Benefits Bryan Cave

Benefits BCLP

Taxation of Benefits

Main Content

IRS Issues Clarification on Phased Retirement Payments

July 5, 2016

Authors

benefitsbclp

IRS Issues Clarification on Phased Retirement Payments

July 5, 2016

by: benefitsbclp

Part-time and full-time job working businessman business man conceptTypically, when a participant receives annuity payments from a defined benefit pension plan where he or she has a basis in the benefit (what Code Section 72 calls an “investment in the contract”), a portion of the payment is treated as a recovery of that basis. Therefore, it is not taxable to the participant.  That portion is determined under the rules of Code Section 72.  The most common way in which an employee has basis in his or her benefit is by making after-tax contributions.  Currently, this is more common in governmental defined benefit plans than other plans.

However, it was not clear how these basis recovery rules worked in the context of phased retirement distributions. The IRS recently issued Notice 2016-39 to address the

Read More

New IRS Memo Confirms Tax Treatment of Wellness Programs & Incentives

June 14, 2016

Authors

Chris Rylands and Lisa Van Fleet

New IRS Memo Confirms Tax Treatment of Wellness Programs & Incentives

June 14, 2016

by: Chris Rylands and Lisa Van Fleet

Wellness Word CloudIn a recently released IRS Chief Counsel Memo, the IRS confirmed that wellness incentives are generally taxable. The memo also, indirectly, confirmed the tax treatment of wellness programs more generally.

As to the incentives, the IRS held that a cash payment to employees for participating in a wellness program is taxable to the employees. The memo did not deal with incentives paid to dependents, but we presume those would be taxable to the applicable employee as well.  The IRS did say that certain in-kind fringe benefits (like a tee shirt) might be so de minimis as to be exempt as fringe benefits.  Confirming the IRS’s long-standing position, however, cash does not qualify for this exception and is taxable.

This tax treatment also applies to premium reimbursements if

Read More

The President’s Benefits Budget Proposals

March 2, 2016

Authors

Chris Rylands

The President’s Benefits Budget Proposals

March 2, 2016

by: Chris Rylands

ThinkstockPhotos-122516159A few weeks ago, the President released his proposed budget for the fiscal year 2017. As usual, it is dense. However, the President has suggested some changes to employee benefits that are worth noting. While they are unlikely to get too much traction in an election year, it is useful to keep them in mind as various bills wind their way through Congress to see what the President might support.

  • Auto-IRAs. Stop us if you’ve heard this one before. The proposal would require every employer with more than 10 employees that does not offer a retirement plan to automatically enroll workers in an IRA. No employer contribution would be required and, of course, individuals could choose not to contribute. (In case you’ve forgotten, we’ve seen this before.)
  • Tax Credits for Retirement Plans. Employers
    Read More

Congress Engages in Some Holiday Spending on Benefits

January 6, 2016

Authors

Brian Berglund

Congress Engages in Some Holiday Spending on Benefits

January 6, 2016

by: Brian Berglund

Congress’s recent $1.8 trillion holiday shopping spree (aka The Consolidated Appropriations Act, 2016, which became law on December 18, 2015) included a few employee benefit packages. We recently unwrapped the packages. Here is what we found.

ThinkstockPhotos-86538940

1.   Cadillac Tax Delayed. The largest present under the employee benefits tree is a delay in the so-called “Cadillac” tax, which as originally enacted imposed a 40% nondeductible excise tax on insurers and self-funded health plans with respect to the cost of employer-sponsored health benefits exceeding statutory limits. The tax is now scheduled to take effect in 2020 rather than 2018. Once – or if – the delayed tax provision becomes effective, it will be deductible. The cost of this gift is $17.7 billion.

Since the Cadillac tax is basically unadministrable in its current form, we can’t imagine there is even one person at Treasury

Read More

After Obergefell, Is it “Get Married Or Else”?

July 1, 2015

Authors

Chris Rylands and Denise Erwin

After Obergefell, Is it “Get Married Or Else”?

July 1, 2015

by: Chris Rylands and Denise Erwin

Gavel and RingsAs has now been widely reported, the Supreme Court ruled on June 26 (the second anniversary of the Windsor decision) that same-sex couples have a right to marry in any part of the United States. Despite being hailed as a victory for marriage equality, as this New York Times article points out, it may not be such happy news for currently unwed domestic partners. Specifically, there is a concern, as the article points out, that employers who previously extended coverage to domestic partners out of a sense of equity may now decide not to since both opposite-sex and same-sex couples can now marry.

As the article mentions, there was a concern at one time that domestic partnership rules would be used by some employees to cover individuals with whom they

Read More

Florida Stamp Tax

September 26, 2014

Authors

Richard Arenburg

Florida Stamp Tax

September 26, 2014

by: Richard Arenburg

FloridaIf your 401(k) plan maintains a participant loan program, you may discover that you have compliance concerns thanks to a relatively obscure Florida tax statue. 

Under its revenue laws, Florida imposes a document tax on loan transactions that are made, signed, executed, issued, or otherwise transacted in the State.  The Florida Department of Revenue has specifically ruled that 401(k) plan loans are subject to the tax.  The law further provides that no state court may enforce the provisions of a promissory note if the document tax is not paid. 

We believe it would be a challenge to sustain a position that the Florida statute is preempted by ERISA.  A failure to pay the tax, therefore, could mean that a 401(k) plan is extending loans that are not adequately

Read More

83(b) Elections

September 5, 2014

Authors

Chris Rylands

83(b) Elections

September 5, 2014

by: Chris Rylands

Our sister blog, Start-Up Bryan Cave, recently posted about when and why to use the an 83(b) election.  The post has a good discussion of the advantages and disadvantages.

One item it does not mention is the company’s deduction, which is taken if and when the 83(b) election is made.  In the absence of an election, the deduction occurs when the property vests.

Of course, for the company to take the deduction, it has to know that the election has been made.  Even though the IRS rules require the recipient to give a copy to the company, another valuable planning point is to make sure that the agreement itself also requires the recipient to provide a copy of the election to the company.

Read More

Modifying the Affordable Care Act to Make It Better

June 25, 2014

Authors

benefitsbclp

Modifying the Affordable Care Act to Make It Better

June 25, 2014

by: benefitsbclp

One of my law school professors and now good friends, Professor Burt Brody, has been contemplating beneficial changes to the Affordable Care Act.  I think he is on to something beneficial.

Professor Brody has written an op-ed piece published in the Desert Sun on May 21, 2014.  In the column, he supports the notion of having the health insurance industry participate fully in the correction, and he eschews the notion of “national health care” in its pejorative sense.  Professor Brody, without saying so, realizes that the Act is a health insurance reform act, not truly a health care reform act.

His suggestion is to take the amount that the federal government spends today on health care, and dole it out to everyone with a Social Security card – that’s every legal American – based on age brackets and veteran status that reflects perceived need for  health

Read More

401(k) Elbowing Out HELOCs As Rainy Day Fund

May 14, 2014

Authors

Chris Rylands

401(k) Elbowing Out HELOCs As Rainy Day Fund

May 14, 2014

by: Chris Rylands

Broken Piggy BankAs has been widely reported, Americans have increasingly turned to their 401(k)s to fund emergency expenses.  Of course, withdrawals before 59 ½ are subject to an additional 10% tax.  As this Bloomberg story notes, the IRS collected $5.7 billion from the early withdrawal penalty, which means people withdrew $57 billion early.

As we have said before, 401(k) plans were actually never intended as retirement plans, but as savings plans.  That’s why they allow distributions on hardship and for other purposes.  So if 401(k)s are being used as more or less originally intended, why is this a problem?

First of all, it’s interesting behavior considering so many participants are concerned their 401(k) plans won’t be available to help fund their retirement, as we discussed previously.  By withdrawing early,

Read More

Retirement Plans Post-DOMA: Is IRS Guidance on Amendments Really Imminent?

April 3, 2014

Authors

benefitsbclp

Retirement Plans Post-DOMA: Is IRS Guidance on Amendments Really Imminent?

April 3, 2014

by: benefitsbclp

Update (4/11): See our post here on the recently released guidance.

The employee benefits community continues to wait with baited breath on IRS guidance regarding the amendments necessary to qualified retirement plans in the wake of last Summer’s Windsor decision determining that Section 3 of the Defense of Marriage Act is unconstitutional.  (Recall that Section 3 of DOMA defines “spouse” and “marriage” to exclude same sex spouses and marriages.)  The IRS 2013-2014 Priority Guidance Plan for the period running through June 2014 includes issuance of this guidance as a top priority.   In December 2013, a Treasury Department official said that guidance was expected “fairly imminently.”  In February, such guidance seemed very imminent.  Yet, here we sit in the second quarter of 2014 with no guidance yet issued….

Notwithstanding the absence of guidance, to administer retirement plans in operational compliance with the Windsor decision, employers must currently treat same sex

Read More
The attorneys of Bryan Cave LLP make this site available to you only for the educational purposes of imparting general information and a general understanding of the law. This site does not offer specific legal advice. Your use of this site does not create an attorney-client relationship between you and Bryan Cave LLP or any of its attorneys. Do not use this site as a substitute for specific legal advice from a licensed attorney. Much of the information on this site is based upon preliminary discussions in the absence of definitive advice or policy statements and therefore may change as soon as more definitive advice is available. Please review our full disclaimer.