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REGULATORY UPDATES
December 22, 2009
H.R. 3326, the Department of Defense (DOD) Appropriations Act of 2010 (the Act), signed into law by the President on Dec. 19, 2009, grants an important lease on life to the 65% COBRA premium subsidy that was enacted by Sec. 3001, Division B, of the American Recovery and Reinvestment Act (ARRA, P.L. 111-5). The Act adds another six months to the maximum period that the COBRA subsidy can run (i.e., to a total of 15 months). The Act also extends the up-to-15 month COBRA premium subsidy to workers (and their eligible family members) who lose their jobs during the first two months of 2010. Under prior law, the subsidy wasn't available for those who lost their jobs after 2009.
The Act provides that the COBRA premium subsidy period terminates no later than the date that is fifteen months after the first day of the first month for which the ARRA premium reduction provisions apply to the individual. (ARRA Division B, Sec. 3001(a)(2)(A)(ii)(I), as amended by Act Sec. 1010(b))
The Act extends the eligibility period in Conditions (1) and (2), above, through Feb. 28, 2010. (ARRA Division B, Sec. 3001(a)(3)(A), as amended by Act. Sec. 1010(a))
If a qualified beneficiary elects COBRA coverage under the regular election procedures, the plan can't require the payment of any premium earlier than 45 days after the day on which the qualified beneficiary made the initial election for continuation coverage.
For purposes of the rule requiring otherwise eligible qualified beneficiaries to timely elect COBRA continuation coverage, ARRA provided an extended 60-day election period for certain individuals who did not have a COBRA continuation coverage election in effect on Feb. 17, 2009 (ARRA enactment date).
If an individual elected COBRA coverage under the ARRA extended election period, a plan couldn't require payment for any period of federal COBRA coverage for a qualified beneficiary earlier than 45 days after the date on which the election of COBRA continuation coverage is made for that qualified beneficiary.
The Act permits AEIs to elect to pay COBRA premiums (as reduced by the subsidy) retroactively, and maintain their COBRA coverage.
The Act further clarifies that any period within the transition period, above, for which the applicable premium has been paid under ARRA Division B, Sec. 3001(c)(16)(A), is to be treated as a period of COBRA coverage, irrespective of the individual's failure to timely pay the applicable premium for the period. (ARRA Division B, Sec. 3001(a)(16)(C)(ii), as amended by Act Sec. 1010(c))
An AEI who mistakenly pays the full COBRA continuation premium for any period of COBRA continuation coverage during the AEI's transition period, is to be provided with a refund (i.e., for 65% of the premium), following the procedures carried in ARRA Division B, Sec. 3001(b)(12). (ARRA Division B, Sec. 3001(a)(16)(B), as amended by Act Sec. 1010(c))
New Notification Requirements
Under the COBRA provisions of the Code (and ERISA), following a qualifying event (e.g., a covered employee's termination of service, or reduction of hours that causes the loss of coverage), a group health plan administrator must provide qualified beneficiaries with a notice that explains the beneficiary's right to elect COBRA continuation coverage, the coverage that may be elected, the duration of the coverage, how much the coverage will cost, and how and when it must be paid.
The Act provides that for an individual who was an AEI at any time on or after Oct. 31, 2009, or experiences a qualifying event (consisting of termination of employment) relating to COBRA continuation coverage on or after that date, the administrator of the group health plan (or other entity) involved must provide an additional notification with information regarding the amendments made by Act Sec. 1010. This additional notification must be made no later than Feb. 17, 2010 (i.e., within 60 days after the enactment date) or, in the case of a qualifying event occurring after Dec. 19, 2009, consistent with the timing of notifications under paragraph ARRA Division B, Sec. 3001(a)(7)(A). (ARRA Division B, Sec. 3001(a) (16)(D)(i), as amended by Act Sec. 1010(c))
The Act provides other notification rules. Please contact us or refer to the text of the law if you have any additional questions.
2009 Required Minimum Distributions From IRA or Qualified Retirement Plan Waived for 2009
December 16, 2009
Under federal law, persons age 70 1/2 or over are generally required to take a minimum distribution each year from their IRA or employer-provided qualified retirement plan. However, the minimum distribution requirement is waived for calendar year 2009 (Public Law 110-458).
Wisconsin has adopted the provisions of Public Law 110-458. Therefore, the waiver of the minimum distribution requirement also applies for Wisconsin for 2009. Persons who are not required to take a minimum distribution for federal tax purposes for 2009 are also not required to take a minimum distribution for Wisconsin tax purposes for 2009.
Wisconsin - Minnesota Reciprocity Agreement Ends Effective January 1, 2010 September 28, 2009
Minnesota officials canceled the reciprocity agreement with Wisconsin that allowed residents of one state to file a single state income tax return if they worked across the border. The cancellation will affect about 33,500 Wisconsin residents and 13,000 Minnesota residents. Reciprocity between Wisconsin and Minnesota was enacted in 1967.
Effect Of Cobra Assistance On The Wisconsin Subtraction For Medical Care Insurance September 22, 2009
Federal Law The American Recovery and Reinvestment Act of 2009, enacted February 17, 2009, provides for a 65% reduction in the premium otherwise payable by certain involuntarily terminated individuals and their families who elect COBRA (Consolidated Omnibus Budget Reconciliation Act of 1985) continuation health coverage.
An assistance eligible individual is generally an individual who was involuntarily terminated during the period from September 1, 2008, through December 31, 2009. The premium reduction applies for up to nine months.
The amount of any premium reduction is excluded from an individual’s gross income. If the premium reduction is provided and the individual’s modified adjusted gross income for the tax year exceeds $145,000 ($290,000 for married filing jointly), the amount of the premium reduction is recaptured as an increase in the individual’s federal income tax liability. The recapture is phased in for individuals with modified adjusted gross income in excess of $125,000 ($250,000 for married filing jointly).
The employer is reimbursed for the remaining 65% of the premium through a credit against its federal payroll taxes.
Wisconsin Law A subtraction from income is generally allowed to self employed individuals, individuals who are employed, and individuals who have no employer and are not self employed, for all or a portion of the amount paid for medical care insurance for the individual, his or her spouse, and the individual’s dependents.
For taxable years beginning in 2009, an individual who is neither employed nor self employed may subtract 66.7% of the amount paid for medical care insurance. An individual whose employer paid a portion of the cost of the insurance may subtract 10% of the amount paid for medical care insurance.
Effect of Cobra Assistance on the Wisconsin Subtraction for Medical Care Insurance
Example 1
An individual was involuntarily terminated in July of 2009. The person elected COBRA insurance coverage and qualified for the COBRA premium reduction. The cost of the insurance was $1,000 a month. For three months, the individual paid $350 a month for the insurance and the COBRA premium reduction was $650 a month. The individual was then employed by another company.
For the period during which the individual was unemployed, the amount paid by the individual for medical care insurance was $1,050 ($350 x 3). Assuming all qualifications are met, the individual may claim a subtraction for $700.35 ($1,050 x .667 = $700.35) as an individual who was neither employed nor self employed.
Example 2
The facts are the same as in Example 1. However, as a result of the new employment, the individual had an increase in income to the extent that the entire premium reduction had to be recaptured. The individual added $1,950 ($650 x 3) to his/her 2009 federal tax liability. The recapture amount was paid with the 2009 federal income tax return due April 15, 2010.
The recapture amount is considered an amount paid for medical care insurance. The $1,950 may be used in computing the subtraction for medical care insurance on the 2010 Wisconsin income tax return.
2009 Taxation of Unemployment Compensation September 9, 2009
For federal income tax purposes, Public Law 111-5, enacted February 17, 2009, provided that for 2009, the first $2,400 of unemployment compensation is excluded from income. This provision of federal law was not adopted for Wisconsin.
For Wisconsin income tax purposes, the amount of taxable unemployment compensation is the lesser of (1) the total unemployment compensation received in 2009, or (2) one-half of the amount by which federal adjusted gross income less certain adjustments exceeds $18,000 ($12,000 if single or married and did not live with your spouse at any time during the year, or -0- if married and lived with your spouse at any time during the year).
A worksheet for determining the amount of unemployment compensation taxable to Wisconsin is provided in the instructions for the income tax forms. When determining taxable unemployment compensation, the taxpayer must enter his or her federal adjusted gross income on the worksheet.
Because of the definition of the Internal Revenue Code provided under Wisconsin law, the amount to enter on the worksheet as federal adjusted gross income cannot be taken directly from the taxpayer’s federal income tax return. For example, the Wisconsin definition of the Internal Revenue Code does not include the exclusion for the first $2,400 of unemployment compensation, the deduction for educator expenses, or the deduction for tuition and fees.
Taxpayer’s who file Wisconsin Form 1 or Form 1NPR are required to complete Wisconsin Schedule I, Adjustments to Convert 2009 Federal Adjusted Gross Income and Itemized Deductions to the Amounts Allowable for Wisconsin. This schedule will recompute federal adjusted gross income to account for the differences between federal and Wisconsin law. This recomputed federal adjusted gross income is the amount to enter on the worksheet as federal adjusted gross income.
Taxpayers who file Wisconsin Form 1A do not have to complete Schedule I. However, when completing the unemployment compensation worksheet, they still must recompute federal adjusted gross income to account for the differences in federal and Wisconsin law. Therefore, the amount to enter on the worksheet is the federal adjusted gross income as shown on the federal return plus the amount of unemployment compensation excluded from federal income, the amount of any federal educator expense deduction, and the amount of any federal tuition and fees deduction.
Wisconsin Advance Earned Income Credit (EIC)
A provision in the recently enacted 2009 Wisconsin Act 28 provides for a Wisconsin advance EIC payment.
Wisconsin will now allow a full-year legal resident of Wisconsin to request that his or her employer add to his or her paycheck a Wisconsin advance EIC. The amount of the Wisconsin advance payment is a percentage of the federal advance EIC. The amount is based on the anticipated number of qualifying children of the individual (4% for one child, 14% for two children, and 43% for three or more children).
Individuals who want to claim Wisconsin advance EIC must file Form WT-5 with their employers. Form WT-5, Wisconsin Earned Income Credit Advance Payment Certificate, and instructions are available at http://www.revenue.wi.gov/forms/with/index.html.
An individual claiming the Wisconsin advance EIC is required to file a Wisconsin individual income tax return for the year. Wisconsin individual income tax Forms 1, 1A, and 1NPR will be revised to account for the Wisconsin advance EIC.
An employer, when completing Form WT-6, Withholding Tax Deposit Report and Form WT-7, Employers Annual Reconciliation of Wisconsin Income Tax Withheld from Wages, may deduct the total Wisconsin advance EIC payments from the aggregate amount that the employer was required to withhold from employee wages. The Form WT-7 will be revised to add line(s) to account for the advance EIC. No changes will be made to Form WT-6. The employer enters on Form WT-6 the net amount of tax withheld less the Wisconsin advance EIC paid for the period.
Employers must report the Wisconsin advance EIC payment to an employee on the employee’s Form W-2. Employers should include in box 14 the code “WEIC” followed by the amount of the advance EIC paid to the employee.
This provision is based on the federal advanced EIC. If the federal advance EIC is discontinued, the State of Wisconsin’s program will also be discontinued.
For additional information and/or assistance, read the FAQs at www.revenue.wi.gov or call the department’s Customer Service Bureau at 608-266-2772.
E-File Mandate for Corporation Combined Returns
For tax year 2009 and forward, all Corporation combined returns are required to be filed electronically (Wisconsin Administrative Code section Tax 2.67(1)(b)). Any amount owed from the corporation combined return is encouraged to be paid by electronic means through direct debit/withdrawal, ACH Credit or by credit card. Each process enables you to “warehouse” a payment in advance until the actual due date. There are provisions to request a waiver if the requirement to e-file causes an undue hardship. Any waiver request must be in writing and must explain in detail why the requirement causes an undue hardship. A waiver request can be e-mailed at DORWaiverRequest@revenue.wi.gov, faxed to 608-264-7776 or addressed to Mandate Waiver Request, Wisconsin Department of Revenue, Mail Stop 5-77, P.O. Box 8949, Madison, WI 53708-8949.
For a copy of the full article go to http://www.revenue.wi.gov/taxpro/news/090810.html
Corporations do have a number of choices to e-file found at http://www.revenue.wi.gov/eserv/corp/index.html, such as through their tax preparer or third-party software.
Last updated August 10, 2009
The new FEDERAL minimum wage goes into effect July 24, 2009!
On July 24, 2009 the FEDERAL minimum wage increases to $7.25/hour (currently $6.55/hour).
The FEDERAL youth minimum wage, otherwise known as the opportunity wage, for workers under the age of 20 remains at $4.25 for the first 90 consecutive days of employment.
The FEDERAL minimum wage rate for tipped employees remains $2.13/hour. A tipped employee is an employee who regularly receives more than $30 a month in tips.
For more information on Federal Minimum Wage please visit the U.S. Department of Labor website at:
http://www.dol.gov/compliance/topics/wages-minimum-wage.htm
You may also find a link to Current State Minimum Wage Rates on the DOL website. If the State minimum wage is above the Federal minimum wage, employees are entitled to the higher of the two rates.
COBRA Subsidy Guidance
If Your Group Health Plan Is Subject To COBRA, The American Recovery And Reinvestment Act (ARRA) Of 2009 May Impact YouThe U.S. Congress has passed the American Recovery and Reinvestment Act (ARRA) of 2009. The bill became law on February 17, 2009.
Coverage For Employees Involuntarily Losing Their Jobs Between September 1, 2008 And December 31, 2009 ARRA includes provisions expanding COBRA health continuation coverage for those employees who involuntarily lose their jobs between September 1, 2008 and December 31, 2009. ARRA requires employers to subsidize 65 percent of the COBRA premium for nine months, leaving terminated employees to pay only 35 percent. Eligible employees involuntarily terminated September 1, 2008 or later who rejected COBRA coverage would be given an additional 60 days to reconsider and elect coverage.
Mandatory Notice And Election Deadline April 20, 2009 In order to comply with ARRA, employers must send out the notice and election requirement to qualified terminated employees by April 20, 2009.
COBRA Subsidy Guidance for Employers During the last month, we have been patiently waiting for the IRS, Department of Labor, and the Department of Health and Human Services to develop the revised COBRA Initial Notice and Election forms for the COBRA Subsidy plan under the American Recovery and Reinvestment Act (ARRA). Now that the revised COBRA Notice and Election forms have arrived, it is time for you to take action.
Download our document for guidance and our recommended action steps to meet your requirements under the ARRA changes to COBRA. If you have a COBRA vendor, they may be performing many of these steps for you.
For additional information, please email marketing@benefitsinc.com or call us at (262)207-1999.
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