Integrated HRAs

A new option exists for employers when it comes to paying for employee health care coverage. On June 13th, the U.S. Departments of the Treasury, Labor, and Health and Human Services (the Departments) issued a final rule allowing employers to use pretax dollars to subsidize employee premiums in the individual health insurance market. Now, employers of all sizes that do not offer a group coverage plan can fund a new health reimbursement arrangement (HRA) known as individual coverage HRA (ICHRA).

Previously, under the Affordable Care Act, employers were prevented from offering stand-alone HRAs that would allow an employee to purchase coverage on the individual market. That has changed. Employers now have the option to provide their workers and their families with tax-preferred funds to pay all or a portion of the cost of coverage that workers purchase in the individual market. The departments posted an FAQs regarding the new regulation. ICHRAs are advantageous to employers because they maintain the tax favored status that apply to a traditional group health plan. Additionally, another employer-sponsored insurance called Excepted Benefit HRAs (EBHRA) allows employers to finance an additional pretax $1,800 per year to reimburse employees for certain qualified medical expenses (such as premiums for vision and dental insurance) even if the employee opts out of enrollment in the traditional group plan.

Qualified Small Employer HRAs (QSEHRA) are still an attractive alternative to group coverage for smaller employers- those with fewer than 50 full-time employees. Under QSEHRAs, employers can give their employees money tax-free to purchase individual health policies through the ACA exchange, similar to ICHRAs. Employees can use these funds to pay all or part of the insurance plan premium or pay for out-of-packet medical costs. While ICHRAs are void of caps on annual allowance amounts, in 2019, QSEHRAs allowance amounts were capped at $5,150 for self-only employees and $10,450 for employees with a family. While ICHRAs are free of caps, employees who choose ICHRAs will not be able to receive any premium tax credit/subsidy for exchange-based coverage. In some instances, if an employer funds an ICHRA or a QSEHRA coupled with individual-market insurance, this will bar the individual-market coverage from becoming part of the Employee Retirement Income Security Act (ERISA).

If employers choose to offer ICHRAs, then the new regulations require a written notice be issued to all employees who are eligible. In this notice, employers need to include a provision that states the ICHRA may make them ineligible for a premium tax credit or subsidy when buying an Affordable Care Act exchange-based plan. ICHRAs will be available for plan years starting on or after January 1, 2020. Employers offering an ICHRA with a plan year that begins on January 1, 2020 should help eligible employees understand that they must enroll in individual health insurance coverage during the open enrollment period, November 1, 2019 through December 15, 2019, for individual health insurance coverage that takes effect on January 1, 2020.

ICHRAs and EBHRA are two new health insurance arrangements that could provide smaller employers with innovative and more cost-effective ways to finance worker health insurance coverage. The IRS has noted that including safe harbor provisions to ensure employers still satisfy the ACA’s affordability and minimum value requirements with ICHRAs will come out later this year.

© 2019 Vandenack Weaver LLC

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Guidance Issued on Option for Small Business to Apply Research Tax Credit to Payroll Taxes

The Internal Revenue Service recently issued guidance related to options for qualified small businesses claiming the research tax credit. Prior to 2016, the research tax credit could only be used against income tax liability. The Protecting Americans From Tax Hikes (PATH) Act provided that qualified small businesses may elect to apply the tax credit against payroll tax liability.

Qualified businesses have less than $5,000,000 in gross receipts and did not have gross receipts prior to 2012. Such a qualified business can apply up to $250,000 of the research tax credit against the payroll tax liability.

The election is made on Form 6765, which is included with the businesses income tax return, and Form 8974, which is included with the business payroll tax return. For 2016, if a qualified business has already filed its tax return and failed to timely make the election, an amended return may be filed making the election. Such amended return must be filed before December 31, 2017.

For additional information, see Internal Revenue Service, Notice 2017-23, available at https://www.irs.gov/pub/irs-drop/n-17-23.pdf.

© 2017 Vandenack Weaver LLC
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100% Exclusion for Qualified Small Business Stock Held for Five Years

Starting a small business is full of challenges and an entrepreneur will have many concerns, especially with ensuring adequate operating capital and meeting funding requirements. The federal government does recognize the importance of small business and the challenges faced by entrepreneurs, including cash issues, and reacted by making permanent the 100% qualified small business stock (QSBS) exclusion in December of 2015.

Originally, in 1993, Section 1202 of the Internal Revenue Code was enacted, encouraging investment in small business by excluding 50% of capital gains from the sale of QSBS held for 5 years. Over the years, the exclusion changed and evolved until 100% of capital gains from the sale of QSBS held for 5 years was excluded, if the required conditions were met. The 100% exclusion was set to expire at the end of 2015, but the exclusion was made permanent in the Protecting Americans from Tax Hikes (PATH) Act, enacted in December 2015.

The 100% QSBS exclusion, although permanent, is nuanced and the stock itself must be held for five years, be in a C corporation, be in a Corporation with less than $50 million of assets at the time the stock was issued, have acquired the stock at its original issue, and have over 80% of the corporation assets being used in the active conduct of a qualified business during the entire time holding the stock. Active conduct is similarly defined under the tax code, excluding investment vehicles, brokerage services, farming business, and other inactive business. For those looking to utilize the QSBS exclusion or attract new capital from investors under this exclusion, a proper evaluation should be conducted to ensure the stock qualifies.

© 2016 Vandenack Williams LLC
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As Small Business Week Ends, A Reminder of a Few Resources Available to Entrepreneurs

As small business week comes to a close, including special resources and webinars available at various federal government entities only during the week, a variety of different resources remain available for the entrepreneur from the federal government. For example, the resources at the Internal Revenue Service (IRS) include instructional publications, tax calculators, and informational videos on the varied tax requirements for small business. Further information can be found at the following link: https://www.irs.gov/uac/IRS-Marks-Small-Business-Week-2016-with-Four-Webinars

The Small Business Administration (SBA) also offers a variety of resources for a small business, including information ranging from securing a SBA loan to creating a business plan. During small business week, the SBA hosts informational webinars about issues facing entrepreneurs, most notably securing capital to operate and grow. Further information from the SBA can be found at the following link: https://www.sba.gov/nsbw/

For those entrepreneurs in Nebraska, the state offers resources through the Department of Economic Development. Information about local taxes, lenders, and business registration in Nebraska can be found at the following link: http://www.neded.org/business/start-a-business

© 2016 Vandenack Williams LLC
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IRS Announces Increase in De Minimis Safe Harbor Rule for Small Business Capital Expenses

It is a common decision for a small business to not keep audited financial statements, which means they do not get some of the tax benefits given to companies that have “applicable financial statements.” One such tax provision is the amount a company can claim under the de minimis safe harbor for capital items.

The de minimis safe harbor is designed to reduce paperwork and recordkeeping requirements, but still allow business to deduct expenses for improvement in tangible property that would normally qualify as a capital item. Under the previous Internal Revenue Service (IRS) regulation, the small business not keeping applicable financial statements were limited to $500, while those with audited financial statements were allowed up to $5,000. Starting with the 2016 tax year, the small business not keeping audited financial statements will be able to deduct up to $2,500 per invoice under the de minimis safe harbor for expenses to improve tangible property.

What this means for many small business owners is that expenses for the “acquisition or production of new property or for the improvement of existing property” may be deducted if the expenditure is less than $2,500 per invoice. This should ease accounting burdens and paperwork requirements for small business that sought to deduct these types of expenses under the previous rule.

© 2015 Houghton Vandenack Williams
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