Employee benefits compliance is a year-round process and can get complicated at times. It doesn’t help that 2021 has been another challenging year for employers. ARPA and CAA legislation have created additional compliance responsibilities for employers.
As the calendar year comes to an end here are some things to remember:
- The American Rescue Plan Act of 2021 (ARPA) increased the 2021 Dependent Care FSA limit to $10,500. Absent any legislation extending this limit, it reduces to $5,000 for 2022. Ensure your plan is set up with a $5,000 limit for 2022. If the legislation which will extend the increase passes, you will be able to increase the limit and allow employees to make new elections for the Dependent Care FSA. Our alert “IRS Issues 2021 Dependent Care FSA Increase Guidance and 2022 HSA Limits” provides more detail.
- The Consolidated Appropriates Act 2021 (CAA) provided Section 125 cafeteria plan relief for employers and employees. If your cafeteria plan adopted any of the provisions under the CAA relief, the plan amendments generally must be in place by December 31, 2021, for calendar year plans. Non-calendar year plans will generally have until December 31, 2022, to amend their plans. More information in our alert “Top 10 Issues Resolved in IRS FSA Relief Guidance.”
- Employers who allow domestic partners to enroll on their plans must report the fair market value of any health benefits less any after-tax contribution an employee makes for the domestic partner and domestic partner’s children who are not tax dependents as imputed income on the employee’s W-2. See our “Newfront Office Hours Webinar: Health Benefits for Domestic Partners.”
- Employers may provide up to $50,000 of group term life insurance to any employee on a nontaxable basis. The value of any amount over $50,000 is imputed income to the employee based on Table I rates. Our post “Group-Term Life Section 79 Imputed Income” provides great information on this topic.
- All cafeteria plans must, even those providing pre-tax premiums only, must undergo non-discrimination testing. While most employers will pass the required tests, some dependent care FSA plans which have a large number of highly compensated employees (HCE) participating may fail, and adjustments will need to be made to the HCEs’ accounts by year-end. See our Newfront Office Hours Webinar: Section 125 Cafeteria Plans for more details.
Some other important items are:
- ACA reporting for Applicable Large Employers
- Health FSA and commuter benefits limit increases
- Reporting HSA contributions and the cost of coverage on employee W-2s
There are many more employee benefits compliance items that need to be considered. The Newfront team has a comprehensive checklist which can be reviewed with you periodically to ensure you stay on track.