by Becky Achten
The trusts maintained to hold assets of ERISA plans are separate tax entities from the employers sponsoring the plans. Therefore, each is required to have its own federal tax ID number. Knowing when and where to use whose EIN can be confusing. Here are a few tidbits of information on that topic. This information applies to single employer plans. Multi- and multiple-employer plans may have different rules. Read more
By Kevin Selzer
Long term incentive plans offered by an entity that is taxed as a partnership present an additional problem compared to their corporate A-side counterparts. If an employee is given an equity interest in the partnership, the individual will generally no longer be considered an employee for tax purposes. Instead, that individual is considered a partner in a partnership, will receive a K-1 for future pay (rather than a W-2), must pay estimated taxes, becomes ineligible for certain benefits, etc. This dual status issue is generally nonexistent within corporate entities – indeed, it is commonplace for employees to also be shareholders, perhaps as a result of a traditional restricted stock or option grant. Read more
by Lyn Domenick
IRS Employee Plans has just announced a pilot program for pre-examination compliance checks of qualified retirement plans, beginning this month. If your plan is targeted, you will receive a letter from the IRS notifying you that your retirement plan has been selected for an upcoming IRS examination. What’s new under the pilot program is that the IRS will give you 90 days to perform your own self-compliance check and determine if the plan is in compliance with current IRS guidance, with the enticement that this self-review may avoid an IRS examination.
During the 90 days, you would complete a compliance review of your plan and, if you do not find any errors, you would assert to the IRS that the plan meets current tax law requirements. Or, if you discover some matters that need correction, you may correct mistakes using the self-correction principles or the voluntary compliance program (VCP) under the IRS correction program, EPCRS. If the errors are eligible for self-correction under EPCRS, it appears that no penalty will apply. If the errors are eligible for VCP but not self-correction, the IRS may issue a closing agreement and assess a fee based on the VCP fee that would otherwise have been charged if the plan had filed a VCP application under EPCRS before this process had begun. If the IRS disagrees with the correction–or if you fail to respond to the IRS within the 90-day period–the IRS will likely schedule a limited or full-scope examination. Read more
Whether you’re a fan of the Buddy Holly version or Linda Ronstadt’s, you’ve got to admit “It’s so easy to fall in love” is a catchy tune. Just as it’s easy to get that song stuck in your head, it’s also easy to put your employee’s health savings accounts (HSAs) at risk!
HSAs are one of the many “consumer directed” programs that are touted as putting employee’s health care within their own control. The idea is that if consumers have an amount of money to spend on their own healthcare, they’ll be savvy about what services they seek and how much they spend on them, with the ultimate goal of making the healthcare marketplace more efficient. Congress gives tax advantages to accounts that qualify as HSAs in order to encourage employers to offer and employees to maintain them. Read more
If your qualified pension plan does not provide for in-service distributions and has commenced benefit distributions to a retiree who experienced a bona fide retirement, the IRS says your plan may be able to rehire that retiree and let him or her continue to receive benefit payments upon rehire. Read more
For those who have been involved in the sale of a company, Section 280G of the Internal Revenue Code may sound familiar. Section 280G governs what the IRS considers to be “golden parachute payments” and is generally applicable when a corporation is undergoing a change in control (including both stock sales and asset sales). At a high level, Section 280G imposes on disqualified individuals a 20% excise tax on excess parachute payments paid and a corresponding loss of deduction on such payments by the corporation. Read more
by Becky Achten
The good news is that the deadline to furnish individuals with the Form 1095-C or Form 1095-B reporting health care coverage in 2021 has been extended to March 2, 2022. The bad news is that the days of good-faith relief are over. You better get them right this year!
Contrary to its stance taken in Notice 2020-76, the Internal Revenue Service (IRS) issued proposed regulations to permanently extend the due date for providing the Form 1095-C (applicable to large employers) and the Form 1095-B (generally applicable to insurance carriers) to participants. Employers and insurers can take advantage of the extension for the 2021 reporting season before the regulations become final. This does not, however, change the deadline for filing the forms with the IRS, which remains February 28, 2022 for paper submissions and March 31, 2022 for electronic filings. Read more
The principles governing how ERISA plans determine a participant’s beneficiary haven’t changed much since the country singer George Strait sang “Write this down” in 1999. In short, the participant has to write it down … on the forms and following the procedures established by the plan.
Recently we’ve seen several examples of family members of deceased employees who are surprised by the plan’s record of who was designated as beneficiary. They have tried to argue that the deceased employee’s will should be allowed to designate a beneficiary, or that the plan should look to state laws regarding estates. However, the courts have clearly established that those extraneous sources do not affect the plan’s process. (Most famous are the U.S. Supreme Court’s 2001 Egelhoff decision, and its 2009 Kennedy v. DuPont decision.) Read more
Some years ago, I published an article on the importance of understanding the tax rules applicable to equity grants, with a particular focus on being aware of the timing rules for filing an 83(b) election and the importance of making timely elections (available here).
A reader of that 83(b) article approached me recently looking for guidance on when an individual may make an 83(b) election with respect to a stock option. The question was simple – do you make the 83(b) election within 30 days of the grant of the option or within 30 days of exercise of the option? Read more
As a result of the current labor shortage that many employers are currently faced with, more and more companies are finding themselves rehiring former employees. If those former employees previously participated in an employer’s 401(k) plan prior to their severance from employment, such employers should review their 401(k) plan documents to see how such rehired employees are treated under those plans. Read more