By Pension and Benefits Editorial Staff
The IRS has updated its frequently asked questions (FAQ) regarding determining the amount of the tax credit for qualified family leave wages and the amount of allocable qualified health plan expenses under the Families First Coronavirus Relief Act (FFCRA).
Qualified family leave wages. In FAQs 25 and 25a, the IRS indicates that qualified family leave wages are wages for social security and Medicare tax purposes or compensation that eligible employers must pay eligible employees for periods of leave during which they are unable to work or telework due to a need for leave to care for a child of such employee if the child’s school or place of care has been closed (including the closure of a summer camp, summer enrichment program, or other summer program), or because the child care provider of the child is unavailable, for reasons related to COVID-19.
The first ten days for which an employee takes leave for this reason may be unpaid. However, during that 10-day period, an employee may be entitled to receive qualified sick leave wages as provided under the ESPLA or may receive other forms of paid leave, such as accrued sick leave, annual leave, or other paid time off under the eligible employer’s policy. After an employee takes leave for ten days, the eligible employer must provide the employee with qualified family leave wages for up to ten weeks.
Qualified family leave wages for purposes of the credit are calculated without regard to federal taxes imposed on or withheld from the wages, including the employee’s share of social security taxes, the employee’s and employer’s shares of Medicare tax, and federal income taxes required to be withheld.
Qualified health plan expenses. In FAQs 31 through 36, the IRS explains that the amount of qualified health plan expenses taken into account in determining the credits generally includes both the portion of the cost paid by the eligible employer and the portion of the cost paid by the employee with pre-tax salary reduction contributions. However, the qualified health plan expenses should not include amounts that the employee paid for with after-tax contributions.
More than one plan. For an eligible employer that sponsors more than one plan for its employees (for example, both a group health plan and a health flexible spending arrangement (health FSA)), or more than one plan covering different employees, the qualified health plan expenses are determined separately for each plan. Therefore, for each plan, those expenses are allocated to the employees who participate in that plan. In the case of an employee who participates in more than one plan, the allocated expenses of each plan in which the employee participates are aggregated for that employee.
Fully insured plan. An eligible employer who sponsors a fully insured group health plan may use any reasonable method to determine and allocate the plan expenses, including:
- the COBRA applicable premium for the employee typically available from the insurer,
- one average premium rate for all employees, or
- a substantially similar method that takes into account the average premium rate determined separately for employees with self-only and other than self-only coverage.
Self-insured plan. An eligible employer who sponsors a self-insured group health plan may use any reasonable method to determine and allocate the qualified health plan expenses, including the COBRA applicable premium for the employee typically available from the administrator, or any reasonable actuarial method to determine the estimated annual expenses of the plan.
If the eligible employer uses a reasonable actuarial method to determine the estimated annual expenses of the plan, then rules similar to the rules for insured plans are used to determine the amount of expenses allocated to an employee. That is, the estimated annual expense is divided by the number of employees covered by the plan, and that amount is divided by the average number of work days during the year by the employees (treating days of paid leave as work days and any day on which an employee performs any work as work days). The resulting amount is the amount allocated to each day of qualified sick or family leave wages.
Contributions to HSA. The amount of qualified health plan expenses does not include eligible employer contributions to HSAs or Archer MSAs. Eligible employers who sponsor an HDHP should calculate the amount of qualified health plan expenses in the same manner as an insured group health plan, or a self-insured plan, as applicable.
Contributions to HRA or FSA. The amount of qualified health plan expenses may include contributions to an HRA (including an individual coverage HRA), or a health FSA, but does not include contributions to a QSEHRA. To allocate contributions to an HRA or a health FSA, eligible employers should use the amount of contributions made on behalf of the particular employee.
SOURCE: https://www.irs.gov/newsroom/determining-the-amount-of-the-tax-credit-for-qualified-family-leave-wages; https://www.irs.gov/newsroom/determining-the-amount-of-allocable-qualified-health-plan-expenses
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