Where we stand on tax cuts and bigger paychecks

It is one thing for Congress to pass a tax bill but it is quite another to see increases in the paychecks of employees – especially the paychecks of America’s small businesses. The mechanical process of increasing paychecks is dependent of the system of controls used by employers and their payroll contractors. The IRS recently issued statements saying that might happen by the end of February 2018 thanks to the independent efforts of payroll companies acting more quickly than the IRS. But for small businesses the process of boosting employee paychecks may take longer.

As of today. February 21, 2018 this is where small businesses stand on he issues:

  • Form W4 for 2017 is obsolete bu can be used until February 28, 2018 per IRS Notice 2018-14
  • IRS has not yet issued a new Form W4 for 2018. (A draft version published cannot actually be used yet because it is missing important information). Obviously employers will not have time to have the new forms. when issued, executed and in use by March 1, 2018.
  • Revised 2018 withholding tables are available so employers should be clear on their legal requirement to withhold payroll taxes.

Payroll accountants and their software platforms are generally proficient in these matters so the only problems I expect are among those relatively few ‘do-it-yourself’ manual payroll operations.


While this article focuses on employer actions and responsibilities, I  strongly recommend that individual taxpayers prepare an estimate of 2018 taxes based on the new law to accurately plan for payroll tax withholding.


I am pleased to discuss this issue as it relates to your small business.

Exploring the phenomenon of increased early insurance terminations

An increasing number of consumers are terminating health coverage within days, weeks or months of buying health insurance online.

I’ve noticed a trend in online health insurance enrollment that seems to be accelerating. I don’t understand it yet; this post is primary a basis to seek additional information.

The observation: The incidence of early termination of benefits is accelerating. In a growing number of cases, the benefits are canceled within days of online enrollment.

Background: I’ve been involved in online health insurance enrollment since the early 1990s an ran a national enrollment service for about a decade. In those early days online insurance enrollees typically relied on professional advice and assistance via telephone that, in my observation, contributed to increased suitability and satisfaction. Today’s health insurance exchange enrollees typically do not use available human advisory services so there is less data available on the motivations, psychology or emotional influences of enrollees on the insurance enrollment process.

Possible explanations:

Lack of consumer information – I’ve long been suspicious that online health insurance enrollees do not have sufficient information to make appropriate decisions. I’ve noticed, for example, confusion between primary coverage and supplemental health insurance.

Confusion with the Affordable Care Act – The Trump administration’s push to promote lower cost insurance with lower level of benefits may be misunderstood by consumers. Consumers may not understand for example, that they may enroll in expensive coverage that covers pre-existing medical conditions without limits OR low cost coverage that limits those benefits, but that they can not enroll in low cost insurance that covers pre-existing medical conditions in the entirety.

General distrust – Formerly an online consumer typically felt they could trust advice from a telephone support. I’m not sure that is true anymore. The wave of ‘fake news’ and propaganda about heat care this year is unprecedented.

Short term use – It is possible that consumers are enrolling for coverage immediately before a schedule doctor visit, for example, and cancelling coverage immediately afterward. I have only  few anecdotal comments to indicate this might be true. No reliable base of information is available. Some commenters speculate this will be accelerated by the cancellation of the health insurance requirement known as the ‘individual mandate’ under the Tax Cuts and Jobs Act.

Solutions: One possibility is to include health insurance advisory services as part of an employer-provided employee benefit plan. Not coincidentally, this is the approach that Freedom Benefits has adopted for 2018.

Another possibility is restoration and expansion of the health insurance navigator program that was established in 2010. This does not seem politically likely under the current political leadership.

A third possibility is to use improvements in technology to screen applicants and communicate on suitability and policyholder satisfaction issues. Our partners are working on these issues that require a greater investment in Artificial Intelligence and technology.

16 popular employee benefits for small businesses

A Freedom Benefits small business Consumer Driven Employee Benefit Plan can include these 16 benefits:

1) Group Health Insurance

2) Health Savings Account (HSA)

3) PPO Discount Pricing Service (PPO)

4) Health Reimbursement Arrangement (HRA)

5) Special Purpose Health Reimbursement Arrangement (SPHRA)

6) Qualified Small Employer Health Reimbursement Arrangement (QSEHRA)

7) Flexible Spending Account (FSA) including Dependent Care Plan

8) 401(k) Plan

9) Pension Plan

10) IRA or SEP Retirement Savings Plan

11) Deferred Compensation Plan

12) Thrift Savings Plan

13) Employee Home Office Expense Reimbursement Plan

14) Employee Travel Expenses Reimbursement Plan

15) Employee Work-Related Expense Reimbursement Plan

16) Other benefits specified by the employer

For a free copy of Freedom Benefits small business employee bnenfits Summary Plan Description, call or write us.

Small Business Employee Benefits Made Easy!

Small business employee benefits are managed much more effectively when the business owner has a basic working knowledge of the components that make the plan successful. This bog post lists those basic components.

  1. Understand the purpose of the employee benefit plan – Usually the goal, at least the starting point goal, is to provide benefits that are tax-deductible as a business expense and tax-free to the employee. If not for this tax advantage, there would be little incentive for employers to be involved. Each employer has a unique and specific goal and so the employee benefit plan is designed to match that goal.
  2. Understand what is not the purpose of an employee benefit plan – No longer do employers provide a ‘one size fits all’ and ‘take it or leave it’ benefit plan design. Today’s employee benefits are designed to extract and maximize the benefits and efficiencies of consumer-driven choices.
  3. Communication – Good communication is the key to a successful employee benefit plan. All of the stakeholders – the employer, employees, spouses and dependents of employees, plan administrator, claim administrator, insurer, and payroll company must feel comfortable that they have a reliable source of information. A reputable benefit plan adviser makes all the difference.
  4. Documentation – Employer resolutions, Enrollment forms, Plan Documents and summary plan Descriptions are typically required. A non-attorney typically provides these sample documents but cannot provide legal advice. The employer is encouraged to seek independent legal advice on all business documents.
  5. Claim accounting – Nowadays this is typically handled via secure portal, email or text message, at the option of the employee. The result is an approved claim report that is sent to payroll processing.
  6. Payroll processing – Most employee benefit transactions between the employer and the employe are handled through a payroll processing service. Once the benefits accounts are set up properly within the payroll system, this process usually flows smoothly. Typically the payroll processor sends reports back to the employer for general accounting purposes.
  7. Tax filings – some employee benefit plans require year-end filings either singularly or as a data inclusion on another form like a W2. Again, this process flows effortlessly within a properly set up payroll and benefits administration system.

Freedom Benefits is prepared to make all the details flow effortlessly. Just give a call to discuss your own small business employee benefit plan. 

One page summary of Freedom Benefits

Yesterday an inspiring business adviser Sara Rosenberg of Powermatch, wrote a social media post that said that every business should have a one page summary that answers four questions: (1) The problem you solve, (2) A very brief description of your process (3) How you are different than everyone else that does what you do, (4) The results that happen when someone hires you. This is a powerful idea but one that I have not ever considered, So I spent some time and came up with this that flows exactly in the 4 part format she suggests. Next I’ll work on polishing and simplifying the wording and checking on a few compliance issues.

Here is the draft text of the one page summary as of now:

Slash your taxes now!

How it works

Freedom Benefits helps your small business slash wage taxes and move more of your earnings to long term wealth building accounts with the benefit plans used by larger firms. Our small business employee benefit plans are integrated with your payroll system to take advantage of IRS-sanctioned accounting methods and tax-favored employee benefit plans. Plans are now redesigned for 2018 to maximize savings under the Tax Cuts and Jobs Act.

First, your small business meets with the planner to elect the benefits to be offered and selects the employer’s financial contribution, if any, that the business will make toward the cost of these voluntary benefit programs. Some options like a Health Reimbursement Arrangement, if elected, and administrative costs are paid by the employer. The employer’s cost is always controlled and limited by what the employer elects to contribute.

Then employees may elect to pay with Voluntary Salary Reduction for Insurance Premium Payments, Flexible Spending Account, Health Savings Account, and Dependent Care Assistance Plan components. Popular savings plans including a 401(k) Plan, Simplified Employee Pension, IRA and Thrift Savings Plan are available to help employees keep more of what they earn. New for 2018: employees may now elect to participate in a Home Office Expense Reimbursement, Travel Expense Reimbursement and Commuting Expense Reimbursement Plan and an Employee Work Expense Reimbursement Plan. The Plan Advisor works with each employee individually to plan the benefit combination that works best. Participation is completely voluntary.

Why we are different

Our service is based on building long term relationships that are aligned with supporting the financial goals of the business and your individual employees. We deliver big firm executive service to small businesses. Freedom Benefits is powered by the experience of Tony Novak, CPA, MBA, MT, an employee benefits adviser with more than 30 years helping small businesses nationwide. Success is ensured by our unique pricing policy that limits the plan cost to a fraction of the tax savings that you achieve.

Results

You will see immediate wage tax savings adding up to thousands of dollars per employee in combined employer and employee savings. The savings will begin to show in your first payroll report after implementation. Employees will enjoy a better understanding of their benefit options and see more accumulating by year end as an additional benefit. The sooner you start, the greater the savings in 2018.

HEALTH   *   RETIREMENT   *   DEPENDENT CARE   *   EMPLOYEE BUSINESS EXPENSE

The draft PDF version:

freedom benefits page

Short term medical insurance covers unexpected medical costs

This users question and the response highlights the use of short term medical insurance and the potential for consumer misunderstanding.

Q:  I am looking for a basic insurance. I am a healthy 64 yrs. and usually go to the Doctor for an annual check up. Pap, Mam., and blood-work. I take five prescriptions, which are not expensive as generics and the use of prescription cards. I will be getting Medicare in about two months. I don’t want to spend over $170.00 a month. Can you advise me on which plan would work best for me?

A: It seems like you are looking for short term medical insurance that covers expected medical costs. Commercial short term medical insurance works exactly the opposite way. It covers unexpected medical costs but excludes expected medical costs. So we would be unable to recommend an insurance that does what you suggest. Coverage for short term expected medical costs is best approached through uninsured benefit programs.

If it would be useful to discuss the longer term expenses that will be covered and not covered under Medicare then this might be a more productive use of your time and budget.

More information about short term medical insurance is available at the Smart Insurance Marketplace.

Insurance for small businesses

Q: Do you offer plans for small business? We are a small business of 3 people. Or can they purchase health insurance through you individually?

A: All of these plans shown in links related to Freedom Benefits are available to small businesses on a list bill basis. The easiest thing is to allow individuals to enroll without entering payment data and then ask us to set up the list bill.

If the business plans to pay for Obamacare-type individual insurance then an additional step is required to set up a Qualified Small Employer Health Reimbursement Arrangement.

Small group major medical coverage may also be available however these are traditionally not purchased through online enrollment services. A local representative may be the best bet.

“One-employee QSEHRA”: a contradiction in terms

The issue of health benefit payments for small businesses became a lot more complicated after implementation of the Affordable Care Act. After all, the law was designed to enforce rigid compliance with health care policy and do away with the liberally designed health plans that varied from one small employer to the next. Since late 2016 we’ve had a range of legislative and administrative actions to undo the harsh effect of the original law. Now we are left with a complicated hodge-podge of rules that can confuse just about anyone.

QSEHRAs are a new type of HRA implemented in 2017 that are specifically designed for an employer with a health plan covering two or more employees since plans covering only one employee are not subject to the reforms and restrictions that the QSEHRA is designed to address. The QSEHRA adds an additional layer of regulation and restrictions to allow an employer to help pay for individual insurance, something that is already always allowed in a one employee health plan,  In short, employers with a one employee health plan have no need for a QSEHRA.

The issue came up today among accountants when the bookkeeper of a small business said that the employer could reimburse only $10,0001 of the health insurance cost of an employee. The bookkeeper was likely referring to the strict excise tax penalties imposed by 4980 of the Internal Revenue Code and the limits of the workaround. Notwithstanding the effect of any administrative action designed to weaken and diminish the impact of these employer penalties, The IRS has already determined that these restrictions and penalties do not apply to one employee health plans2. In this case the use of a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) 3 is completely unnecessary and only serves to complicate the discussion.

My point is simply this: the QSEHRA was designed to help small employers mitigate the impact of ACA market reforms on small group plans – specifically those related to an employer penalty for paying for individual insurance. Those restrictions do not exist for one employee health plans. So any attempt to use a tool (QSEHRA) to mitigate the effect of the ACA is simply not necessary and only serves to create unnecessary complications and confusion.

While there is no authority specifically prohibiting the use of a use of a QSEHRA in a one employee plan, its use could be viewed by the Service or the courts, if applicable, as an error, It the event that QSEHRA failed to meet the more strict requirements then it seems likely that the plan might still qualifiy as a tradidtional HRA. For example, an employer with a one employee health plan that provided dental benefits would fail to meet the QSEHRA requirements but would still meet the requirements for a traditional HRA.

The conclusion is simple: Don’t use a QSEHRA in one person health plans where a traditional HRA will suffice.


1 The QSEHRA maximum for family coverage is actually $10,250 for 2018.

2 IRS Notice 2015-17: Guidance on the Application of Code § 4980D to Certain Types of Health Coverage Reimbursement Arrangements

3 IRS Notice 2017-67: Qualified Small Employer Health Reimbursement Arrangements

Interim major medical insurance

At some point in the middle of the year we may find ourselves without medical insurance. Regular major medical insurance is normally not available until the following January 1. Insurers and federal regulators are tightening the rules for mid-year enrollments, called a special enrollment period, to make it even tougher to get coverage outside of the annual enrollment period,

Fortunately several types of alternate coverage plans are available to most people. You must pay the whole cost because government subsidies are not available for this type of coverage. An employer can pay part or all of the cost because these alternate plans are not subject to market reforms as explained in IRS Notice 2015-17.

Plans vary from state to state. I recommend the “Smart Insurance Marketplace“, an online insurance exchange run by a private insurance technology company I;ve worked with this company for many years and have sent hundreds, maybe thousands, of satisfied customers to them over more than a decade.

How do Pennsylvanians get their health insurance?

Pennsylvanians get their health coverage one of six ways, according to the Pennsylvania Insurance Department.

  • 27% commercial self-insured
  • 23% Medicaid and CHIP
  • 20% Medicare
  • 14% group insurance
  • 5% small business insurance
  • 5% individual insurance
  • 5.6% are uninsured

Since news coverage focuses primarily on commercial insurance, people are often surprised that commercial insurance plays such a small role in the system, covering only one in four residents. I sometimes notice a sentiment that there is something ‘wrong’ if regular insurance is not an option. That is not the case, based on statewide trends. Commercial insurance does play a larger role in secondary and supplemental insurance.

If you need coverage, then it makes sense to consider both the short-term and permanent coverage options within our heath care system. I am pleased to discuss the options and strategy. For businesses, I am pleased to assist with all aspects of health plan design, selection and enrollment.