution.

IRS Form 5329 (Additional Taxes on Qualified Plans and Other Tax-Favored Accounts) is used to calculate and report the excise tax.

Withdrawing Excess Contributions

Some or all of the excess contributions may be withdrawn to avoid paying the excise tax. The following conditions must be met:

• Same Tax Year: Withdrawals of excess contributions must be made by the due date (including extensions) of the federal tax return for the year the contributions were made.
• Interest Withdrawn: Net income attributable to the excess/withdrawn contributions (interest) must also be withdrawn and included in the earnings in "Other Income" on the tax return for the year the contributions and earnings withdrawals are made.
• Report as Income: Income taxes must be paid on the withdrawn amounts (contributions and earnings). Withdrawn excess contributions should be reported as “Other Income” on the tax return.
  
  

The Process of Withdrawing Contributions

Essentially every HSA vendor has a mechanism for withdrawing excess contributions (both employee contributions and employer contributions). Typically, an individual must inform the HSA administrator as it is not their responsibility to police contribution amounts. Most withdrawal transactions simply require completion of a special form. It is critical that excess contributions be withdrawn within the same tax year as deposited. There is no way to avoid the 6% excise tax if excess contributions are not withdrawn within the same tax year.

Excess funds withdrawn will be listed on Form 1099-SA as a distribution (Box 1) for the tax year in which the distribution was taken. Earnings on excess contributions withdrawn will also be reported (Box 2 and included in Box 1). Form 5498-SA will report the market value of your HSA at the end of the calendar year, the total contributions made within the calendar year, and the total contributions for the tax year through the tax filing deadline. Both IRS forms are typically generated by the HSA vendor and should be retained for record keeping purposes but is not required to submit to the IRS. Lastly, any excess contributions made by an employer should be included in gross income (Box 1 of Form W-2).

Practical Advice for Employers

It is solidly not the employer’s responsibility to track employee HSA contributions nor to cross check for potential excess contributions. These matters fall in the hands of employees and their tax advisors.

That said, HSA rules are confusing at baseline and even more so for individuals turning age 65 as they look to enter the period of entitlement to Medicare benefits. Many are not aware that Medicare coverage disqualifies future HSA contributions while still others are not even aware that they automatically became enrolled in Medicare Part A when their Social Security benefit payments commenced (and therefore are newly prohibited from making HSA contributions).

The team at Vita recommends that, to the extent possible, employers reach out to individuals turning age 65 and provide a copy of this article to provide plan participants with baseline information. Because we have seen an increasing trend of age 65+ individuals making HSA contributions, Vita has performed a Vita Flex HSA database sweep and is providing a list of employees who fall into this category to ease the outreach and communication process.

In the era of COVID, many parents find themselves working from home with children afoot because schools and daycare providers are closed. Many, if not most, schools are operating remotely in a virtual-learning environment. While virtual learning is less optimal than in-person learning, it does provide important structure for students. Importantly, virtual learning often also provides needed structure for parents who are balancing some measure of homeschooling while simultaneously needing to meet the demands of full-time work.

Enter a host of new virtual daycare opportunities and virtual camp experiences for children. This typically comes into play for elementary school age children whose parents engage virtual daycare or day camps for their children so that they can focus on work. With the advent of virtual daycare, camps, and classes, there has been an onslaught of claims for these services under Dependent Care FSA plans. With that, the issue of eligibility must be addressed.

IRS Requirements

Dependent care expenses must meet specific criteria in order to be considered eligible. Care must be provided for a qualifying individual (generally a child under the age of 13) and it must be incurred such that the employee (and the employee’s spouse) can be gainfully employed. These underlying requirements are clear and are not at issue in this discussion. There are three additional criteria which relate to the nature of the care provided that are relevant here:

1. Primarily Custodial in Nature: This requirement clarifies the ineligibility of any expenses which are primarily educational in nature. This exclusion of directly educational expenses as well as those which may have an element of care, but which remain primarily educational (such as tutoring or music lessons) has been a long-standing and clear requirement in the IRS regulations.
   
   
2. Ensure “Well-Being and Protection": The IRS guidance is clear that the primary function of the care must be to ensure well-being and protection of the child. In the context of virtual care, it is important to understand the primary vs. secondary nature of the purpose of the care.
   
   
3. Other Benefits Must be Incidental to and Inseparably Part of Care: The IRS recognizes that in the regular provision of dependent care, some other benefits may inure to the child or the family. For example, a babysitter may provide some educational function by reading to a child. A daycare program may provide lunch for a child. Or an afterschool program may provide some instructional services. However, each of these “extra” benefits are considered incidental to and not the primary purpose of the care.
   
   

An Example of Reality

Let’s take the example of a parent working at home and who has enrolled their elementary age child in a virtual day camp experience. It is clear that the existence of the virtual day camp experience will allow the parent to better focus on working. It can also be assumed that someone else is watching over the child’s immediate activities and, presumably, would alert the parent if there are any problems.

The Argument FOR Virtual Daycare Eligibility

It could be argued that this scenario meets the criteria set out for dependent care eligibility and that the primary purpose could be deemed as ensuring the child’s well-being and protection. Proponents of this viewpoint argue that the vigilance provided by an in-person provider is not significantly different than when such a service is provided via a video connection with two-way audio and visual functionality. The basic argument here is that the nature of the oversight of the child is not changed by the virtual nature of the interaction.

The Argument AGAINST Virtual Daycare Eligibility

The more conservative argument would acknowledge that a virtual care could not ever be considered primarily custodial in nature nor for the primary purpose of the well-being and protection of the child since the very nature of custody and protection implies physical presence. Virtual providers might be able to keep the child engaged and occupied for the convenience of the parent, but it is difficult to make the argument that they would be able to protect and ensure the well-being of the child beyond maintaining web-based vigilance. While a virtual provider might be able to alert a parent if the child is in danger, it is still the parent who must act to protect the child. This calls into play the third test of the inseparability of “other benefits” (in this case the benefit of keeping the child otherwise engaged). In effect, the parent is still the primary provider of well-being and protection, and the parent retains the responsibility of primary custody of the child.

What are FSA Administrators Doing?

To say there is a lack of consistency on how FSA administrators are addressing these claims is an understatement. Many administrators are taking the more lax interpretation given the unusual circumstances of COVID. Most proffer an admittedly weak argument for eligibility with a strong argument for reason in the face of COVID realities for parents. In further support of this opinion, these administrators are relying on participants “attesting” that the expense meets all of the IRS criteria for eligibility. To this, we would suggest that it is the administrator’s job to affirm eligibility of reimbursements and to keep the plan compliant.

We Agree, It Should be Eligible

We agree that, in the face of COVID realities, virtual daycare expenses SHOULD be considered eligible under dependent care FSA plans. It is reasonable. It is logical. These services really do help parents focus on work. The fact is that current IRS guidance does not properly contemplate the realities faced by parents working from home while schools are closed with elementary age children needing to log on to the internet for class. The regulations were written at time when Zoom didn’t exist and when virtual services of all kinds (daycare and otherwise) would have been seen as a Jetson’s era reality. In short, the regulations we have simply don’t recognize the reality we are living in.

But It’s Not

That said, the fact is that according to the IRS guidelines that we currently have, virtual dependent care expenses simply don’t meet the standards that are outlined for eligibility. Wishing it otherwise, doesn’t change the fact. While we can hope that the IRS will offer some updated guidance on this issue, they have yet to do so. As unpopular as it is, without explicit guidance from the IRS, we believe it is better to err on the side of caution and consider virtual daycare and virtual day camps as ineligible expenses.

The Internal Revenue Service recently announced annual inflation adjustments for 2021. IRS Rev. Proc. 2020-45 provides that for taxable years beginning in 2021, the following maximums apply for Health Flexible Spending Arrangements, Adoption Assistance Programs, and Commuter Benefits:

Health FSA Limit: The annual Health FSA limit will stay the same at $2,750 in 2020 and $2,750 in 2021. The Health FSA rollover amount for 2021 will be $550 (this is 20% of the regular election maximum).

Adoption Assistance Limit: The annual Adoption Assistance limit will increase from $14,300 in 2020 to $14,400 in 2021.

Commuter Benefits Limits: The monthly transit and parking limits will both remain the same at $270 in 2020 and $270 in 2021. 

If you are a Vita Flex FSA Client who currently offers the IRS maximum and your plan renews January 1, 2021, your limits have been automatically increased for the 2021 plan year, unless you have previously requested otherwise. Any participant that has already made an election at the previous maximum will be contacted in order to confirm their desired election amount.

If you are a Vita Flex Commuter Benefits Client, the monthly pre-tax limit will be automatically increased to the IRS maximum for the January benefit month.

2021 Health Savings Account (HSA) Limits
2021 Retirement Plan Limits

Updated Fees

The IRS just released Notice 2020-44 which announces the updated Patient Centered Outcomes Research Institute (PCORI) fees for the July 2020 filing date. The new fee will be $2.54 per covered person (up from $2.45 based on a statutory COLA factor). The new fee applies to plan years ending on or after October 1, 2019 and before October 1, 2020. This includes calendar year plans since the plan year end date falls within the date window.

The History

As background, PCORI fees were initially slated to terminate for plan years ending on or after October 1, 2019. However, the SECURE Act extended fees for ten additional years, through 2029.

Filing on Form 720

PCORI fees are reported and paid to the IRS on the Form 720. Form 720 is typically filed quarterly by businesses and the PCORI fees are added during the second quarter filing which is due by July 31, 2020. The IRS has not yet updated Form 720 or its instructions to reflect the new fee, but the IRS website indicates that these resources will be updated soon.

Self-Funded vs. Fully Insured

Employers with self-insured health plans, whose plan years end after October 1, 2019, should begin gathering the data necessary to calculate the PCORI fee amounts. Filing for fully insured plans is handled by the insurance carriers.

Transition Relief

The Notice provides transition relief for calculating the average number of covered lives for plan years ending within this timeframe. The IRS anticipated that some employers may not have foreseen the need to identify the number of covered lives for this period (since the law was just recently extended).

Plan sponsors are permitted to continue to use any of the existing three methods to count the number of covered lives. In addition, for plan years ending on or after October 1, 2019, and before October 1, 2020, plan sponsors may use any reasonable method for calculating the average number of covered lives (so long as it the method is applied consistently for the plan year).

The Internal Revenue Service has announced the 2021 dollar limitations for Health Savings Accounts as well as underlying qualifying High Deductible Health Plans. The maximum HSA contribution and out of pocket maximum limits saw increases at both the family and individual levels.

High Deductible Health Plan Policy Limits

		2020	2021
Minimum Deductible	Individual	$1,400	$1,400
	Family	$2,800	$2,800
Maximum Out of Pocket Limit	Individual	$6,900	$7,000
	Family	$13,800	$14,000

 

Health Savings Account Limits

		2020	2021
Maximum HSA Contribution	Individual	$3,550	$3,600
	Family	$7,100	$7,200
Over Age 55 Catch-Up Contribution		$1,000	$1,000

 

High Deductible Health Plan Policy Limits

Any amount can be contributed to an HSA up to the maximum annual contribution, regardless of the actual deductible of the underlying HDHP plan. The HSA contribution rules assume that you will be enrolled on a high deductible health plan for 12 consecutive months.

Embedded Deductibles on an HSA-Qualified HDHP

Many qualified high deductible health plans have an aggregate family deductible so that if an employee covers any dependents on the plan, the family deductible applies and the individual deductible is not taken into consideration. However, there are some plans that have an embedded individual deductible such that if one member of the family meets the embedded individual deductible, then the plan coinsurance would start to pay once that individual deductible is met.  In order for such a plan to be a qualified HDHP the embedded individual deductible must be at least the minimum family deductible outlined above. As an example, these types of plans would need to have an embedded individual deductible of $2,800 to remain HSA qualified in 2021.

2021 Retirement Plan Limits
2021 Pre-Tax Contribution Limits

Overview

The Internal Revenue Service recently announced annual inflation adjustments for 2020. IRS Rev. Proc. 2019-44 provides that for taxable years beginning in 2020, the following maximums apply for Health Flexible Spending Arrangements, Adoption Assistance Programs, and Commuter Benefits.

Health FSA Limit: The annual Health FSA limit will increase from $2,700 in 2019 to $2,750 in 2020.

Adoption Assistance Limit: The annual Adoption Assistance limit will increase from $14,080 in 2019 to $14,300 in 2020.

Commuter Benefits Limits: The monthly transit and parking limits will both increase from $265 in 2019 to $270 in 2020. 

If you are a Vita Flex FSA Client who currently offers the IRS maximum and your plan renews January 1, 2020, your limits have been automatically increased for the 2020 plan year, unless you have previously requested otherwise. Any participant that has already made an election at the previous maximum will be contacted in order to confirm their desired election amount.

If you are a Vita Flex Commuter Benefits Client, the monthly pre-tax limit will be automatically increased to the IRS maximum for the January benefit month.

2020 Health Savings Account (HSA) Limits
2020 Retirement Plan Limits