SAN FRANCISCO, Jan. 5, 2022 – Top risk consultant Sky Wolfe is the latest addition to Newfront, a tech-enabled, full-service brokerage based in San Francisco, CA. As Assistant Vice President and Producer, Sky will serve clients in the Real Estate and Development, Construction, Architects and Engineers, and Manufacturing industries. “We are thrilled to welcome Sky, as we continue expanding […]

Sky Wolfe Joins Fast-Growing Newfront's Northwest Team

Question: How can employers and their TPAs process dependent care FSA debit card expenses when most daycare providers require advance payment?

Short Answer: Dependent care FSA expenses are not considered incurred until the services for the period are fully provided (e.g., the end of the month). This makes it difficult to pay for such expenses with a debit card when the provider requires advance payment (e.g., the start of the month) before the FSA can permit payment. However, as a workaround the cafeteria plan rules permit a recurring daycare expense to be initially substantiated and used to load the FSA debit card to pay for each future service period at the same daycare provider.

Newly-Issued IRS Guidance Reiterates FSA Substantiation Rules

The IRS recently issued new guidance that again confirms the claims substantiation requirements for payment or reimbursement of both health FSA and dependent care FSA expenses.  The guidance is a shot across the bow to employers and FSA third-party administrators (TPAs) that serves both as a warning and a reminder to follow the appropriate timing and method of substantiation in accordance with Section 125 regulations.

The guidance reiterates that dependent care FSA expenses cannot be reimbursed before they are incurred and properly substantiated.The prohibition on advance substantiation/reimbursement has always presented issues for dependent care FSA debit card arrangements because employees generally must pay for daycare services before the period of service is complete.However, this post walks through the workaround to that debit card timing predicament that the IRS reaffirmed in its latest guidance.

General Rule: Expense Must be Incurred and Substantiated Before Claim is Reimbursable

A dependent care FSA may not reimburse an expense before it is incurred.  For these purposes, a dependent care expense is considered “incurred” when the care is fully provided for the service period.  

In other words, the dependent care expense is not incurred when the employee is billed, charged, or pays for the dependent care.  Rather, the expense is incurred (and therefore reimbursable) only when the actual service has been fully performed (e.g., the end of the month for most daycare providers).

Furthermore, the dependent care FSA may not reimburse any expense that has not been properly substantiated by an independent third-party, such as a daycare provider.  The independent third-party must provide information describing the service, the date of the service, and the expense amount. 

Only those substantiated expenses that have already been incurred (i.e., the dependent care services already provided) can be reimbursed.  Reimbursing expenses before the expense has been incurred or before the expense has been substantiated is not permitted.  Accordingly, the dependent care FSA cannot approve a claim as substantiated if that claim has not yet been incurred.

For more details: When FSA Expenses are Incurred

Practical Issues with Dependent Care FSA Debit Cards and the Substantiation Rules

As described above, the dependent care FSA cannot reimburse the employee’s daycare expenses before the end of the service period in which daycare services are provided.  However, most daycare providers will charge an up-front amount that the employee must pay in advance of the services.  

For example, a daycare provider charging $1,200 for the month of August will generally require that the employee pay the full $1,200 at or around the first of the month.  This creates a practical problem because the employee will not be considered to have “incurred” the daycare services until they are fully performed (as of the last day of August in this example), but the employee needs to pay for those services well in advance of that date.   

How then can employees use a dependent care FSA debit card to pay for daycare service expenses that are due before the expense is considered incurred and can be treated as substantiated?  Fortunately, the cafeteria plan rules include an IRS-approved system for addressing this issue.

Using a Dependent Care FSA Debit Card to Pay for Recurring Daycare Expenses

The IRS-approved substantiation workaround for using a dependent care FSA debit card to pay a daycare provider is made possible by the fact that most daycare expenses are recurring.  In other words, employees typically incur the same daycare expense on a regular basis (e.g., monthly, weekly) for a significant duration of time (e.g., six months-one year).  While the prohibition on advance reimbursement still applies in this context, the workaround allows the employee to rely on a prior period’s substantiated daycare expense to substantiate the current period’s daycare expense—within certain limitations—and thereby permit use of the debit card to pay for the current period’s daycare expense.

There is a four-step process to using the debit card for recurring dependent care FSA expenses:

Initial Substantiation of Qualifying Dependent Care Expense
The process begins with employees paying for their qualifying dependent care expense without using the FSA debit card.  At the beginning of the plan year or upon enrollment in the dependent care FSA, the employee will submit a statement to the FSA from the dependent care provider that substantiates the dates and amounts for the services provided.

 Debit Card Funded, But Amounts Not Reimbursed
With a standard dependent care FSA claim, the employee would simply receive reimbursement for the eligible claim submitted.  However, in this case the FSA will instead make the amount available through the debit card.  
In response to the initial approved claim, the debit card is loaded with an amount equal to the lesser of:
a) The previously incurred and substantiated expense; or
b) The employee's total year-to-date dependent care FSA contribution amount.
To avoid violating the advance reimbursement rules, the amount funded on the debit card will not be available until the expenses are considered “incurred,” which is the end-date of the services provided by the daycare provider as listed on the initial statement (e.g., the end of the daycare service month). 

Employee Uses Funds Loaded onto Debit Card to Pay Subsequent Daycare Expenses
With the funds that are loaded onto the dependent care FSA debit card from the initial substantiated expense, the employee can then use the card to pay for the next period of daycare services from the same (already approved) provider.  In other words, the amount loaded onto the debit card from the first period of services (e.g., January) can be used to pay the same daycare provider for the next period of services (e.g., February).  
Even though the subsequent period of daycare services (e.g., February) has not yet been completed and therefore the expense has not been "incurred" for FSA purposes, the employee can still use the debit card to pay for such services at the beginning of the subsequent period.  This is made possible by the previously incurred expense from the initial period (e.g., January) that was loaded onto the debit card at the end of that initial period.

Employee Continues Paying Recurring Daycare Expense with FSA Debit Card
Using this approach, the employees can continue using the dependent care FSA debit card to pay for their ongoing dependent care FSA expenses with the same provider.  Each period of expense can be paid when due, even though it is before the services are considered incurred (i.e., before the month or other period of service is complete).  The rules permit this approach because the funds loaded onto the debit card will always derive from the previous completed period of daycare services.
Card transactions that match the same daycare provider and time period are treated as substantiated without further review as long as the amount charged is equal to or less than the initially substantiated expense.  This rolling "look-back" approach will therefore continue to be considered automatically substantiated based on the initial claim until:
a) There is an increase in the previously substantiated amounts; or
b) The employee changes daycare providers.
In either case, the employee must restart the process by paying for the claim outside of the debit card and submitting a statement or receipt from the daycare provider substantiating the claimed expenses relating to the new cost.  Once approved, the new amount may be added to the card and available to use in future periods of service (e.g., months) in the same way the process began initially.

Example:

Matthew and Marilla Cuthbert have an 11-year-old daughter Anne attending Avonlea After-School.

Avonlea After-School charges $500 per month for its dependent care services provided to Anne.

Matthew is a new participant in the Green Gables Farm's calendar plan year dependent care FSA, which offers a debit card, having elected $5,000 at open enrollment.

Matthew pays January's after-school bill (without using the debit card, which has no balance yet) on January 5, and submits the claim to the dependent care FSA the next day requesting use of the debit card going forward.
Result:

The TPA for the Green Gables Farm dependent care FSA substantiates and approves the claim as a valid daycare expense for Anne because the statement properly includes a description of the services, the amount of the services, and the dates of the services.

On January 31, the last day of the service period for January, the FSA claim is considered incurred and therefore the funds are loaded onto Matthew’s debit card.

Although the claim was for $500, Matthew has contributed only $416 ($208 per 24 pay periods) year-to-date, and therefore only that amount is loaded to the card.

For the month of February, Matthew uses the debit card to pay the same $500 Avonlea After-School expense for Anne on February 1.

Matthew has only $416 available on the card, so he pays the remaining $84 balance by check.

Matthew can continue to pay for all or a portion of Anne's monthly Avonlea After-School cost by using the debit card—until the cost increases or Anne attends a different after-school provider.

Failure to Follow Dependent Care FSA Substantiation Rules

The recent IRS guidance again confirms that in the event of an employer's (or their TPAs) failure to follow these cafeteria plan substantiation rules, the IRS could disqualify the entire cafeteria plan—thereby causing the plan to lose its tax-advantaged status (i.e., lose the safe harbor from constructive receipt)—if discovered on audit.  That could result in all elections becoming taxable for all employees.

The Section 125 Safe Harbor from Constructive Receipt

Newfront Section 125 Cafeteria Plans Guide 

Employers and FSA TPAs received a wake-up call from the IRS recently as new guidance confirmed several substantiation methods are not valid under the cafeteria plan rules.  These substantiation limitations have always made dependent care FSA debit cards particularly difficult to administer because expenses are typically incurred up-front for services not yet provided.

Fortunately, the IRS-approved workaround for dependent care FSA debit cards remains valid even following the recent guidance.  By substantiating an initial expense incurred without using the debit card, the FSA can load prior-month expenses onto the card.  The debit card can then be used to pay subsequent recurring dependent care expenses.  Although it’s not a perfect system, it at least provides a sensible method for employees with cash-flow concerns to still take advantage of the FSA debit card. 

(g) Debit cards used to pay or reimburse dependent care assistance.

(1) In general. An employer may use a debit card to provide benefits under its dependent care assistance program (including a dependent care assistance FSA). However, dependent care expenses may not be reimbursed before the expenses are incurred. See paragraph (a)(4) in this section. Thus, if a dependent care provider requires payment before the dependent care services are provided, the expenses cannot be reimbursed at the time of payment through use of a debit card or otherwise.

(2) Reimbursing dependent care assistance through a debit card. An employer offering a dependent care assistance FSA may adopt the following method to provide reimbursements for dependent care expenses through a debit card—

(i) At the beginning of the plan year or upon enrollment in the dependent care assistance program, the employee pays initial expenses to the dependent care provider and substantiates the initial expenses by submitting to the employer or plan administrator a statement from the dependent care provider substantiating the dates and amounts for the services provided.

(ii) After the employer or plan administrator receives the substantiation (but not before the date the services are provided as indicated by the statement provided by the dependent care provider), the plan makes available through the debit card an amount equal to the lesser of—

(A) The previously incurred and substantiated expense; or

(B) The employee's total salary reduction amount to date.

(iii) The card may be used to pay for subsequently incurred dependent care expenses.

(iv) The amount available through the card may be increased in the amount of any additional dependent care expenses only after the additional expenses have been incurred.

(3) Substantiating recurring dependent care expenses. Card transactions that collect information matching expenses previously substantiated and approved as to dependent care provider and time period may be treated as substantiated without further review if the transaction is for an amount equal to or less than the previously substantiated expenses. Similarly, dependent care expenses previously substantiated and approved through nonelectronic methods may also be treated as substantiated without further review. In both cases, if there is an increase in previously substantiated amounts or a change in the dependent care provider, the employee must submit a statement or receipt from the dependent care provider substantiating the claimed expenses before amounts relating to the increased amounts or new providers may be added to the card.

(4) Example. The following example illustrates the rules in this paragraph (g):

Example. Recurring dependent care expenses.

(i) Employer K sponsors a dependent care assistance FSA through its cafeteria plan. Salary reduction amounts for participating employees are made on a weekly payroll basis, which are available for dependent care coverage on a weekly basis. As a result, the amount of available dependent care coverage equals the employee's salary reduction amount minus claims previously paid from the plan. Employer K has adopted a payment card program for its dependent care FSA.

(ii) For the plan year ending December 31, 2009, Employee F is a participant in the dependent care FSA and elected $5,000 of dependent care coverage. Employer K reduces F's salary by $96.15 on a weekly basis to pay for coverage under the dependent care FSA.

(iii) At the beginning of the 2009 plan year, F is issued a debit card with a balance of zero. F's childcare provider, ABC Daycare Center, requires a $250 advance payment at the beginning of the week for dependent care services that will be provided during the week. The dependent care services provided for F by ABC qualify for reimbursement under section 129. However, because as of the beginning of the plan year, no services have yet been provided, F cannot be reimbursed for any of the amounts until the end of the first week of the plan year (that is, the week ending January 5, 2009), after the services have been provided.

(iv) F submits a claim for reimbursement that includes a statement from ABC with a description of the services, the amount of the services, and the dates of the services. Employer K increases the balance of F's payment card to $96.15 after the services have been provided (i.e., the lesser of F's salary reduction to date or the incurred dependent care expenses). F uses the card to pay ABC $96.15 on the first day of the next week (January 8, 2009) and pays ABC the remaining balance due for that week ($153.85) by check.

(v) To the extent that this card transaction and each subsequent transaction is with ABC and is for an amount equal to or less than the previously substantiated amount, the charges are fully substantiated without the need for the submission by F of a statement from the provider or further review by the employer. However, the subsequent amount is not made available on the card until the end of the week when the services have been provided. Employer K's dependent care debit card satisfies the substantiation requirements of this paragraph (g). 

Disclaimer: The intent of this analysis is to provide the recipient with general information regarding the status of, and/or potential concerns related to, the recipient’s current employee benefits issues. This analysis does not necessarily fully address the recipient’s specific issue, and it should not be construed as, nor is it intended to provide, legal advice. Furthermore, this message does not establish an attorney-client relationship.  Questions regarding specific issues should be addressed to the person(s) who provide legal advice to the recipient regarding employee benefits issues (e.g., the recipient’s general counsel or an attorney hired by the recipient who specializes in employee benefits law).

Most daycare providers require advance payment, causing challenges as employers and their TPAs process dependent care FSA debit card expenses. Newfront's Brian Gilmore covers the guidelines, a workaround, and the steps required.

Dependent Care FSA Debit Card Substantiation

Newfront, the tech-driven insurance brokerage firm, has been named the 2023 winner of the San Francisco Business Times’ Corporate Pride award. This honor recognizes one Bay Area-based company that consistently goes above and beyond in advancing LGBTQ+ equality in the workplace and community.

“This fabulous news is a well-deserved acknowledgement of the inclusive environment at Newfront and the hard work of emerge, our LGBTQ+-focused employee resource group,” said Newfront Executive Vice President and Southwest Market Leader Linde Hotchkiss, who serves as executive sponsor for the group. 

From its inception in 2021, emerge has aimed to provide a safe workplace for LGBTQ+ colleagues, family members, and allies by promoting positive work alliance and diversity in talent acquisition and vendor selection. In 2022, the group’s Pride Month programming for Newfront team members included sessions from the Equality Institute and Mercury Stardust, the Trans Handy Ma’am. Newfront’s programming for Pride Month 2023 features a fireside chat with transgender drag entertainer Paris Sukomi Max, allyship and family training courses, and a glam session hosted by Elijah Alexx. 

Newfront will be honored at a reception next week, along with 13 Bay Area leaders recognized for making a difference in the business world. See the full list of honorees at https://www.bizjournals.com/sanfrancisco/event/169231/2023/the-business-of-pride.  

To learn more about Newfront, visit: https://www.newfront.com/.

Newfront is transforming the delivery of risk management, employee experience, insurance, and retirement solutions by building the modern insurance platform. Transparent data delivered real-time translates into a lower total cost of risk and greater insights. Newfront makes insurance work for you. Headquartered in San Francisco, Newfront has offices throughout the country and is home to more than 800 employees who serve clients across the United States and globally.

Newfront has been named the 2023 winner of the San Francisco Business Times’ Corporate Pride award. This honor recognizes one Bay Area-based company that consistently goes above and beyond in advancing LGBTQ+ equality in the workplace and community.

Newfront Named 2023 Winner of San Francisco Business Times Corporate Pride Award

Research shows that more than 70 percent of Asian American, Native Hawaiian, and Pacific Islanders (AANHPI) believe they are expected to care for their parents—which can cause a financial toll in addition to emotional stress. As AANHPI Heritage Month wraps up, we take a look at what this responsibility means for members of the AANHPI community and tips on how best to prepare.

Caring for aging family members is a common scenario in many cultures, especially as our demographics continue to shift worldwide, but AANHPI individuals may feel more obligated due to a strong commitment to extended family. They are also more likely to experience income equality, costly living due to greater concentration in urban areas, and high spending on children and education.  

From housing to daily tasks, the circumstances around the care of a parent or another family member all carry costs, including mental energy, time, and financial sacrifice. Medical care can add up exponentially, impacting desired generational wealth in the AANHPI community. While these discussions are difficult, the best way to ensure a healthy outcome for all is to be prepared. Here are five tips:

1. Organize the financial picture: Before outlining a plan, collect any and all financial information for both the caregiver (you) and the relative. This should include bank account statements, savings accounts, retirement accounts, insurance coverage, and social security information, to name a few. Reviewing all of the pertinent details will help paint a picture to increase awareness for both parties and give you a path forward.

2. Work to solve any gaps: Armed with the financial landscape, next, you can identify what areas of opportunity exist. This evaluation can include reducing spending and increasing savings to address immediate cash needs with an emergency fund, working to pay down debt, or evaluating the current protection plan with insurance needs (discussed below). Improving areas of weakness can help put guardrails in the overall financial plan to prevent catastrophe and aid in your ability to care for loved ones.

A brief note on a protection plan, which is a critical component of any financial strategy and is even more important when planning to care for loved ones: Your approach should expand beyond adequate coverage for the home, automobile, and personal items, also covering life and disability insurance.

In the event of premature death, or, more likely—long-term disability—you may find insufficient income or assets to support loved ones. Review the benefits available through your employer; disability and life insurance are standard in employee benefits packages. You might also consider working with an insurance agent to help with this decision-making. Aim to have at least 60 percent income replacement on both short and long-term disability, and take into consideration future income, debt payments, potential college expenses, and potential burial costs for life insurance.

3. Ensure you and your elder loved ones have an estate plan set up: Similar to an insurance plan, an estate plan is another element that can create a lot of hassle if not set up properly. Fundamentally, an estate plan ensures assets are going to the correct persons and places upon passing. However, it is much more than that.

Most are familiar with the Last Will and Testament, which outlines your final wishes, but it is also important to account for things like financial powers of attorney and healthcare surrogates, including a living will. This helps create stop gaps in the event your elder loved ones become incapacitated and are unable to make decisions. The last thing you or your loved one would want is to leave decision-making up to the courts.

4. Exercise good investing habits: This is true during any phase of financial life, but there is greater emphasis when considering caring for loved ones in the future. You want to have sufficient assets to help cover your retirement, and you may also need to account for additional expenses beyond that if caring for loved ones. Aim to have a well-diversified investment portfolio to help minimize investment risk and maximize return.

5. Consider working with a professional: Each of the actions outlined above are challenging to accomplish, especially on your own. Consider working with professionals like CFP®s, CPAs, estate planning attorneys, and insurance agents to help you along the way. Though members of the AANHPI community tend to be self-reliant and lifelong learners, collaborating with a professional can help you identify unexpected areas of growth and opportunities.

Taking care of a loved one is no small task and is something that should be properly planned for. Consider speaking with your elder loved ones about the possibility of caregiving and lay out expectations. Ensuring everyone is on the same page can go a long way in your efforts to care for your AANHPI loved ones.

The author is not a member of the AANHPI community and does not have firsthand knowledge or understanding of the social or economic challenges faced. This blog is purely based on research and we recognize that this does not address every financial challenge faced by those who identify as AANHPI.

Newfront Retirement Services, Inc. is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration as an investment adviser does not imply any level of skill or training, and does not constitute an endorsement by the SEC. For a copy of Newfront Retirement Services disclosure brochure, which includes a description of the firm’s services and fees, please access www.investor.gov or click HERE for the disclosures on our website.

AANHPI and Finances: Five ways to prepare for the care of aging family members

The IRS has released IRS Notice 2022-59 providing the adjusted $3.00 Patient-Centered Outcomes Research Institute (PCORI) fee per covered individual for health plan years ending on or after October 1, 2022 and before October 1, 2023, which includes 2022 calendar plan years. The fee has increased $0.21 per covered individual from last year (from $2.79). 

The annual PCORI fee must be reported and paid to the IRS by July 31, 2023 via the second quarter Form 720. 

The fee is imposed on health insurance issuers and self-insured health plan sponsors in order to fund the Patient-Centered Outcomes Research Institute (PCORI). The institute operates under three overarching goals: 

Substantially increase the quantity, quality and timeliness of useful and trustworthy information available to support health decisions. 

Speed the implementation and use of patient-centered outcomes research evidence. 

Influence clinical and healthcare research funded by others to be more patient centered. 

The institute currently maintains a robust portfolio of patient-centered outcomes research that addresses a variety of high priority conditions and topics, including projects targeting certain populations of interest such as: racial and ethnic minorities, low socioeconomic status, women, older adults and individuals with multiple chronic conditions. The PCORI website lists current and completed research projects as well as outcomes. 

Fully Insured Medical Plans: Health Insurers are responsible for paying the fee on fully insured health policies. This fee is built into the insurance premium, so there is no action required by employers. 

Self-Insured Medical Plans: The plan sponsor (the employer) is responsible for paying the PCORI fee for self-insured health plans. Self-insured plans include “level funded” plans. 

For more details: Newfront Office Hours Webinar—Compliance Considerations for Self-Insured Plans 

Fully Insured Medical Plan with an HRA: The insurance carrier will pay the PCORI fee for the insured medical plan, and the employer will pay the PCORI fee based on employees enrolled in the HRA. This includes both HRAs designed to cover cost-sharing under the major medical plan and specialty HRAs such as those designed to cover infertility, abortion-related travel assistance, gender dysphoria, mental health, and other specific medical expenses. 

Self-Insured Medical Plan with an HRA: As long as the self-insured (including level funded) medical plan and HRA have the same plan year, the employer will pay the PCORI fee only for the self-insured medical plan (not the HRA). This would apply to those employees who are enrolled in the self-insured medical plan and also enrolled in a specialty HRA (such as those designed to cover infertility, abortion-related travel assistance, gender dysphoria, mental health and other specific medical expenses). 

Action Item: The employer must file the Form 720 and pay the fee for a self-insured or level funded medical plan or HRA. 

To Which Plans Does the PCORI Fee Apply? 

The PCORI fee generally applies only to major medical plans and health reimbursement arrangements (HRAs). (See below for an exception that applies to many HRAs.) 

The PCORI fee does not apply to dental and vision coverage that are excepted benefits (whether through a stand-alone insurance policy or meeting the “not integral” test for self-insured coverage). Virtually all dental and vision plans are excepted benefits. For full details, see our post: ACA and HIPAA Excepted Benefits. 

The PCORI fee also does not apply to health FSAs (which must be an excepted benefit to comply with the ACA) or HSAs (which are not a group health plan). 

For a quick reference guide, the IRS has published a table which summarizes the applicability of the fee to common types of health and welfare benefits. 

Yes, an HRA is a self-insured health plan. This includes both HRAs designed to cover cost-sharing under the major medical plan and specialty HRAs such as those designed to cover infertility, abortion-related travel assistance, gender dysphoria, mental health, and other specific medical expenses. 

For more details: Newfront Fringe Benefits for Employers Guide 

However, the PCORI rules provide an exception to the fee requirement for an HRA where it is offered along with a self-insured major medical plan that has the same plan year as the HRA. This avoids the need to pay the PCORI fee for both the HRA and the self-insured major medical plan (i.e., each person covered by both plans is counted only once for purposes of determining the PCORI fee). 

There is no exception from the PCORI fee for an HRA offered along with fully insured major medical coverage. While the insurance carrier is responsible for paying the PCORI fee for the fully insured medical plan, the employer is responsible for paying the PCORI fee on the HRA. The IRS is essentially double-dipping in this scenario by imposing the PCORI fee on the same lives covered by both the major medical and the HRA. In recognition of this, the HRA PCORI fee paid by the employer is determined by counting only one life per employee participating in the plan (and not dependents). 

Employers offering a specialty HRA alongside both a fully insured medical plan and a self-insured (including level funded) medical plan will need to calculate the cost and pay the PCORI fee for the HRA only for those employees who are not enrolled in the self-insured medical plan. For employees enrolled in the self-insured (including level funded) medical plan option and the HRA, the PCORI fee will be paid based only on the headcount in the self-insured medical plan. 

Action Item: The PCORI fee is required for an HRA unless it is paired with a self-insured major medical plan that has the same plan year as the HRA. Where the PCORI fee is required, the employer is responsible for filing the second quarter Form 720 and paying the PCORI fee for an HRA solely for the covered employees (not dependents). 

Plan Sponsors of self-insured health plans (other than an HRA) calculate the fee based on the average number of total lives covered by the plan (both employees and dependents). Plan sponsors of an HRA (including specialty HRAs) alongside a fully insured plan will calculate the fee based only on the number of employees enrolled in the HRA. 

Plan Sponsors can use one of three alternative methods which are summarized by the IRS in its PCORI fee homepage and PCORI fee FAQs: 

How Much Do I Need to Pay on the July 2023 Form 720? 

The PCORI fee is due July 31, 2023 of the calendar year following the plan year end date as follows: 

Plan Years Ending January 2022 – September 2022: $2.79 per covered life (including spouses/dependents) 

Plan Years Ending October 2022– December 2022: $3.00 per covered life (including spouses/dependents) 

For calendar plan years, the applicable rate for the 2022 plan year filed July 2023 will be $3.00 per covered life. 

The IRS has published a table of the applicable filing deadline and rate for each plan year ending date. 

Employers filing for a self-insured medical plan should keep in mind that the plan year is the ERISA plan year reflected in the plan document, SPD, and Form 5500 (if applicable). The PCORI fee also applies to short plan years, defined as any plan year less than 12 months. 

Employer with a calendar plan year first changed to a self-insured medical plan (including level funded) effective January 1, 2022. Employer must file the first Form 720 to pay the PCORI fee in July 2023 based on the $3.00 PCORI rate. 

Employer with a calendar plan year first changed to a self-insured medical plan (including level funded) effective January 1, 2023. Employer will file the first Form 720 to pay the PCORI fee July 2024. 

Employer with a July 1 plan year first changed to a self-insured medical plan (including level funded) effective July 1, 2022. Employer will file the first Form 720 to pay the PCORI fee of $3.00 per covered life July 2024. 

Employer with a self-insured medical plan has short plan year from July 1, 2022 through December 31, 2022 to transition to a calendar plan year as of 2023. Employer must file the Form 720 in July 2023 to pay the PCORI fee for both the full plan year ending June 2022 ($2.79 per covered life) and the short plan year ending December 2022 ($3.00 per covered life). The PCORI fee amount is prorated for the short plan year, as detailed in the IRS PCORI Fee FAQ. 

The PCORI fee is always filed on the second quarter IRS Form 720, regardless of the employer’s plan year. The second quarter Form 720 is due by July 31, 2023. Form 720 is used to pay the Quarterly Federal Excise Tax. Employers may want to coordinate with their accounting/tax departments if the company files any other excise taxes. Much of the form is irrelevant to the PCORI filing. 

Instructions for Completing the PCORI-Related Portions of IRS Form 720 

The employer will complete their name and address and employer identification number at the top of the form. 

Quarter ending will be June 30, and the year in which they are filing. 

Final return will be checked if the employer is going out of business, or no longer has a self-insured medical plan or HRA. 

Address change will be checked if the employer has changed their address since the last filing. 

Skip to Part II, (if no other taxes are being paid on this form) line 133 – Applicable self-insured health plans and choose the plan year. ending. Line (c) is for plan years ending before October 1 (non-calendar year plans) and line (d) is for plan years ending on or after October 1 (generally calendar year plans). 

The number of lives will be entered on either line (c) or (d) using one of the methods outlined above. An employer may enter the number of lives on both lines if they are filing for a full 12-month plan year and a short plan year. 

The number of lives in lines (c) or (d) is multiplied by the rate in column b and the result is entered in column (c) Fee. 

The total of lines (c) and (d) in the Fee column is brought over to the tax column. 

The same total is brought down to line 2 Total. 

Line 3: The same total from Line 2 is brought forward to this line.

Line 10: The amount from line 3 is brought down to line 10.

The form needs to be signed and dated and returned with payment. 

Employers paying via check would complete the payment voucher 720-V at the end of the form with their EIN, amount paid, business name and address. The tax period is second Quarter. Consult the IRS Instructions for Form 720 for additional direction on completing the form (see page 9). 

Another July 31 Deadline: Form 5500 Filing 

One other deadline looming for calendar year health and welfare plans with 100 or more covered employees at the beginning of the plan year is the Form 5500 filing. The Form 5500 filing is due to the DOL by the end of the 7th month after the end of the health plan year, normally July 31st. 

Plans are permitted to file a Form 5558 with the IRS for an automatic 2 ½-month extension of this deadline (to October 15, 2023 for calendar plan years). 

For more details: Newfront ERISA for Employers Guide 

Disclaimer: The intent of this analysis is to provide the recipient with general information regarding the status of, and/or potential concerns related to, the recipient’s current employee benefits issues. This analysis does not necessarily fully address the recipient’s specific issue, and it should not be construed as, nor is it intended to provide, legal advice. Furthermore, this message does not establish an attorney-client relationship. Questions regarding specific issues should be addressed to the person(s) who provide legal advice to the recipient regarding employee benefits issues (e.g., the recipient’s general counsel or an attorney hired by the recipient who specializes in employee benefits law). 

Newfront breaks down all you need to know about the recently-released IRS notice providing the adjusted PCORI fee per covered individual for health plan years ending on or after Oct. 1, 2022 and before Oct. 1, 2023.

Increased PCORI Fee Due July 31 via IRS Form 720

The IRS has issued its annual inflation adjustment to the HSA contribution limits for calendar year 2024.  With inflation still at high levels, we will have a second consecutive year of unusually large increases to the HSA contribution limits.

The 2024 HSA contribution limits are as follows:

Individual Coverage: $4,150 ($300 increase)

2024 Inflation Adjusted Amounts for HSAs and HDHPs

The IRS issues annual updates announcing HSA contribution limit increases.  The cost-of-living adjustments are based on the Chained Consumer Price Index for All Urban Consumers (C-CPI-U). 

The full guidance for the 2024 HSA limit increases is available here:

Although inflation is trending downward now, it was still much higher than normal last year (7%-8% generally) and responsible for a second consecutive unusually large HSA contribution limit increase.  The result is a $300 and $550 increase to the 2024 individual and family coverage HSA contribution limits, respectively.

The 2024 calendar year HSA contribution limits are as follows:

The 2024 HSA contribution limit for individual coverage increases by $300 to $4,150.

The 2024 HSA contribution limit for family coverage (employee plus at least one other covered individual) increases by $550 to $8,300.

Note: The age 55+ catch-up contribution limit of $1,000 is fixed by law and does not adjust for inflation.

The annual IRS update also includes the 2024 calendar year minimum deductible and out-of-pocket maximums allowed for a plan to qualify as a high deductible health plan (HDHP)—the required coverage for an individual to be eligible to make or receive HSA contributions.  

The 2024 HDHP inflation adjusted amounts are as follows:

The 2024 minimum deductible for individual coverage increases by $100 to $1,600.

The 2024 minimum deductible for family coverage increases by $200 to $3,200.

The 2024 maximum out-of-pocket limit for individual coverage increases by $550 to $8,050.

The 2024 maximum out-of-pocket limit for family coverage will increase by $1,100 to $16,100.

Note: In family HDHP coverage, any embedded individual deductible cannot be lower than the minimum family coverage deductible ($3,200 in 2024).

Table of 2024 Inflation Adjusted HSA Amounts 

HSAs have experienced a whirlwind of enhancements in recent years.  Although none of the changes by themselves are revolutionary, the modifications are significant in the aggregate.  Taken together, these changes have noticeably improved HDHPs and HSAs by increasing reimbursable expenses and eliminating unnecessary barriers to eligibility:

First-Dollar Telehealth Relief (extension effective PYs beginning after 12/31/22 and before 1/1/25)

CAA 2023 extended for a second time CARES Act and CAA 2022 relief to provide that HDHPs can provide first-dollar telehealth and other remote care services for the 2023 and 2024 plan years.

Full details: CAA 2023 Includes Two-Year Extension of HSA Telehealth Relief

No Surprises Act (effective for plan years beginning on or after January 1, 2022)

HSA eligibility and HDHP status is not affected by surprise billing benefits made under the CAA’s No Surprises Act provisions (or similar state law protections).

Full details: CAA Surprise Billing Rules Preserve HSA Eligibility

Personal Protective Equipment (effective for expenses incurred on or after January 1, 2020)

HSAs (and FSAs and HRAs) may reimburse PPE such as masks, hand sanitizer, and sanitizing wipes for the primary purpose of preventing the spread of Covid.

Full details: PPE Now Qualifies as FSA/HRA/HSA Eligible Medical Expense

Menstrual Care Products (effective for expenses incurred on or after January 1, 2020)

HSAs (and FSAs and HRAs) may reimburse menstrual care products—including tampons, pads, liners, cups, sponges, or other similar products.

Full details: How the CARES Act Affects Employee Benefits

Over-the-Counter Medicines and Drugs (effective for expenses incurred on or after January 1, 2020)

HSAs (and FSAs and HRAs) may reimburse over-the-counter medicines and drugs without the need for a prescription.

Free Covid Testing (effective March 2020)

Plans will not fail to maintain HDHP status if they provide first-dollar coverage for medical care services and items purchased related to testing for and treatment of Covid.

Full details: IRS and DOL Issue Covid-19 Guidance Regarding HSA Eligibility

Expansion of Preventive Care Services (effective July 2019)

Expansion of HDHP first-dollar coverage availability to include medical services and items to prevent exacerbation of a chronic condition.

Full details: IRS Expands Definition of Preventive Care for HDHPs

For more details on everything HDHP/HSA, see our Newfront Go All the Way With HSA Guide.

Disclaimer: The intent of this analysis is to provide the recipient with general information regarding the status of, and/or potential concerns related to, the recipient’s current employee benefits issues. This analysis does not necessarily fully address the recipient’s specific issue, and it should not be construed as, nor is it intended to provide, legal advice. Furthermore, this message does not establish an attorney-client relationship.  Questions regarding specific issues should be addressed to the person(s) who provide legal advice to the recipient regarding employee benefits issues (e.g., the recipient’s general counsel or an attorney hired by the recipient who specializes in employee benefits law).

The IRS has issued its annual inflation adjustment to the HSA contribution limits for calendar year 2024, and Newfront covers what you need to know about the second consecutive year of unusually large increases.

Sky Wolfe Joins Fast-Growing Newfront's Northwest Team

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