IRS Issues Notice Regarding PPACA Excise Tax

Part of the Patient Protection and Affordable Care Act (“PPACA”) efforts to reduce healthcare costs include an excise tax on health insurers that provide benefits to employees above a threshold limit. This tax is designed to discourage insurance programs that allow employees to receive unusually generous benefits under the insurance plan, which is believed to encourage heavy usage of healthcare. By reducing the overall usage, it will decrease costs. Moreover, it is expected that this tax will help fund the PPACA and off-set the cost of healthcare for those who are not enrolled in a qualified welfare plan. The 40% excise tax is set to take effect in 2018 for the cost of an applicable coverage plan that is above the threshold limit.

In preparing for the implementation of the excise tax, the Internal Revenue Service (“IRS”) has issued Notice 2015-16. This notice serves to clarify “the definition of applicable coverage,” “the determination of the cost of applicable coverage,” and “the application of the annual statutory dollar limit to the cost of applicable coverage.” The notice also seeks input on these issues.

This notice is only the start of implementing the new excise tax and the IRS anticipates issuing further notices. Eventually, the IRS intends to propose regulations and will invite further comments. For details regarding Notice 2015-16, the notice may found at the following link: http://www.irs.gov/pub/irs-drop/n-15-16.pdf .

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Update to FMLA Definition of “Spouse”

The Department of Labor (“DOL”) has updated selected regulations to the Family and Medical Leave Act (“FMLA”). The updates change the definition of spouse to mean: “husband or wife refers to the other person with whom an individual entered into marriage as defined or recognized under state law for purposes of marriage in the State in which the marriage was entered into . . . .”

Essentially, the change now requires employers to recognize FMLA leave for same sex individuals if the marriage is recognized and valid in the state where they were married. This change departs from the previous rule that requires recognition of the marriage by the state where the employee resides. This update will impact several parts of FMLA regulations, including leave for pregnancy, adoption, next of kin, and the care of a parent.

Although this new rule brings FMLA closer to the definition of spouse in other federal regulations and Supreme Court precedent, it does not include domestic partners. It must be a legally recognized marriage, including common law marriage, but it does not include a domestic partnership.

For employers, this may mean updating employee manuals and handbooks, as well as being aware of the laws of the various states when an individual applies for FMLA leave. The DOL does not expect compliance with the new regulations to add substantial cost.

The update to the federal regulations can be found at the following link: https://s3.amazonaws.com/public-inspection.federalregister.gov/2015-03569.pdf

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Potential Employer Requirements Due to Anthem, Inc. Data Breach

On February 4, 2015, Anthem Inc., one of the largest U.S. health insurers, notified the public that their data systems were breached. This breach potentially left customer names, social security numbers, and other personal information vulnerable. Subsequently, Anthem Inc. has already seen a customer lawsuit filed in California over the breach, with many more expected.

Health plan participants that have been affected will be notified in compliance with federal law. However, as this investigation continues, this may place additional burdens on employers. Depending upon the nature of the breach, of which further details are expected soon, employers may have to issue breach notifications under the Health Insurance Portability and Accountability (HIPAA). Until it becomes clear what information was taken, specific notification requirements are unclear. For example, a key question is whether protected health information was taken.

Depending upon the type of health plan an employer offers, it will have a varying impact upon the obligations for each company. The requirements will become clearer once further information is released. Beyond the federal HIPAA requirements, 47 states have unique breach notification laws that may impose obligations.

If you have questions pertaining how this may impact your requirements under the law, please contact Houghton Vandenack Williams for further information.

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Updates Made to Nebraska Homestead Exemption Information Guide

By Joshua A. Diveley.

The Nebraska Department of Revenue (NDOR) has updated its information guide regarding the Nebraska property tax homestead exemption. The homestead exemption provides property tax relief to certain homeowners by exempting from tax all or a portion of the taxable value of the taxpayer’s residence. The homestead exemption is available to persons over the age of 65, qualified disabled individuals and qualified disabled veterans and their widow(er)s. Specifically, revisions were made in the disabled veterans category to remove the requirement, effective for periods prior to January 1, 2015, that a veteran had to serve during a recognized war of the United States to be an eligible disabled veteran. Effective January 1, 2015, military service during peace is sufficient to qualify as a disabled veteran.

The homestead exemption form must be filed with the county assessor by June 30, 2015.

The updated homestead exemption information guide may be viewed on the NDOR’s website at: http://www.revenue.nebraska.gov/info/96-299.pdf. Release, Nebraska Department of Revenue, February 9, 2015

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IRS Announces There Will Be No Refunds of Taxes on Severance Payments

After the United States Supreme Court decision in United States v. Quality Stores, Inc., the Internal Revenue Service (IRS) has responded in kind with Announcement 2015-8. The issue in both the Supreme Court decision and the IRS announcement pertain to refunds of taxes on severance payments.

The United States Supreme Court in Quality Stores determined that severance payments to employees were taxable wages, subject to Federal Insurance Contributions Act tax (FICA). Other cases have found that severance payments were subject to other taxes, such as the Federal Unemployment Tax Act (FUTA) and Railroad Retirement Tax Act (RUTA).

The IRS announcement made clear that no refunds will be issued for taxes paid on severance payments. However, the only exception is a FICA tax exemption for severance payments in conjunction with state unemployment benefits, as per Revenue Ruling 90-72. A claimant may still appeal for a refund of FICA taxes if it is on an “additional or different basis,” such as taxes on certain fringe benefits. However, generally, severance payments are taxable and the IRS will not issue refunds thereupon.

 Further information may be found in the IRS announcement, found here: http://www.irs.gov/pub/irs-drop/a-15-08.pdf

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Nebraska Department of Revenue Issues Guidance on Market-Based Sourcing Method for Sales Tax Collection

The Nebraska Department of Revenue issued guidance on the market-based sourcing method for sales tax collection. For the year-end 2014 and subsequent years, the market-based sourcing method replaces the previously used costs of performance method. This guidance applies to the sale of intangible property or services, but not to tangible personal property.

The market-based sourcing method focuses on the receipt or use of the product. This method allocates Nebraska taxes based upon the proportion of the sale received or used within the state of Nebraska. In contrast, the previous rule applied the tax based upon the location where the costs of the income producing activity were incurred.

Specific details regarding the various rules for different types of sales may be found at the following link or by going to the Nebraska Department of Revenue website.

http://www.revenue.nebraska.gov/info/market_based_sourcing.html.

© 2015 Houghton Vandenack Williams Whitted Weaver Parsonage LLC
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IRA Charitable Rollover Remains an Option for 2014

By Mary E. Vandenack.

The tax law provision allowing a taxpayer age 70.5 or older to direct up to $100,000 of the taxpayer’s minimum required distribution to charity has been extended. Thus, taxpayers can choose to accomplish such a rollover to charity through December 31, 2014.

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Updates to Nebraska Local Sales Tax

By Joshua A. Diveley.

The Nebraska Department of Revenue announced that beginning April 1, 2015, the following locations will implement a local sales and use tax:

  • Benedict (1.5%);
  • Callaway (1.0%);
  • Dakota County (0.5%);
  • Decatur (1.0%);
  • Elwood (1.0%);
  • Stanton (1.5%);
  • Upland (0.5%); and
  • Utica (1.5%).

Beginning April 1, 2015, the following cities and villages will increase their local sales and use taxes as follows:

  • Bancroft (1.5%);
  • Bassett (1.5%);
  • Burwell (1.5%);
  • Duncan (1.5%);
  • Fairbury (2.0%);
  • Howells (1.5%);
  • Minden (2.0%);
  • Nebraska City (2.0%);
  • Norfolk (2.0%);
  • Rushville (1.5%);
  • Wayne (1.5%); and
  • York (2.0%).

Also, beginning April 1, 2015, municipal boundaries for the following cities will be modified: Beatrice, Fairbury, Kearney, Lincoln, Neligh, Plattsmouth, West Point, and York. Additional information is available at:   http://www.revenue.nebraska.gov/salestax.html.

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Unbundling Fiduciary Fees

Recently, the Internal Revenue Service (IRS) issued final guidance on Internal Revenue Code (IRC) Section 67 as it pertains to a 2 percent floor for miscellaneous itemized deductions. This is important to fiduciaries of non-grantor trusts and estates because it will impact what fees can be deducted for the taxable year. The issue stems from several court cases, including a United States Supreme Court case, that placed confusion regarding the generally held notion that all fees and expenses associated with trust and estate administration were deductible.

The specific question pertains to a 2 percent floor and whether administration expenses, in aggregate, must exceed 2 percent of the adjusted gross income prior to being deductible. Before this confusion, a fiduciary could simply bundle all their administration expenses, classify it as such, and not concern themselves with the 2 percent floor. However, the various court interpretations have interjected confusion regarding fee bundling and whether each fee inside the bundle is subject to the 2 percent floor.

The guidance issued by the IRS attempts clarify the problem. Although the expenses can still be bundled, they must be bundled as expenses subject to the 2 percent floor and expenses that are not. This is much simpler in theory than in practice. Determining whether an expense falls into one category or the other remains tricky. Ultimately, this means that all expenses incurred by fiduciaries in the administration of a non-grantor trust or estate must be unbundled and classified. Although the IRS guidance lists specific expenses, it is not an exhaustive list. Unfortunately, there is not a perfect solution to this process and great care must be taken in the classification process.

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Corporate Wellness Programs Receive Scrutiny From the EEOC

The United States Equal Opportunity Commission (EEOC) has filed a petition, their third in three months, regarding a corporate wellness program. The latest petition alleges that Honeywell International, Inc. violated the Americans with Disabilities Act (ADA) and the Genetic Information Nondiscrimination Act (GINA) through the administration of workplace biometric screening.

The program is similar to those seen at companies across America. The employee receives health care discounts and other financial benefits for undergoing workplace biometric screening and choosing healthy lifestyles. The EEOC claims the program violates the law because it is an involuntary, non-work related, medical inquiry. Second, the EEOC alleges the employer is illegally inducing employees to provide family medical history. If the court views the program similarly, it would be a violation of the ADA and GINA.

It is unclear what this challenge will mean for corporate wellness programs.  In the short term, with the end of year approaching, it will unlikely have an immediate impact. However, it will be important to monitor the evolution of the challenges because it could  change how these programs must be administered or even whether these programs can be offered.

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