IRS Warning on Sec 105 Plans

[John of PA]

Thank you for posting this. It also tells us that IRS is looking over these 105 plan 720's, very carelfully, line by line.

[oceanlovin'ea]

REfund of $1.00

Interesting twist to the filing of the Form 720. I decided to include myself and sent in $2.00. I got a check in the mail on Tuesday for $1.00.

Explanation was F-720 REF.

It probably costs them more than $1 to send me the check.

Linda, EA

[John of PA]

Perhap this is not correct but I quote "In view of the small amount of tax.....some small employers may be inclined to ignore the Form 720 filing. However, recognize that begining in 2014 there will be a second, more consequential fee, essentially computed in the same manner, at the rate of $ 63.00 per covered life in a medical reimbursement plan (ACA Sec. 1341, imposing the Transitional Reinsurance Fee)." (Thomson Reuters PPC Tax Action Memo # 1617 dated 7-16-13, page 3). I actually subscribe to the paper version so I am not able to provide a link.

[S T]

John
I am still trying to locate the $ 63 fee that you refer to for the Form 720 reporting for Sect 105 - so far I have not had any success.

Any links or information you could post would be most appreciated

Thanks

Sandy

[Bees Knees]

Just to clarify that this fee of only one dollar "per covered life" goes to 63 dollars PER COVERED LIFE for 2014, for 105 Med Reimb Plans. The late filing penalty for the 720 is 100% of the tax due. (when did it become acceptable for the US Govt. to engage in "extortion").

I don't know where you get the $63 for 2014. IRC §4376 says the tax for self-insured health plans (Section 105 Med Reimb Plans) is $2 per covered life starting in plan years that end in 2014, with an adjustment for increases in health care spending starting with fiscal plan years beginning after September 30, 2014.

Unless they have already calculated that health care spending is increasing by 3,150% for 2015 ($2 X 3,150% = $63).

[John of PA]

Just to clarify that this fee of only one dollar "per covered life" goes to 63 dollars PER COVERED LIFE for 2014, for 105 Med Reimb Plans. The late filing penalty for the 720 is 100% of the tax due. (when did it become acceptable for the US Govt. to engage in "extortion").

[John of PA]

FYI re: the tax only being one dollar, it is going to 2 dollars for 2014. Also there was a question as to whether family members are counted for the 1 dollar per person fee. I just read in PPC Tax Action Memo's that yes they are counted for 105 Med Reimb Plans and No they are not counted (only employee is counted) for HRA's (Health Reimbursement Arrangements). Have a good weekend all.

[S T]

E-News for Tax Professionals #2013-30 posted on the Form 720

There was a link http://www.irs.gov/uac/Newsroom/Pati...-Institute-Fee that has charts, instructions and Q&A, updated on 7-24-2013

Sandy

[John of PA]

Let's see what this tax is in 10 years, then it all may make sense.

[Bees Knees]

PS, if you think this $1 tax reported on Form 720 is a bit ridiculous, it is. This is what happens when politicians are handed a 2,000 page tax law to review and vote on for the following day. A simple solution would have been to put a common sense de minimis rule in it, such as this tax does not apply for HRAs with 100 or fewer plan participants.

Problem solved.

[Bees Knees]

After finishing reading the regs and the IRS Q&A, here is my take on this.

It applies to employers such as sole proprietors with one or more employees who offer an HRA for employees. The tax is $1 times the number of lives covered. For an HRA, the number of lives equal the number of employees (not counting any spouse or dependent who happens to be covered under the insurance policy that the employee buys with the reimbursement). The reason it is only one life is because the employee is the only one covered under the plan. The employee in turn buys private health insurance with the funds distributed from the HRA. The fact that the employee's spouse and dependent's are then covered under that policy are irrelevant, because spousal and dependent coverage is not something the employer is setting up. (spousal and dependent coverage is something offered through the insurance policy that is purchased, not the HRA that purchased the insurance)

Thus, for a sole proprietor who hires his/her spouse as an employee to perform services for the business, and the sole proprietor has no other employees, and the sole proprietor offers his/her employee an HRA, then the tax equals $1 per year, even though the sole proprietor may be included in the health insurance coverage as the spouse of the employee who purchased the insurance.

Form 720 is due by July 31 of the year following the end of the plan year. Thus, if your plan year ends December 31, 2012, the $1 tax reported on Form 720 is due by July 31, 2013. If that is the only tax you have to report on Form 720, then that quarter is the only one you have to file each year. The $63 tax mentioned from some PPC publication is not for this tax and its purpose is unknown...just ignore...

There is no specific penalty for failure to file and pay the tax with Form 720 that is unique to this tax. Thus, the general failure to file and failure to pay penalties that apply to all other taxes applies to this tax (5% of tax per month up to 25% for failure to file, and 0.5% of tax per month up to 25% for failure to pay, with the failure to file penalty being reduced by the amount of the failure to pay penalty)...plus interest.

Thus, if you don't see your client until next April, and your client didn't file Form 720 for the one employee he/she offers the HRA to, file Form 720 next April and pay the $1 tax. Let IRS send you a bill if they want their 25¢ penalty plus interest for failing to file and pay the thing on time. Also make sure you charge your client a minimum for $100 for filing this specialty tax form (that will take you two minutes to preparer). $100 preparation fee so they can pay $1 in tax. Sounds fair?

[S T]

Linda,
I have also been looking at what you are looking at, and I can't discern one item from another,

this entire reporting is a lot of paperwork that seems like it will cost more than the $ they are going to collect.

Really $1 or $2 fee for Small Reporting People like us.

Oh Well, One more form, and one "item" in the system for some tracking.

I do have to thank John PA for posting on the Board, otherwise I would not have known about it.

Sandy

[John of PA]

I interpret it as one person being reimbursed for thier (and thier family's ) expenses for a one dollar fee.

[oceanlovin'ea]

John of PA

I was reading the instructions for the form. It says "average number of lives covered by the plan". If your plan covers your wife's expenses and that of her family would it not be more than one person being covered?
Mine says that I reimburse my husband for the out of pocket expenses for him and his family, which includes me. So that would be 2 people.

Or am I reading it wrong?

Linda, EA

[oceanlovin'ea]

Do the form

Ok. I just looked at the form 720. There are 7 pages to the form. Do we just send in the first 2 pages and the voucher? Or do we send in the rest of the pages blank?

This is totally bizarre to me. How do these things slip by me? I have enough to remember. I do plenty of CPE's every year. okay...enough venting...doesn't do any good anyway.