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January 15, 2014

Stay Current with the Benefit Changes for 2014

Thanks to Eddie Snyder of Snyder Cohn, PC – CPA’s and Business Advisors for the following information on the benefit changes for 2014. Many entrepreneurs and business owners have questions about the pertinent changes in the tax law at the beginning of the year. Snyder Cohn gives easy to understand tips about some of the major changes that may affect you and your business.

For more information on this topic, contact Snyder Cohn at 301-652-6700.

2014 Maximum Benefit and Contribution Limits

The IRS has updated the maximum benefit and contribution limits for 2014. Click here to access the table.

Health Savings Accounts (HSA)

For those of you with an HSA, take note that while the Patient Protection and Affordable Care Act allows parents to add their adult children (up to age 26) to their health plans, the IRS has not changed its definition of a dependent for health savings accounts. This means that an employee whose 24-year-old child is covered on his HSA-qualified high-deductible health plan is not eligible to use HSA funds to pay that child’s medical bills.

If account holders can’t claim a child as a dependent on their tax returns, then they can’t spend HSA dollars on services provided to that child. According to the IRS definition, a dependent is a qualifying child (daughter, son, stepchild, sibling or stepsibling, or any descendant of these) who:

  • Has the same principal place of abode as the covered employee for more than one-half of the taxable year.
  • Has not provided more than one-half of his or her own support during the taxable year.
  • Is not yet 19 (or, if a student, not yet 24) at the end of the tax year or is permanently and totally disabled.

Employers May Not Reimburse or Pay for Individual Insurance Plans

Effective January 1, 2014, the IRS has issued guidance that employers will no longer be able to reimburse or pay for an employee’s premium for individual health coverage on a tax-free basis. Any employer may still provide employees with additional taxable income to purchase their own individual plan, but the employer cannot require that the funds be spent on coverage or base the amount provided on the employee’s specific premium expense.

Flexible Spending Accounts

On October 31, 2013, the Department of the Treasury issued a notice modifying the “use-or-lose” rule for health flexible spending accounts (FSAs). FSAs are sponsored by employers and permit employees to set aside tax-free money from their paychecks to pay for out-of-pocket health expenses. For the past 3 decades, employees participating in FSAs had to take an educated guess at how much to contribute to an FSA. If they contributed more than they used, they would forfeit any access at the end of the plan year. This new guidance, while not mandatory, permits employers to allow plan participants to carry over up to $500 of their unused health FSA balances remaining at the end of a plan year. Some existing plans have a 2 ½ month grace period at the start of the plan year to spend the excess money from the prior plan year. This new ruling permits either a grace period or the $500 rollover, but not both.

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