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TCJA Changes Reflected in IRS 2019 COLAs for Health and Welfare Plans
Practical Law Legal Update w-017-5907 (Approx. 8 pages)
TCJA Changes Reflected in IRS 2019 COLAs for Health and Welfare Plans
by Practical Law Employee Benefits & Executive Compensation
| Published on 19 Nov 2018 • USA (National/Federal) |
In Revenue Procedure 2018-57, the Internal Revenue Service (IRS) announced the 2019 cost-of-living adjustments (COLAs) for certain limits affecting health and welfare plans, including health flexible spending arrangements (health FSAs). The adjustments include changes made by the Tax Cuts and Jobs Act (TCJA). In earlier guidance, the IRS also issued updated patient-centered outcomes research (PCOR) fees under the Affordable Care Act (ACA) and limits relating to health savings accounts (HSAs) and high-deductible health plans (HDHPs).
The IRS has announced the 2019 COLAs affecting various health and welfare arrangements, including health FSAs (Rev. Proc. 2018-57 (Nov. 15, 2018)). The adjustments include changes made by the Tax Cuts and Jobs Act (TCJA) (see Tax Cuts and Jobs Act (TCJA) Compliance for Fringe Benefits and Health Plans Toolkit). In guidance issued earlier this year, the IRS also provided the 2019 limits affecting health savings accounts (HSAs) and high-deductible health plans (HDHPs), and patient-centered outcomes research (PCOR) fees under the Affordable Care Act (ACA).
Certain Benefit Limits Were Updated in March 2018 for TCJA Changes
Note that IRS guidance issued in March 2018 changed certain of the limits addressed below, as originally announced in the fall of 2017, to reflect indexing changes under the TCJA (Rev. Proc. 2018-18 (Mar. 5, 2018); see Legal Updates, Reflecting the TCJA, IRS Changes Certain Benefit Limits for 2018 and IRS 2018 Benefit Plan Limit Adjustments Include Limits for QSEHRAs).
Adjustments for Health FSAs, Fringe Benefits, and More
For 2019, the following limits will apply under Revenue Procedure 2018-57:
- The dollar limit on employee salary reduction contributions to health FSAs is $2,700 (a $50 increase from 2018) (see Practice Note, Cafeteria Plans: Dollar Limit on Employee Salary Reduction Contributions to Health FSAs).
- The maximum credit allowed for adoption of a child is $14,080 (an increase of $270 from 2018; see Legal Update, Reflecting the TCJA, IRS Changes Certain Benefit Limits for 2018). The adoption credit begins to be phased out for individuals with modified adjusted gross incomes of more than $211,160 (for 2018, as adjusted under Revenue Procedure 2018-18, this amount is $207,140), and is completely phased out for individuals with modified adjusted gross incomes of $251,160 or more (for 2018, also as adjusted under Revenue Procedure 2018-18, this amount is $247,140 or more). Both phase-out adjustments are an increase of $4,020 over their 2018 counterparts (see Practice Note, Fringe Benefits: Adoption Assistance Programs).
- The maximum amount that can be excluded from an employee's gross income for the adoption of a child under an employer's adoption assistance program is $14,080 (an increase of $270 from 2018). As with the adoption credit, the exclusion begins to be phased out for individuals with modified adjusted gross incomes of more than $211,160 (for 2018, this amount is $207,140), and is completely phased out for individuals with modified adjusted gross incomes of $251,160 or more (for 2018, this amount is $247,140 or more). Both phase-out adjustments are an increase of $4,020 over their 2018 counterparts (see Practice Note, Fringe Benefits: Adoption Assistance Programs).
- The monthly limits for qualified transportation fringe benefits are as follows:
- the aggregate monthly limit for transit passes and transportation in a commuter highway vehicle is $265 (an increase of $5 from 2018); and
- the monthly limit an individual can exclude for qualified parking is $265 (an increase of $5 from 2018) (see Practice Note, Fringe Benefits Under Code Section 132: Transportation and Other Benefits: Qualified Transportation Benefits).
- Regarding Archer medical savings accounts (Archer MSAs), a high-deductible health plan (HDHP) (self-only coverage) is a health plan with an annual deductible that is:
- not less than $2,350 (up from $2,300 for 2018); and
- not more than $3,500 (up from $3,450 for 2018).
Annual out-of-pocket expenses for covered benefits must not exceed $4,650 (up from $4,550 for 2018, as adjusted under Revenue Procedure 2018-18) (see Practice Note, Defined Contribution Health Plans: Overview: Archer Medical Savings Accounts (Archer MSAs) and Legal Update, Reflecting the TCJA, IRS Changes Certain Benefit Limits for 2018). - Also regarding Archer MSAs, an HDHP (family coverage) is a health plan with an annual deductible that is:
- not less than $4,650 (up from $4,550 for 2018, as adjusted under Revenue Procedure 2018-18; see Legal Update, Reflecting the TCJA, IRS Changes Certain Benefit Limits for 2018); and
- not more than $7,000 (up from $6,850 for 2018).
Annual out-of-pocket expenses for covered benefits must not exceed $8,550 (up from $8,400 for 2018). - Under the ACA's small business health care tax credit (Section 45R of the Internal Revenue Code), the maximum credit is phased out based in part on an employer's average annual wages in excess of $27,100 for 2019 (an increase of $500 from 2018) (26 U.S.C. § 45R; see Legal Update, Reflecting the TCJA, IRS Changes Certain Benefit Limits for 2018). The $27,100 amount also is used in calculating who is an eligible small employer for the credit (see Practice Note, Small Business Health Care Tax Credit Under the ACA).
- The total payment and reimbursement amounts for the year under a qualified small employer health reimbursement arrangement (QSEHRA) cannot exceed:
- $5,150 (increased from $5,050 under Code Section 9831(d) (26 U.S.C. 9831(d))).
- $10,450 for family coverage (increased from $10,250 under Code Section 9831(d)).
- For 2019, there is no limitation for miscellaneous itemized deductions, including business-related travel expenses that are not reimbursed by an employer (see Practice Note, Fringe Benefits Under Code Section 132: Transportation and Other Benefits: Suspension of Miscellaneous Itemized Deductions). The TCJA eliminated miscellaneous itemized deductions for tax years beginning after December 31, 2017, and before January 1, 2026.
HSA Limits for 2019
Earlier in the year, the IRS also issued 2019 inflation adjustments for HSAs and HDHPs (Rev. Proc. 2018-30 (May 10, 2018); see Practice Note, Defined Contribution Health Plans: Overview). Under this guidance, the annual HSA contribution limit for an individual with:
- Self-only HDHP coverage is $3,500 (an increase of $50 from 2018).
- Family HDHP coverage is $7,000 (an increase of $100 from 2018; see also Rev. Proc. 2018-27).
For 2019, an HDHP is a health plan with:
- An annual minimum deductible of:
- $1,350 for self-only HDHP coverage; or
- $2,700 for family HDHP coverage (both amounts are unchanged from 2018).
- Annual out-of-pocket expenses (that is, deductibles, copayments, and other amounts, but not premiums) that are not more than:
- $6,750 for self-only HDHP coverage (an increase of $100 from 2018); or
- $13,500 for family HDHP coverage (an increase of $200 from 2018).
ACA Premium Tax Credit
The ACA provides for a refundable tax credit (known as the premium tax credit (PTC)) for eligible individuals and families who purchase health insurance through an ACA exchange (26 U.S.C. § 36B; see Practice Note, Affordable Care Act (ACA) Overview). Taxpayers who meet certain criteria may have some or all of their estimated PTC paid to the insurer in advance. However, if a taxpayer's advance credit payments are more than the actual PTC, the taxpayer owes the excess credit as a tax.
Under Revenue Procedure 2018-57, the following limits apply for tax years beginning in 2019:
- If household income is less than 200% of the federal poverty line (FPL), the limits are:
- $300 for unmarried individuals (other than surviving spouses and heads of households) (unchanged from 2018); and
- $600 for all other taxpayers (unchanged from 2018).
- If household income is at least 200%, but less than 300%, of the FPL, the limits are:
- $800 for unmarried individuals (other than surviving spouses and heads of household) (a $25 increase from 2018); and
- $1,600 for all other taxpayers (a $50 increase from 2018).
- If household income is at least 300%, but less than 400%, of the FPL, the limits are:
- $1,325 for unmarried individuals (other than surviving spouses and heads of household) (a $25 increase from 2018); and
- $2,650 for all other taxpayers (a $50 increase from 2018).
ACA Individual Mandate Penalty (Inflation-Adjusted)
Effective regarding health coverage status for months beginning in 2019, the TCJA reduced to zero the penalty for violating the ACA's individual mandate (that is, for individuals who fail to maintain minimum essential coverage (MEC) under the ACA) (26 U.S.C. § 5000A; see Practice Note, Affordable Care Act (ACA) Overview: Individual Mandate and Legal Update, Tax Reform Is Enacted, with Significant Implications for Executive Compensation and Employee Benefits). As a result, for the 2019 calendar year, the dollar amount used to determine the penalty for individuals who do not maintain MEC for purposes of the ACA's individual mandate is $0. (For 2018, this amount is $695.)
ACA Information Reporting
In addition, Revenue Procedure 2018-57 increases the calendar year limits for penalties regarding:
- Filing a correct information return, for returns required to be filed in 2019 (26 U.S.C. § 6721).
- Furnishing a correct statement to individuals, for statements required to be furnished in 2019 (26 U.S.C. § 6722).
PCOR Dollar Amount
The IRS also recently announced the increased dollar amount for use in calculating patient-centered outcomes research (PCOR) fees under the ACA (IRS Notice 2018-85 (Nov. 5, 2018)) (see Practice Note, Patient-Centered Outcomes Research (PCOR) Fees Under the ACA).
The applicable dollar amount for plan and policy years ending on or after October 1, 2018, and before October 1, 2019, will increase from $2.39 to $2.45. (The applicable dollar amount of $2.39 applied for plan and policy years ending on or after October 1, 2017, and before October 1, 2018 (see Legal Update, PCOR Dollar Amount to Increase by 13 Cents, to $2.39).)
Social Security Wage Base
On October 11, 2018, the Social Security Administration (SSA) announced that the Social Security taxable wage base for 2019 will increase to $132,900, from $128,400 in 2018.
Practical Impact
The limits under Revenue Procedure 2018-57 were announced several weeks later than in most other years – potentially impacting some employers' open enrollment processes. In particular, employees who made their health FSA elections for 2019 without knowing the new $2,700 limit may ask whether those decisions can be revisited.