Does your health plan need a check-up?

When was the last time you reviewed your small business's health plan to ensure it was in compliance with IRS reporting requirements?  Health and other welfare benefit plans must file a Form 5500 annually unless they are specifically exempt by the IRS.  

The following summary of basic reporting requirements may be the tool you need in order to give your health and welfare benefit plan(s) an annual “check up”:

(A) Did your welfare benefit plan have fewer than 100 participants as of the beginning of the plan year?  (DO NOT COUNT covered dependents but DO COUNT former employees who are still covered by the plan.) 

  

If you answered ‘NO’ to (A), your plan must file a Form 5500.

If you answered ‘YES’ to (A), see (B) below. 

(B) Is your plan ANY of the following: unfunded, fully insured, or a combination of both?  See below for more information on these terms.

- "Unfunded" – The employer pays all of the benefits of the plan; there are no employee contributions and/or the employer does not use a trust to hold assets of the plan.

- "Fully Insured" – Benefits of the plan are paid entirely from insurance contracts/policies.  Premiums are paid directly to the insurance company by the employer using employer’s assets, employee contributions, or a combination of both.

- "A combination" – An IRS example of combination funding would be a single plan that provides both unfunded medical benefits and fully-insured life insurance.

If you answered ‘YES’ to (B), your welfare benefit plan does NOT need to file a Form 5500.

If you answered ‘NO’ to (B), you must file a Form 5500 for your welfare benefit plan(s) and it may require an audit. 

  

Welfare benefit plans that use a voluntary employees’ beneficiary association (VEBA), must file a Form 5500. 

The Form 5500 is due 7 months after a plan’s year end (e.g., a  12/31 year end would need to file by 7/31).   The Form 5500 is an information return, so there is generally no tax due.  However, the IRS does assess penalties for failure to file or late filings. 

Your CPA is an excellent resource if you need to file a Form 5500 for your plan or have questions about the filing requirements.  

Most importantly, remember to give your health plan a “check up” annually. 

  

Daria  Cruzen, CPA, MBA

Manager—Audit Department

Quick guide to the Small Employer Health Insurance Credit

Qualifying small businesses with fewer than 25 employees and average wages under $50,800 can qualify for tax credits of up to 50% (35% for tax-exempt entities) of the health insurance cost if they pay at least half the premiums for their employees and have purchased the policies from a SHOP exchange.  Small businesses are allowed to claim the credit for only two consecutive years after the tax year 2013.  To be eligible to receive the credit, the following prerequisites must be met:

1.      There are fewer than 25 full-time equivalent employees.  The full-time equivalent employee calculation is relatively simple, all you need to do is follow the 3 steps:

• Step 1: Compute the sum of the employees' hours worked (No greater than 2,080 hours per employee)
• Step 2: Divide the sum from Step 1 by 2,080
• Step 3: Truncate the decimal part of the result (e.g. 6.8 is 6 full-time equivalent employees)
• Do you have seasonal employees?  If yes, then seasonal employees who work fewer than 120 days in the tax year are not included in the full-time equivalent employee calculation, but premiums paid on their behalf are included in the calculation for the credit.  Please note, the employee must be seasonal and not just terminated/quit before 120 days worked.
• NOTE that sole owners, partners, and shareholders who own more than 2% are not included as employees.

 2.      The average annual wages is less than $50,800.  To calculate the average annual wages, divide total wages paid divided by the number of full-time equivalent employees.  NOTE that sole owners, partners, and shareholders who own more than 2% wages are not included in the average annual wage calculation.

3.      Health insurance premiums must be paid by the employer in a uniform percentage of at least 50%.

4.      The qualified health plan must be purchased through a SHOP exchange.  This is new for 2014.  For more information on SHOP exchanges, please visit this site. 

If the 4 prerequisites above are met, use the chart below to estimate of how much of a credit you can claim:

Brian Koleszar, CPA

Tax planning for 2014 year-end and 2015

With 2014 quickly coming to a close, now is the right time to analyze your income tax situation for 2014 and 2015. After the recent mid-term elections swung both houses of Congress to a Republican majority, the immediate year-end tax planning revolves around a "tax extenders" package of expired individual and business tax breaks that await retroactive reinstatement to the start of 2014. Final passage will not happen until later this month (any day now) or possibly January 2015 (which will cause tax-season delays for the IRS in accepting returns and issuing refunds). It's unclear which extenders will be affected, and whether they will be made permanent, extended for one or two years, or scrapped. Stay tuned...

With tax rates expected to remain the same for 2014 and 2015 as they were for 2013, traditional year end planning techniques remain important to maximize benefits, such as:

• Defer/receive bonuses before January.
• Hold/sell appreciated assets
• Accelerate income to use available carry-forward losses.
• Postpone/complete Roth conversions.
• Minimize/maximize retirement contributions.
• Bunch itemized deductions into 2014 and take standard deduction in 2015 or vice-versa.
• Pay bills in 2014/postpone payments until 2015.
• Pay 4th quarter 2014 state estimated tax installment in 2014 or delay payment until 2015.
• Watch AGI limitations on deductions/credits.
• Watch net investment income restrictions.
• Match passive activity income and losses.

The year end is almost here!  Don't wait to contact your tax professional if you have questions or need to make year-end tax planning decisions.

Jim Story
Manager - Tax Department

Looking for deductions at year-end?

Are you looking for a few extra tax deductions before the end of the year?  Take a look at your stock portfolio for investments that are sitting in a loss position.  Many people have bank or energy company stocks that are below or far below the price at which they purchased them.  Anytime these stocks are sold for a loss, that loss can be used to offset income or gains from stock sales.  To the extent that your losses outweigh your gains, you can only deduct $3,000 more per year than your gains, but the left-over losses will carry forward indefinitely, able to be used as a $3,000 deduction per year, or until that windfall stock gain that we all hope for every year. 

What if you are thinking, “But I think this stock will go back up” or “I feel really attached to this company stock and don’t want to leave them.”  If you don’t expect the stock to surge in the next 30 days, wait the required 30 days so as not to come into conflict with the wash sale rules, and then re-purchase the stock with the proceeds you have from your sale.  You will own the stock again, and you will be putting your losses to use as a deduction against your income. 

John Robert Voynich, CPA