FAQs associated with SIHRAs

FAQs associated with SIHRAs

Back in the spring, NueSynergy wrote about the basics of a Spousal Incentive Health Reimbursement Arrangement (SIHRA). Now, as the year closes, NueSynergy is excited to list off many frequently asked questions (FAQs), associated with this account. Here they are as followed:

How does a SIHRA work and how is it beneficial?

A SIHRA’s goal is to offer an employee’s spouse the opportunity for full coverage on eligible health expenses without the hassle of co-pays, coinsurance, and deductibles. This is all possible if an employee is part of a company’s group health plan. Once that’s established, then an employee can simply elect their spouse and/or dependent(s) to the plan. This allows their spouse to become incentivized through a SIHRA if he/she has access to a group health plan through their employer or a different organization.

When does enrollment start?

Enrollment takes place either within 30 days of a qualifying event, during the spouse’s annual open enrollment window or once a new employee is eligible for benefits.

What’s the enrollment process?

The process is as follows:

  • Employee elects coverage for themselves (or employee + dependent) on employer-sponsored group health plan
  • Employee’s spouse enrolls in his/her qualified alternate group health plan
  • Employee (or their spouse) completes SIHRA enrollment and attestation e-forms via the online benefit administration system and provides proof of premium contribution paid for alternate group plan coverage

How to complete SIHRA enrollment?

In order to complete enrollment, a spouse is required to provide:

  • Proof of paid premium contribution: paystub showing premium contribution amount (pre or post tax)
  • Plan details indicating the cost of each coverage tier (not required if the entire family is enrolling)
FAQs associated with SIHRAs

2023 draft instructions released for Form 1042-S

The IRS has released a draft version of the 2023 instructions for Form 1042-S (Foreign Person’s U.S. Source Income Subject to Withholding).

For those unaware, withholding agents file Form 1042-S to report amounts paid to foreign persons (e.g., salaries, interest, dividends, premiums, pensions, scholarships, and grants) from sources within the U.S. during the preceding calendar year that are subject to withholding. Copy A of Form 1042-S must be filed with the IRS even if:

  • No tax is withheld because the income was exempt from tax under a treaty or under the Internal Revenue Code, including the exemption for income effectively connected with conducting a trade or business in the United States.
  • The amount withheld was repaid to the recipient. This means that Form 1042-S should not be filed if the amount is required to be reported on Form W-2 or 1099.

The instructions have been updated to reflect requirements under IRS Codes 1446(a) and 1446(f) that apply beginning January 1, 2023. These requirements apply to brokers effecting transfers of interests in publicly traded partnerships (PTPs). In addition, two new income codes (57 and 58) and a new chapter 3 status code (39) have been added for new requirements, beginning in 2023.

Regardless if Form 1042-S is filed on paper or electronically, the form is due by March 15 of the following year. Additionally, Form 1042-S must be furnished to recipients of the income by March 15.

Note: Filers of 250 or more Forms 1042-S must file the forms electronically. However, the Taxpayer First Act of 2019 authorizes the Treasury and IRS to issue regulations that reduce the 250-return electronic filing requirement. The IRS has stated that until final regulations are issued, the threshold will remain at 250 returns.

Source: Thomson Reuters

FAQs associated with SIHRAs

IRS announces 2023 retirement plan dollar limits and thresholds

The IRS has announced the 2023-dollar limits and thresholds for retirement plans, which reflect the latest cost-of-living adjustments.

Note: Dollar limits and thresholds primarily affecting health and welfare plans were announced last week. Here are the limits most relevant to 401(k) plans:

  • Annual Additions: The limit on annual additions (i.e., contributions) to 401(k) and other defined contribution plans will increase to $66,000 (up from $61,000).
  • Compensation: The annual limit on compensation that can be taken into account for contributions and deductions will increase to $330,000 (up from $305,000). 
  • Effective Deferrals: The annual limit on elective deferrals will increase to $22,500 (up from $20,500) for 401(k), 403(b), and 457 plans, as well as Salary Reduction Simplified Employee Pension Plans (SARSEPs), and to $15,500 (up from $14,000) for Savings Incentive Match Plan for Employees (SIMPLE) plans and SIMPLE IRAs.
  • Catch-Up Contributions: The annual limit on catch-up contributions for individuals aged 50 and over will increase to $7,500 (up from $6,500) for 401(k) plans, 403(b) contracts, 457 plans, and SARSEPs, and to $3,500 (up from $3,000) for SIMPLE plans and SIMPLE IRAs.
  • HCE: The threshold for determining who is a highly compensated employee (HCE) will increase to $150,000 (up from $135,000).
  • Key Employee: The threshold for determining whether an officer is a “key employee” under the top-heavy rules (as well as the cafeteria plan nondiscrimination rules) will increase to $215,000 (up from $200,000).
  • SEP Participation: The threshold for determining participation in a SEP or SARSEP will increase to $750 (up from $650).
  • Saver’s Tax Credit: The upper income limit for determining whether certain individuals are eligible for the saver’s tax credit (also known as the retirement savings contributions credit) will increase to $73,000 (up from $68,000) for married filing jointly; to $54,750 (up from $51,000) for head of household; and to $36,500 (up from $34,000) for all other taxpayers.

The IRS has also announced that the amounts for determining who is a “control employee,” a classification relevant to the valuation of company fringe benefits, will increase to $130,000 (up from $120,000), and to $265,000 (up from $245,000) for other employees. In addition, the Social Security Administration separately announced the annual adjustment to the Social Security taxable wage base, which is relevant for various benefit purposes.

There are notable increases in the retirement plan contribution limits for 2023 compared to recent years. Plan sponsors, administrators, and advisors will want to carefully note when the new limits and thresholds apply. Employee communications, plan procedures, and administrative forms should be reviewed and updated as necessary to reflect these changes. 

Source: Thomson Reuters