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  • What Is the Cost of Training Employees?

    What Is the Cost of Training Employees?

    posted by Rachel Blakely
    Newest Article
  • Learn gross up calculations for payroll.

    What Is a Tax Gross up for Payroll?

    posted by Mike Kappel
    Recent Article
  • Ohio Mandating Electronic Child Support Payments

    The State of Ohio has passed legislation that requires employers with at least 50 employees to remit their payments electronically.  Prior to the legislation, large employers had the option of sending paper checks to the Ohio Child Support Payment Central processing center in Columbus.

    Ohio still encourages employers with less than 50 employees to also make child support payments electronically.  Electronic payments are more efficient and less costly for both employers and the State of Ohio.

    Employers have two options for remitting child support payments electronically:

    1) Online debit through www.ExpertPay.com
    This is a secure site that is free for employers to use.  Once an employer has registered as a user, they can initiate child support payments directly on this website.  The site offers reporting for previous payments.

    2) Electronic Funds Transfer
    You can send a special NACHA ACH credit file to your bank that contains details about the support payment, including employee and case information.  Check with your online payroll provider to see if this option is available.

    If you are on Ohio employer with at least 50 employees, and are currently remitting child support payments with a paper check, you will need to determine which of the two electronic methods will work best for your company.

    Earned Income Credit – What Is It and How Does It Work?

    NOTE: Effective January 1, 2011 the option for advanced EIC payments has been eliminated. Employers are not longer able to advance a portion of the credit with each paycheck.

    Earned Income Credit (EIC) can be referred to several ways, such as Earned Income Tax Credit (EITC) or Advanced Earned Income Credit (AEIC).

    What is EIC?
    EIC is a tax credit for certain individuals who don’t earn a high income and qualify for EIC.  They would receive the tax credit when they file their personal tax return.

    Annual EEO Reporting: Are You Ready?

    Private employers with over 100 employees or federal contractors with at least 50 employees are required each year to file the EEO-1 Report with the EEOC. Employers will report the demographic make-up of their workforce, which includes gender, ethnicity by job class. The annual reporting period starts every July, and employers must file their report no later than September 30th.

    If you are required to file, now is the time to make sure you have all of your employees properly classified by gender, ethnicity, and job class. It is recommended that employees self-identify their race/ethnicity, and can be part of the employee’s new hire paperwork. If this is not possible, employers are permitted to classify their employees’ race based on “visual observation,” but only if the employee’s answer is not available.

    The Race/Ethnicity categories are as follows:

    • Hispanic or Latino – A person of Cuban, Mexican, Puerto Rican, South or Central American, or other Spanish culture or origin regardless of race.
    • White (Not Hispanic or Latino) – A person having origins in any of the original peoples of Europe, the Middle East, or North Africa.
    • Black or African American (Not Hispanic or Latino) – A person having origins in any of the black racial groups of Africa.
    • Native Hawaiian or Other Pacific Islander (Not Hispanic or Latino) – A person having origins in any of the peoples of Hawaii, Guam, Samoa, or other Pacific Islands.
    • Asian (Not Hispanic or Latino) – A person having origins in any of the original peoples of the Far East, Southeast Asia, or the Indian Subcontinent, including, for example, Cambodia, China, India, Japan, Korea, Malaysia, Pakistan, the Philippine Islands, Thailand, and Vietnam.
    • American Indian or Alaska Native (Not Hispanic or Latino) – A person having origins in any of the original peoples of North and South America (including Central America), and who maintain tribal affiliation or community attachment.
    • Two or More Races (Not Hispanic or Latino) – All persons who identify with more than one of the above five races.
    • Officials and Managers
    • Professionals
    • Technicians
    • Sales Workers
    • Administrative Support Workers
    • Craft Workers
    • Operatives
    • Laborers and Helpers
    • Service Workers

    What You Will Need To File
    If you have never filed an EEO-1 before, and are required to file, you will need to obtain a company Login ID and password to the EEOC’s website so that you can enter your demographic information and file online. You can email the Joint Reporting Committee to get set up.

    For each worksite location at your company, you will need to report the number of male and female employees within each race and job category that were employed during any payroll period between July and September. Below is a sample grid layout similar to the data entry page on the EEOC website.

    EEO Data Sample resized 600

    For more information about the EEO-1 filing process, visit the EEO-1 Survey Website.

    Unchanged 2011 HSA Contribution Limits

    The IRS recently announced that the contribution limits for Health Savings Accounts (HSAs) will not be changing for next year.  The IRS puts limits on four categories pertaining to HSAs:

    1. The amount of money someone can contribute to their HSA in a calendar year
    2. The catch-up amount for those age 55 and over (note this is a different age limit than 401k plans, which is age 50 and over)
    3. The minimum medical insurance plan deductible in order to qualify for an HSA
    4. The maximum out-of-pocket limit of the medical insurance plan

    Here are the 2010- 2011 HSA Contribution Limits:

    Single Contribution Limit to HSA        $3,050.00

    Family Contribution Limit to HSA        $6,150.00

    Catchup for age 55+                        $1,000.00

    Minimum Single HDHP Deductible         $1,200.00

    Minimum Family HDHP Deductible        $2,400.00

    Maximum Single HDHP OOP Limit        $5,950.00

    Maximum Family HDHP OOP Limit         $11,900.00

    New Reporting Requirements in Health Care Reform

    Possibly the most significant reporting change included in the health care reform bills for small businesses is the change in 1099 reporting, which bears no specific relationship to the health care insurance system, the primary focus of the bills.  The Patient Protection and Affordable Care Act (“PPACA”) includes a provision that expands the reporting requirements for reporting trade or business expenditures annually to the IRS.  The expenditures generally were reportable when they hit a $600 threshold for services rendered and generally were not reportable if the payments were made to a corporation.

    PPACA has expanded this reporting requirement in two ways.  First, it has extended the reportable payments to include those made to corporations (except those that are exempt under IRC Section 501(a)).  Second, it has expanded the types of payments that are reportable by including expenditures for property as well as services.

    Because of the increased scope of reportable expenditures, small businesses will likely find that they have a significantly larger number of 1099’s to file at year end.  Identifying these additional reportable payments, procuring the required information from the payees, and producing the Forms 1099 will assuredly create a heavier burden for the average small business.

    These provisions will go into effect for payments made during tax years beginning after December 31, 2011.

    Hire Act Forces IRS to Revise W-2/W-3 Forms, Instructions

    Due to the HIRE Act, the IRS has revised the forms and instructions for W-2, W-3, and W-3c. Below are some highlights of these changes:

    Form W-2 “Wage and Tax Statement”

    The actual format has not changed but they have added the code “CC” to be used in Box 12. There are a few things that employers need to keep in mind regarding what should be entered using this new code “CC”:

    Only wages paid to a “qualified” employee should be reported.

    Only use this code to report wages of employees on your payroll that are exempt from the employer’s portion of social security tax as a result of the HIRE Act.

    Report the exempt wages (not the tax).

    Include all exempt wages which includes both periods March 19-31,2010 AND April 1st, December 31, 2010.

    The amount of exempt wages can not exceed $106,800 (the social security wage limit for 2010).

    Form W-3Transmittal of Wage and Tax Statements”

    Instead of having a Box 12, the form now has a Box 12a and Box 12b.  What was reported in Box 12 before will now be entered in Box 12a “Deferred Compensation” (includes codes D-H, S, Y, AA & BB).  Box 12b “HIRE Exempt Wages and Tips” will be used to report the total exempt wages that were reported on all of the W-2 forms Box 12 labeled with “CC”.

    Form W-3c “Transmittal of Corrected Wage and Tax Statements

    Changes to this form are similar to the ones in Form W-3.  Basically, Box 12 has been replaced with Box 12a and Box 12b.  Box 12a will be used for the “Deferred Compensation” (includes D-H, S, Y, AA & BB).  Box 12b “HIRE exempt Wages and Tips” for reporting the HIRE exempt wages.

    The IRS has also updated the instructions for the 2010 Forms W2 & W3. The changes are found on page 11 where they have added instructions for the new code “CC”.

    Please stay tuned for further updates.

    Employer Provided Health Coverage Available for Children

    As a result of changes made by the recently enacted Patient Protection and Affordable Care Act, health coverage provided for an employee’s children under 27 years of age is now generally tax-free to the employee, effective March 30, 2010.  These changes immediately allow employers with Section 125 cafeteria plans to permit employees to begin making pre-tax contributions to pay for this expanded benefit.

    IRS Notice 2010-38 explains these changes and provides further guidance.

    This expanded health care tax benefit applies to employer-provided coverage and reimbursements including cafeteria plans, flexible spending arrangements (FSA), health reimbursement arrangements (HRA), voluntary employees’ beneficiary associations (VEBA) and self-employed individuals who qualify for the self-employed health insurance deduction pursuant to Code Sec. 162(l).

    Employees who have children who will not have reached age 27 by the end of the tax year are eligible for the new tax benefit from March 30, 2010, forward, if the children are already covered under the employer’s plan or are added to the employer’s plan at any time. For this purpose, a child includes a son, daughter, stepchild, adopted child or eligible foster child. The child does not have to be the taxpayer’s dependent for tax purposes pursuant to Code Sec. 152(a).

    The notice says that employers with cafeteria plans may permit employees to immediately make pre-tax salary reduction contributions to provide coverage for children under age 27, even if the cafeteria plan has not yet been amended to cover these individuals. Plan sponsors then have until the end of 2010 to amend their cafeteria plan language to incorporate this change.

    Follow this link for additional Information on other health care provisions.

    Cobra and Unemployment Benefits Extended Yet Again

    On April 15th, President Obama signed legislation to extend unemployment and COBRA benefits again for the short term.  The Continuing Extension Act of 2010 (HR 4851) provides an extension for Federal Emergency Unemployment Compensation (EUC) and Federal Additional Compensation (FAC) benefits by extending the deadline for filing applications for benefits to June 10, 2010.  Unemployment benefit payments would be extended through November 6, 2010.  More information is available through your state’s unemployment benefits website.

    The 65% COBRA subsidy would continue to be available for people who lost their jobs through May 31, 2010.  Click here for more information on Cobra’s Continuation Coverage.

    There was much debate in Congress about the funding of these extensions.  There is currently legislation pending that would extend both unemployment and COBRA subsidy eligibility through the rest of this year.

    Do You Offer Health Insurance? Here’s What You Need to Know Now

    The new Healthcare Reform laws have passed, and there are many provisions that employers will need to be aware of.  However, the majority of these changes don’t happen for a couple of years.  Here’s a quick summary of what you need to be aware of now to prepare for existing or upcoming changes in your company sponsored health insurance plan.

    1) Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA)

    The interim final rules were issued back in February, before Healthcare Reform was passed.  The new rules apply to plans with 50 or more employees with health plans that choose to offer mental health and substance use disorder benefits, and plan years beginning on or after July 1, 2010.  The original Mental Health Parity Act of 1996 only required that aggregate annual or lifetime limits for mental health treatments be equal to general medical or surgical benefit limits.  These new rules take it further by requiring health plans to treat mental health and substance treatments the same as general medical benefits in the way of financial requirements (meaning deductibles, coinsurance, out-of-pocket costs, annual and lifetime limits, etc.) and treatment limits (number and duration of treatments, out-of-network coverage, etc.) not just overall lifetime limits.  Plan sponsors should review their plan to confirm that these expanded requirements are met.

    2) Michelle’s Law and Other State Dependent Coverage Mandates

    Michelle’s Law was passed in late 2008 by President Bush and took effect in late 2009.  This law extends health coverage to full time college students who lose their full time student status because of the need to take a medical leave of absence.  The new healthcare reform laws regarding dependent children build upon this, and therefore Michelle’s Law in and of itself could become obsolete in most health care plans.  However, it could still apply to ERISA Retiree Plans and standalone plans not subject to healthcare reform such as dental or vision.  Several states have also increased the age that dependent children remain eligible for coverage under their parents’ policy.  Here is a chart that shows each state’s rules about dependent coverage.

    3) Excise Tax for Health Plan Noncompliance

    Beginning January 1, 2010, the IRS began requiring employers to self-report any violations of various federal group health plan laws such as COBRA, HIPAA, MHPAEA (see #1), Michelle’s Law (see #2), GINA, among others.  The IRS will impose an excise tax on those violations that were not corrected.  Even if the violations are corrected and no tax is due, all violations are reported on IRS Form 8928. For more information, see Instructions for Form 8928.

    4) Healthcare Reform “First Round of Changes”

    If your group health plan was in effect as of March 23, 2010, your plan is considered to be “grandfathered” and therefore not all of the new law requirements apply to these plans.  Here are some key provisions that do apply to grandfathered plans effective for plan years beginning after September 23, 2010:

    • Pre-existing conditions for children. Elimination of pre-existing condition exclusions from group health plans for children under age 19.
    • Dependent coverage (before Jan. 1, 2014) Requirement that group health plans provide coverage for adult dependent children up to age 26, even if they are married, only if the child is not eligible to enroll in other employer-provided coverage (other than in a grandfathered plan).  After 1/1/14, dependent coverage up to age 26 will be required to be offered, even if the child is eligible to enroll in other employer provided coverage.
    • Elimination of coverage rescissions. Rescission refers to the practice of canceling coverage after someone has submitted medical claims. Rescission would still be permitted if an individual committed fraud or made an intentional misrepresentation of a material fact.
    • Coverage limits. Group health plans are required to eliminate lifetime maximum limits on coverage of essential benefits and the elimination of certain annual limits. It should be noted that group health plans will continue to be able to place limits on the amount covered for certain medical procedures.

    Other Changes Effective January 1, 2011:

    • FSA/HRA/HSA and Over-The-Counter drug expenses. Expenses will only be reimbursed for drugs for which a physician writes a prescription, and insulin.
    • HSA Penalty Increase. The tax penalty for using an HSA for non-approved expenses will increase from 10% to 20%.
    • W-2 Reporting for 2011.  Employers will be required to report the aggregate cost of health insurance for each employee on Form W-2.  So come January 2012, the W-2’s for 2011 will need to show this amount.

    Many more changes will follow in future years, and in the meantime, employers need to communicate with their benefits broker and providers to ensure that their plans are designed and communicated in accordance with these new laws. Also, be aware that offering health coverage through the Affordable Care Act could qualify your small business for a health insurance tax credit.

    The Owner’s Compensation: How Much Is Enough?

    What is reasonable owner’s compensation? The IRS says it’s what an owner/employee should be paid. This concept can be somewhat elusive since there is no hard set of rules. It’s based on the facts and circumstances of each individual case. However it is an important question, especially for S Corp owners, as this is an area of audit concern for the IRS. Since most people want to pay as little in taxes as possible, the owner’s motivation may not drive him to the right decision in determining his own compensation.

    For more information, read the article What Is Compensation?

    If you are looking for an affordable way to pay compensation to your employees, take a moment and check out our web based online payroll.

    Ohio Mandating Electronic Child Support Payments

    The State of Ohio has passed legislation that requires employers with at least 50 employees to remit their payments electronically.  Prior to the legislation, large employers had the option of sending paper checks to the Ohio Child Support Payment Central processing center in Columbus.

    Ohio still encourages employers with less than 50 employees to also make child support payments electronically.  Electronic payments are more efficient and less costly for both employers and the State of Ohio.

    Employers have two options for remitting child support payments electronically:

    1) Online debit through www.ExpertPay.com
    This is a secure site that is free for employers to use.  Once an employer has registered as a user, they can initiate child support payments directly on this website.  The site offers reporting for previous payments.

    2) Electronic Funds Transfer
    You can send a special NACHA ACH credit file to your bank that contains details about the support payment, including employee and case information.  Check with your online payroll provider to see if this option is available.

    If you are on Ohio employer with at least 50 employees, and are currently remitting child support payments with a paper check, you will need to determine which of the two electronic methods will work best for your company.

    Earned Income Credit – What Is It and How Does It Work?

    NOTE: Effective January 1, 2011 the option for advanced EIC payments has been eliminated. Employers are not longer able to advance a portion of the credit with each paycheck.

    Earned Income Credit (EIC) can be referred to several ways, such as Earned Income Tax Credit (EITC) or Advanced Earned Income Credit (AEIC).

    What is EIC?
    EIC is a tax credit for certain individuals who don’t earn a high income and qualify for EIC.  They would receive the tax credit when they file their personal tax return.

    Annual EEO Reporting: Are You Ready?

    Private employers with over 100 employees or federal contractors with at least 50 employees are required each year to file the EEO-1 Report with the EEOC. Employers will report the demographic make-up of their workforce, which includes gender, ethnicity by job class. The annual reporting period starts every July, and employers must file their report no later than September 30th.

    If you are required to file, now is the time to make sure you have all of your employees properly classified by gender, ethnicity, and job class. It is recommended that employees self-identify their race/ethnicity, and can be part of the employee’s new hire paperwork. If this is not possible, employers are permitted to classify their employees’ race based on “visual observation,” but only if the employee’s answer is not available.

    The Race/Ethnicity categories are as follows:

    • Hispanic or Latino – A person of Cuban, Mexican, Puerto Rican, South or Central American, or other Spanish culture or origin regardless of race.
    • White (Not Hispanic or Latino) – A person having origins in any of the original peoples of Europe, the Middle East, or North Africa.
    • Black or African American (Not Hispanic or Latino) – A person having origins in any of the black racial groups of Africa.
    • Native Hawaiian or Other Pacific Islander (Not Hispanic or Latino) – A person having origins in any of the peoples of Hawaii, Guam, Samoa, or other Pacific Islands.
    • Asian (Not Hispanic or Latino) – A person having origins in any of the original peoples of the Far East, Southeast Asia, or the Indian Subcontinent, including, for example, Cambodia, China, India, Japan, Korea, Malaysia, Pakistan, the Philippine Islands, Thailand, and Vietnam.
    • American Indian or Alaska Native (Not Hispanic or Latino) – A person having origins in any of the original peoples of North and South America (including Central America), and who maintain tribal affiliation or community attachment.
    • Two or More Races (Not Hispanic or Latino) – All persons who identify with more than one of the above five races.
    • Officials and Managers
    • Professionals
    • Technicians
    • Sales Workers
    • Administrative Support Workers
    • Craft Workers
    • Operatives
    • Laborers and Helpers
    • Service Workers

    What You Will Need To File
    If you have never filed an EEO-1 before, and are required to file, you will need to obtain a company Login ID and password to the EEOC’s website so that you can enter your demographic information and file online. You can email the Joint Reporting Committee to get set up.

    For each worksite location at your company, you will need to report the number of male and female employees within each race and job category that were employed during any payroll period between July and September. Below is a sample grid layout similar to the data entry page on the EEOC website.

    EEO Data Sample resized 600

    For more information about the EEO-1 filing process, visit the EEO-1 Survey Website.

    Unchanged 2011 HSA Contribution Limits

    The IRS recently announced that the contribution limits for Health Savings Accounts (HSAs) will not be changing for next year.  The IRS puts limits on four categories pertaining to HSAs:

    1. The amount of money someone can contribute to their HSA in a calendar year
    2. The catch-up amount for those age 55 and over (note this is a different age limit than 401k plans, which is age 50 and over)
    3. The minimum medical insurance plan deductible in order to qualify for an HSA
    4. The maximum out-of-pocket limit of the medical insurance plan

    Here are the 2010- 2011 HSA Contribution Limits:

    Single Contribution Limit to HSA        $3,050.00

    Family Contribution Limit to HSA        $6,150.00

    Catchup for age 55+                        $1,000.00

    Minimum Single HDHP Deductible         $1,200.00

    Minimum Family HDHP Deductible        $2,400.00

    Maximum Single HDHP OOP Limit        $5,950.00

    Maximum Family HDHP OOP Limit         $11,900.00

    New Reporting Requirements in Health Care Reform

    Possibly the most significant reporting change included in the health care reform bills for small businesses is the change in 1099 reporting, which bears no specific relationship to the health care insurance system, the primary focus of the bills.  The Patient Protection and Affordable Care Act (“PPACA”) includes a provision that expands the reporting requirements for reporting trade or business expenditures annually to the IRS.  The expenditures generally were reportable when they hit a $600 threshold for services rendered and generally were not reportable if the payments were made to a corporation.

    PPACA has expanded this reporting requirement in two ways.  First, it has extended the reportable payments to include those made to corporations (except those that are exempt under IRC Section 501(a)).  Second, it has expanded the types of payments that are reportable by including expenditures for property as well as services.

    Because of the increased scope of reportable expenditures, small businesses will likely find that they have a significantly larger number of 1099’s to file at year end.  Identifying these additional reportable payments, procuring the required information from the payees, and producing the Forms 1099 will assuredly create a heavier burden for the average small business.

    These provisions will go into effect for payments made during tax years beginning after December 31, 2011.

    Hire Act Forces IRS to Revise W-2/W-3 Forms, Instructions

    Due to the HIRE Act, the IRS has revised the forms and instructions for W-2, W-3, and W-3c. Below are some highlights of these changes:

    Form W-2 “Wage and Tax Statement”

    The actual format has not changed but they have added the code “CC” to be used in Box 12. There are a few things that employers need to keep in mind regarding what should be entered using this new code “CC”:

    Only wages paid to a “qualified” employee should be reported.

    Only use this code to report wages of employees on your payroll that are exempt from the employer’s portion of social security tax as a result of the HIRE Act.

    Report the exempt wages (not the tax).

    Include all exempt wages which includes both periods March 19-31,2010 AND April 1st, December 31, 2010.

    The amount of exempt wages can not exceed $106,800 (the social security wage limit for 2010).

    Form W-3Transmittal of Wage and Tax Statements”

    Instead of having a Box 12, the form now has a Box 12a and Box 12b.  What was reported in Box 12 before will now be entered in Box 12a “Deferred Compensation” (includes codes D-H, S, Y, AA & BB).  Box 12b “HIRE Exempt Wages and Tips” will be used to report the total exempt wages that were reported on all of the W-2 forms Box 12 labeled with “CC”.

    Form W-3c “Transmittal of Corrected Wage and Tax Statements

    Changes to this form are similar to the ones in Form W-3.  Basically, Box 12 has been replaced with Box 12a and Box 12b.  Box 12a will be used for the “Deferred Compensation” (includes D-H, S, Y, AA & BB).  Box 12b “HIRE exempt Wages and Tips” for reporting the HIRE exempt wages.

    The IRS has also updated the instructions for the 2010 Forms W2 & W3. The changes are found on page 11 where they have added instructions for the new code “CC”.

    Please stay tuned for further updates.

    Employer Provided Health Coverage Available for Children

    As a result of changes made by the recently enacted Patient Protection and Affordable Care Act, health coverage provided for an employee’s children under 27 years of age is now generally tax-free to the employee, effective March 30, 2010.  These changes immediately allow employers with Section 125 cafeteria plans to permit employees to begin making pre-tax contributions to pay for this expanded benefit.

    IRS Notice 2010-38 explains these changes and provides further guidance.

    This expanded health care tax benefit applies to employer-provided coverage and reimbursements including cafeteria plans, flexible spending arrangements (FSA), health reimbursement arrangements (HRA), voluntary employees’ beneficiary associations (VEBA) and self-employed individuals who qualify for the self-employed health insurance deduction pursuant to Code Sec. 162(l).

    Employees who have children who will not have reached age 27 by the end of the tax year are eligible for the new tax benefit from March 30, 2010, forward, if the children are already covered under the employer’s plan or are added to the employer’s plan at any time. For this purpose, a child includes a son, daughter, stepchild, adopted child or eligible foster child. The child does not have to be the taxpayer’s dependent for tax purposes pursuant to Code Sec. 152(a).

    The notice says that employers with cafeteria plans may permit employees to immediately make pre-tax salary reduction contributions to provide coverage for children under age 27, even if the cafeteria plan has not yet been amended to cover these individuals. Plan sponsors then have until the end of 2010 to amend their cafeteria plan language to incorporate this change.

    Follow this link for additional Information on other health care provisions.

    Cobra and Unemployment Benefits Extended Yet Again

    On April 15th, President Obama signed legislation to extend unemployment and COBRA benefits again for the short term.  The Continuing Extension Act of 2010 (HR 4851) provides an extension for Federal Emergency Unemployment Compensation (EUC) and Federal Additional Compensation (FAC) benefits by extending the deadline for filing applications for benefits to June 10, 2010.  Unemployment benefit payments would be extended through November 6, 2010.  More information is available through your state’s unemployment benefits website.

    The 65% COBRA subsidy would continue to be available for people who lost their jobs through May 31, 2010.  Click here for more information on Cobra’s Continuation Coverage.

    There was much debate in Congress about the funding of these extensions.  There is currently legislation pending that would extend both unemployment and COBRA subsidy eligibility through the rest of this year.

    Do You Offer Health Insurance? Here’s What You Need to Know Now

    The new Healthcare Reform laws have passed, and there are many provisions that employers will need to be aware of.  However, the majority of these changes don’t happen for a couple of years.  Here’s a quick summary of what you need to be aware of now to prepare for existing or upcoming changes in your company sponsored health insurance plan.

    1) Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA)

    The interim final rules were issued back in February, before Healthcare Reform was passed.  The new rules apply to plans with 50 or more employees with health plans that choose to offer mental health and substance use disorder benefits, and plan years beginning on or after July 1, 2010.  The original Mental Health Parity Act of 1996 only required that aggregate annual or lifetime limits for mental health treatments be equal to general medical or surgical benefit limits.  These new rules take it further by requiring health plans to treat mental health and substance treatments the same as general medical benefits in the way of financial requirements (meaning deductibles, coinsurance, out-of-pocket costs, annual and lifetime limits, etc.) and treatment limits (number and duration of treatments, out-of-network coverage, etc.) not just overall lifetime limits.  Plan sponsors should review their plan to confirm that these expanded requirements are met.

    2) Michelle’s Law and Other State Dependent Coverage Mandates

    Michelle’s Law was passed in late 2008 by President Bush and took effect in late 2009.  This law extends health coverage to full time college students who lose their full time student status because of the need to take a medical leave of absence.  The new healthcare reform laws regarding dependent children build upon this, and therefore Michelle’s Law in and of itself could become obsolete in most health care plans.  However, it could still apply to ERISA Retiree Plans and standalone plans not subject to healthcare reform such as dental or vision.  Several states have also increased the age that dependent children remain eligible for coverage under their parents’ policy.  Here is a chart that shows each state’s rules about dependent coverage.

    3) Excise Tax for Health Plan Noncompliance

    Beginning January 1, 2010, the IRS began requiring employers to self-report any violations of various federal group health plan laws such as COBRA, HIPAA, MHPAEA (see #1), Michelle’s Law (see #2), GINA, among others.  The IRS will impose an excise tax on those violations that were not corrected.  Even if the violations are corrected and no tax is due, all violations are reported on IRS Form 8928. For more information, see Instructions for Form 8928.

    4) Healthcare Reform “First Round of Changes”

    If your group health plan was in effect as of March 23, 2010, your plan is considered to be “grandfathered” and therefore not all of the new law requirements apply to these plans.  Here are some key provisions that do apply to grandfathered plans effective for plan years beginning after September 23, 2010:

    • Pre-existing conditions for children. Elimination of pre-existing condition exclusions from group health plans for children under age 19.
    • Dependent coverage (before Jan. 1, 2014) Requirement that group health plans provide coverage for adult dependent children up to age 26, even if they are married, only if the child is not eligible to enroll in other employer-provided coverage (other than in a grandfathered plan).  After 1/1/14, dependent coverage up to age 26 will be required to be offered, even if the child is eligible to enroll in other employer provided coverage.
    • Elimination of coverage rescissions. Rescission refers to the practice of canceling coverage after someone has submitted medical claims. Rescission would still be permitted if an individual committed fraud or made an intentional misrepresentation of a material fact.
    • Coverage limits. Group health plans are required to eliminate lifetime maximum limits on coverage of essential benefits and the elimination of certain annual limits. It should be noted that group health plans will continue to be able to place limits on the amount covered for certain medical procedures.

    Other Changes Effective January 1, 2011:

    • FSA/HRA/HSA and Over-The-Counter drug expenses. Expenses will only be reimbursed for drugs for which a physician writes a prescription, and insulin.
    • HSA Penalty Increase. The tax penalty for using an HSA for non-approved expenses will increase from 10% to 20%.
    • W-2 Reporting for 2011.  Employers will be required to report the aggregate cost of health insurance for each employee on Form W-2.  So come January 2012, the W-2’s for 2011 will need to show this amount.

    Many more changes will follow in future years, and in the meantime, employers need to communicate with their benefits broker and providers to ensure that their plans are designed and communicated in accordance with these new laws. Also, be aware that offering health coverage through the Affordable Care Act could qualify your small business for a health insurance tax credit.

    The Owner’s Compensation: How Much Is Enough?

    What is reasonable owner’s compensation? The IRS says it’s what an owner/employee should be paid. This concept can be somewhat elusive since there is no hard set of rules. It’s based on the facts and circumstances of each individual case. However it is an important question, especially for S Corp owners, as this is an area of audit concern for the IRS. Since most people want to pay as little in taxes as possible, the owner’s motivation may not drive him to the right decision in determining his own compensation.

    For more information, read the article What Is Compensation?

    If you are looking for an affordable way to pay compensation to your employees, take a moment and check out our web based online payroll.

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