IRS Releases 2020 FSA Limits; Additional Tax & Fine Information

IRS Releases 2020 FSA Limits; Additional Tax & Fine Information

On November 7, 2019, the Internal Revenue Service (IRS) released Revenue Procedure Notice 2019-44.  This notice includes the 2020 limits for flexible spending accounts (FSAs) and other restrictions and penalty amounts related to employee benefit plans, health insurance coverage, and other tax limits and penalties. According to the notice, employees will be able to contribute $2,750 to health FSAs in 2020, a $50 increase from the 2019 limit of $2,700.  This increase applies to both traditional FSAs and limited purpose FSAs that work in conjunction with health savings accounts and can only reimburse for dental and vision services.

If your company is in the middle of open enrollment, or has already established its 2020 plan materials, it is important to know that you do not have to use the federal maximum FSA limits with your 2020 plan options.  You can elect to keep your limits unchanged. However, if your plan wants to increase its FSA limit for 2020, this is possible, even if you are already in the midst of open enrollment.  If so, make sure to update all plan documents and open enrollment materials and notify employees about the change as soon as possible.

In addition to the change to the 2019 FSA limits, Revenue Procedure Notice 2019-44 includes some other tax limit and penalty amount changes for 2020 that may be important to your plan, including:

Qualified Transportation Fringe Benefits: The amount of money that employees can receive pre-tax for parking expenses, public transit passes, and vanpooling costs will increase by $5 to $270 for 2020.

Adoption Assistance Exclusion and Adoption Credit: The maximum allowable benefit for an employer-sponsored adoption assistance program will be $14,300 in 2020. The individual adoption tax credit maximum also will be $14,300 for 2020.  In both cases, this is a $220 increase from 2019.  Both of these tax benefits will be phased out for people with modified adjusted gross incomes that exceed $214,520.  Individuals with modified adjusted gross incomes at or above $254,520 are ineligible for both benefits.

Employer Reporting Penalties:  The fines for employers and self-funded health plans that fail to provide health coverage information to the federal government and employees via Forms 1094 and 1095 B and C have increased as follows:

Failure to File Information Returns with the IRS (Forms 1094 B or C) for entities with annual gross receipts for the most recent three taxable years of more than $5,000,000:

  • Corrected return or late within 30 days of the required filing date: $50 per return with a penalty cap of $565,000.00
  • Corrected or late return that is filed after the 30th day, but before August 1: $110 per return with a penalty cap of $1,696,000.00
  • General failure to file a correct or timely return beyond August 1: $280 per return with a penalty cap of $3,392,000.00
  • Failure to file an accurate or timely return due to willful disregard of the filing requirements:  Greater of $560 per return or 10% of the aggregate amount of items required to be reported correctly, with no maximum penalty limit.

Failure to File Information Returns with the IRS (Form 1094 B or C) for entities with annual gross receipts for the most recent three taxable years of less than $5,000,000:

  • Corrected return or late within 30 days of the required filing date: $50 per return with a penalty cap of $197,500.00
  • Corrected or late return that is filed after the 30th day, but before August 1: $110 per return with a penalty cap of $565,000.00.
  • General failure to file a correct or timely return beyond August 1: $280 per return with a penalty cap of $1,696,000.00.
  • Failure to file a correct or timely return due to willful disregard of the filing requirements:  Greater of $560 per return or 10% of the aggregate amount of items required to be reported correctly, with no maximum penalty limit.

Failure to provide correct statements (Forms 1095 B and C) for entities with annual gross receipts for the most recent three taxable years of more than $5,000,000:

  • Corrected return or late within 30 days of the required filing date: $50 per return with a penalty cap of $565,000.00
  • Corrected or late return that is filed after the 30th day, but before August 1: $110 per return with a penalty cap of $1,696,000.00
  • General failure to file a correct or timely return beyond August 1: $280 per return with a penalty cap of $3,392,000.00
  • Failure to file an accurate or timely return due to willful disregard of the filing requirements:  Greater of $560 per return or 10% of the aggregate amount of items required to be reported correctly, with no maximum penalty limit.

Failure to provide correct statements (Forms 1095 B and C) for entities with annual gross receipts for the most recent three taxable years of less than $5,000,000:

  • Corrected return or late with 30 days of the required filing date: $50 per return with a penalty cap of $197,500.00
  • Corrected or late return that is filed after the 30th day, but before August 1: $110 per return with a penalty cap of $565,000.00.
  • General failure to file a correct or timely return beyond August 1: $280 per return with a penalty cap of $1,696,000.00.
  • Failure to file a correct or timely return due to willful disregard of the filing requirements:  Greater of $560 per return or 10% of the aggregate amount of items required to be reported correctly, with no maximum penalty limit.

Qualified Small Employer Health Reimbursement Arrangements (QSEHRA): The notice increases the maximum reimbursement to $5,250 for individual coverage and $10,600 for family coverage.

Small Business Tax Credit:  For 2020, employers whose employees earn an average annual wage of $27,600, and who offer health insurance coverage to employees purchased through the SHOP exchanges may be eligible to claim the Small Business Tax Credit.  This represents a $500 increase from 2019.

Medical Saving Accounts (MSAs): There are some 2020 changes to the high-deductible health coverage limits for HDHPs that are compatible with Archer MSAs (note-these limits do not impact qualified HDHPs that pair with Health Savings Accounts).  For MSAs, the deductible limit range for self-only coverage will be $2,350-$3,550 in 2020, and the out-of-pocket maximum is $4,750. For family coverage that pairs with an MSA, the annual deductible range is $4,750-$7,100 with an out-of-pocket maximum of $8,650.

By Jessica Waltman, Special Contributor
Jessica Waltman is a health reform strategist, with more than 20 years of experience in health insurance markets and health policy. She is the former Senior Vice President, Government Affairs, for the National Association of Health Underwriters.

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