Legislation Update Articles

Legislation Update Articles

Legislation Recently Passed:

Treasury modifies "use-it-or-lose-it" provision to allow a limited rollover of Health FSA funds

Illinois State Police Announce Concealed Carry Signage Specifications

Ill.: Workers’ Compensation Rates Set to Drop in Illinois

Proposed Legislation:

Ninth Life for ENDA

Supreme Court to Rule on Whether Severance Subject to FICA Taxes

Treasury modifies "use-it-or-lose-it" provision to allow a limited rollover of Health FSA funds

October 31, 2013

Treasury releasedNotice 2013-71today that modifies the FSA "use-it-or-lose-it" provision to allow a limited rollover of health FSA funds.The following is a summary of the provisions:

* Employers may amend their cafeteria plan documents to allow participants to rollover up to $500 of unused funds from the Health FSA remaining at the end of the plan year to the immediate following plan year.

* The carryover of up to $500 may be used to pay or reimburse medical expenses under the health FSA incurred during the entire plan year to which it is carried over.

* For this purpose, the amount remaining unused as of the end of the plan year is the amount unused after medical expenses have been reimbursed at the end of the plan's run-out period for the plan year.

* In addition to the unused amounts of up to $500 that a plan may permit an individual to carry over to the next year, the plan may permit the individual to also elect up to the maximum allowed salary reduction amount ($2,500).

*The carryover of up to $500 does not count against or otherwise affect the indexed $2,500 salary reduction limit applicable to each plan year.

*A plan adopting this carryover provision is not permitted to also provide a grace period with respect to health FSAs.

*If an employer amends its plan to adopt a carryover, the same carryover limit must apply to all plan participants.

*Acafeteria plan is not permitted to allow unused amounts relating to a health FSA to be cashed out or converted to any other taxable or nontaxable benefit.

*Unused amounts relating to a health FSA may be used only to pay or reimburse certain Code § 213(d) medical expenses (excluding health insurance, long-term care services or insurance.

*With respect to a participant, the amount that may be carried over to the following plan year is equal to the lesser of (1) any unused amounts from the immediately preceding plan year or (2) $500 (or a lower amount specified in the plan).

*The uniform coverage rule requires that the maximum amount of reimbursement from the health FSA (including both salary reduction amounts and any nonelective employer flex credits) be available for claims incurred at all times during the period of coverage (properly reduced as of any particular time for prior reimbursements for the same period of coverage) and applies to the carryover amount.

*For plans using the new carryover option, a participant's unused health FSA balance at the end of the prior plan year may be used:

*for expenses incurred in the prior plan year, but only if claimed during the plan's run-out period that begins at the end of the prior plan year (in effect retroactively reducing the unused amount as of the end of the prior plan year); or

*to the extent of the permitted carryover amount of up to $500 from the final prior plan year unused amount, for expenses that are incurred at any time in the current plan year.

*Acafeteria plan is permitted to treat reimbursements of all claims for expenses that are incurred in the current plan year as reimbursed first from unused amounts credited for the current plan year and, only after exhausting these current plan year amounts, as then reimbursed from unused amounts carried over from the preceding plan year

*Any unused amounts from the prior plan year that are used to reimburse a current year expense:

*reduce the amounts available to pay prior plan year expenses during the run-out period,

*must be counted against the permitted carryover of up to $500, and

*cannot exceed the permitted carryover.

*To utilize the new carryover option permitted under this notice, acafeteria plan offering a health FSA must be amended to set forth the carryover provision.

*The amendment must be adopted on or before the last day of the plan year from which amounts may be carried over and may be effective retroactively to the first day of that plan year.

*Participants must be notified of the addition of the permitted carryover.

*If a plan has provided for a grace period and is being amended to add a carryover provision, the plan must also be amended to eliminate the grace period provision by no later than the end of the plan year from which amounts may be carried over.

For a copy of IRS Notice 2013-71, please click on the link below:

http://www.irs.gov/pub/irs-drop/n-13-71.pdf

Larry Grudzien, Attorney-At-Law

Illinois State Police Announce Concealed Carry Signage Specifications

Illinois State Police Officials have released information on regulatory requirements for concealed carry signage under the Firearm Concealed Carry Act (430 ILCS 66/1, et. seq.).Individuals licensed to carry a concealed firearm under the Firearm Concealed Carry Act are prohibited from carrying a firearm on, or into, any of the prohibited areas listed under Section 65 of the statute. Private property owners may also prohibit individuals from carrying a concealed firearm on, or into, property under their control.Owners of any statutorily prohibited area or private property, excluding residences, where the owner prohibits the carrying of firearms must clearly and conspicuously post the Illinois State Police approved sign, in accordance with 430 ILCS 66/1, at the entrance of the building, premises or real property:HB183, Section 65 (Prohibited Areas) (d) Signs stating that the carrying of firearms is prohibited shall be clearly and conspicuously posted at the entrance of a building, premises, or real property specified in this Section as a prohibited area, unless the building or premises is a private residence. Signs shall be of a uniform design as established by the Department and shall be 4 inches by 6 inches in size…. Please refer to Section 65 (Prohibited Areas) for more information on statutory regulatory requirements for signage as well as where concealed weapons are prohibited.Pursuant to Section 65(d) of the Firearms Concealed Carry Act, signs must be of a uniform design and the Illinois State Police is responsible for adopting rules for standardized signs. The Illinois State Police has proposed rules which require a white background; no text (except the reference to the Illinois Code 430 ILCS 66/1) or marking within the one-inch area surrounding the graphic design; a depiction of a handgun in black ink with a circle around and diagonal slash across the firearm in red ink; and that the image be 4 inches in diameter. The sign in its entirety will measure 4 in x 6 in.The Illinois State Police’s proposed administrative rules allow the design and posting of a larger sign if the property owner believes the entrance of the building, premises or real property requires it. The administrative rules proposed by the Illinois State Police would also permit a larger sign to include additional language. These administrative rules have been filed with the Illinois Secretary of State pursuant to the Illinois Administrative Procedure Act.To download a template of the approved sign for use, visit the Illinois State Police website at www.isp.state.il.us/firearms/ccwConcealed Carry permit applications will be available on the ISP website by January 5, 2014.Source: Illinois State Police

Ill.: Workers’ Compensation Rates Set to Drop in Illinois

9/24/2013 / By BLR® —Business & Legal Resources
Gov. Pat Quinn announced that the National Council on Compensation Insurance has filed a request for an overall reduction of 4.5 percent in workers’ compensation rates from the Illinois Department of Insurance (DOI). The proposed cut represents a 13.3 percent drop in rates since implementation of the 2011 workers’ compensation reform law.
“We’re pleased about the proposed rate reduction and look forward to the review process to confirm the results,” said DOI Director Andrew Boron. The department estimates that the proposed rates could save Illinois businesses up to $110 million.
If the department approves the rates for implementation on January 1, 2014, employers should contact their insurance agent before their 2014 renewal date to determine the impact on their premium. Individual rates for businesses will vary on the basis of claims experience, payroll, and other factors.
“When I came into office, Illinois had one of the most burdensome workers’ compensation systems in the country,” Quinn said. “We turned that statistic around and delivered real reform that is saving hundreds of millions of dollars for our businesses and keeping the system honest to our workers. This rate review will ensure the state has a responsible advisory rate that supports business growth and protects workers.” The governor estimates that the reforms have saved the state’s workers’ compensation system $315 million.
Contributed by BLR®—Business & Legal Resources. Read plain-English analysis on Workers' Compensation in Illinois.

Proposed Legislation

Supreme Court to Rule on Whether Severance Subject to FICA Taxes

10/18/2013 / By Allen Smith
Nothing is certain but death and taxes, and even taxes aren’t always certain. The federal government persuaded the Supreme Court on Oct. 1, 2013, to review an appeals court ruling that severance payments are not subject to Federal Insurance Contributions Act (FICA) taxes, which finance Social Security and Medicare benefits.
Ruth Wimer, an attorney at McDermott, Will & Emery in Washington, D.C., said the case “is huge. It’s the biggest case in the last 10 years in the payroll area.”
Plenty of money is on the line—as much as $1 billion, counting all similar types of claims, an amount that the government expects to increase.
And, in an unusual twist, employers and employees—often opponents in employment litigation—are on the same side in a lawsuit against the U.S. government seeking a refund of withheld FICA taxes on severance payments.
Refund Sought
Quality Stores, an agricultural specialty retailer, and several affiliated stores closed all of their stores and distribution centers, laid off all their workers and made severance payments to those whose employment was involuntarily terminated when the company filed for bankruptcy in 2001.
For federal-income-tax purposes, the stores reported the severance payments as wages on W-2 forms and withheld federal income tax. Quality Stores also treated the payments as taxable under FICA. The retailer withheld and paid to the Internal Revenue Service (IRS) both the FICA tax that it owed as an employer and the FICA tax that its employees owed.
But in 2002, Quality Stores and the other businesses filed for a refund of approximately $1 million in FICA taxes they had paid as employers and on behalf of roughly 1,850 workers between late 1999 and mid-2002. Not receiving a refund from the IRS, the stores filed a lawsuit against the federal government in bankruptcy court, seeking to recover both the employer and employee FICA taxes plus interest.
The bankruptcy court ruled that the businesses and employees were not liable for FICA taxes and were entitled to a refund.
The government moved for reconsideration, but the bankruptcy court still ruled for the stores and employees, awarding $1 million plus interest.
The government appealed to a district court, which affirmed the ruling, then appealed to a federal appeals court, which also affirmed.
Government’s Side
Not eager to part with a revenue stream, the cash-strapped government appealed again to the U.S. Supreme Court.
FICA taxes are imposed on both employers and employees, and both elements of the taxes are imposed on all “wages” paid by a company and received by a worker with respect to employment. FICA defines “wages” as “all remuneration for employment, including the cash value of all remuneration (including benefits) paid in any medium other than cash.”
The tax code also notes that the federal government is entitled to withhold income tax on “certain payments other than wages.” And, as a general rule, “any supplemental unemployment benefit (SUB) paid to an individual shall be treated as if it were a payment of wages by an employer to an employee for a payroll period.”
SUB, in turn, is defined by the tax code as “amounts which are paid to an employee, pursuant to a plan to which the employer is a party, because of an employee’s involuntary separation from employment (whether or not such separation is temporary), resulting directly from a reduction in force, the discontinuance of a plant or operation or other similar conditions, but only to the extent such benefits are includible in the employee’s gross income.”
“The decision below is incorrect,” the government said in its petition for Supreme Court review. The definition of wages “easily encompasses the severance payments at issue here,” it added.
“FICA contains specific exceptions to both ‘wages’ and ‘employment’—i.e., types of remuneration that do not constitute wages,” the government argued. “Respondents do not contend, and the court of appeals did not hold, that the severance payments at issue here fall within any of the statutory exceptions to ‘wages.’ ”
Employers and Employees’ Side
The stores and employees’ argument in defense of the decisions below the Supreme Court was straightforward.
“FICA taxes ‘wages,’ which is defined as ‘all remuneration’ for ‘any service performed by an employee for the person employing him,’ ” they said in a brief opposing the petition for Supreme Court review. “SUB payments are not made for ‘employment’ but rather for the ‘elimination of employment’ due to plant shutdowns and similar conditions. Therefore, SUB payments are not wages.”
They added: “The government contends that, in holding that the SUB payments at issue here are not subject to FICA tax, the court of appeals ‘did not suggest that those payments fall outside the applicable definition of wages.’ This assertion is incorrect.”
The court of appeals decision was based on the Supreme Court’s ruling in Coffy v. Republic Steel Corp., 447 U.S. 191 (1980), that “SUB payments are not ‘compensation for services’ and on the legislative history” of the tax code “evidencing congressional intent that SUB payments are neither ‘wages’ nor ‘remuneration for services.’ ”
No date has been set for oral argument in the case (United States of America v. Quality Stores Inc., No. 12-1408).
Allen Smith, J.D., is the manager of workplace law content for SHRM. Follow him @SHRMAllenS.

Ninth Life for ENDA