Congress has passed, and the President has signed, the Inflation Reduction Act of 2022. While the legislation largely focuses on climate change mitigation and deficit reduction, several provisions are of interest to group health plan sponsors and their advisors. Here they are as followed:
Enhanced Premium Tax Credit: The favorable premium tax credit rules adopted in the American Rescue Plan Act (ARPA) will now remain in effect through 2025. As background, the Affordable Care Act (ACA) created a refundable premium tax credit, which is available on a sliding-scale basis for individuals and families who are enrolled in an Exchange health plan and who are not eligible for other qualifying coverage or affordable employer-sponsored health insurance plans providing minimum value.
The ACA limits the credit to taxpayers with household income between 100% and 400% of the federal poverty line who purchase insurance through an Exchange health plan. ARPA eliminated the upper income limit for eligibility and increased the amount of the premium tax credit by decreasing, in all income bands, the percentage of household income that individuals must contribute for Exchange coverage. The adjusted percentage ranges from zero to 8.5%.
Medicare Prescription Drug Cost Reductions: Several cost reduction measures will benefit enrollees in Medicare Part D prescription drug coverage. Beginning in 2023, cost-sharing for insulin will be capped at $35 per month. Annual Part D out-of-pocket prescription drug costs will be capped at $2,000 starting in 2025. For the first time, the United States Department of Health and Human Services (HHS) will be authorized and required to negotiate certain Medicare drug prices with manufacturers beginning in 2026. In addition, starting in 2023, manufacturers must pay Medicare a rebate if average prices of certain drugs increase faster than inflation.
Note: Because the legislation does not include comparable prescription drug cost reductions for private plans, there is some concern that reduced costs for Medicare enrollees will result in increased costs for employer plans and participants as price increases are shifted to private plans to make up for lost revenue.
Insulin-Related HDHP Safe Harbor: The legislation amends to provide that plans will not lose their HDHP status by reason of failing to have a deductible for certain insulin products. This provision is effective for plan years beginning after December 31, 2022.
Note: The provision codifies and expands IRS guidance that allows HDHPs to provide insulin on a no-deductible or low-deductible basis under specified circumstances without adversely affecting HSA eligibility.
The IRS has extended the deadlines for adopting retirement plan amendments to reflect certain provisions of the SECURE Act and the CARES Act. As background, under the SECURE Act, the plan amendment deadline for most plans is the last day of the first plan year beginning on or after January 1, 2022 (2024 for governmental and applicable collectively bargained plans). Similarly, the plan amendment deadline under the CARES Act is the end of the first plan year beginning on or after January 1, 2022.
For most plans, the notice extends the deadline to adopt applicable amendments until December 31, 2025. Later deadlines apply for governmental plans, but not collectively bargained plans. The notice revises previous guidance for certain required and discretionary SECURE Act amendments and for SECURE Act changes affecting safe harbor 401(k) plans. The extended deadlines also apply to amendments by defined contribution plans (including 401(k) plans) reflecting the waiver of required minimum distributions for 2020 under the CARES Act. Timely adopted amendments will not cause a plan to fail to satisfy the anti-cutback rules or ERISA so long as, in the interim, the plan operates as if a retroactive amendment were already in effect.
EBIA Comment: This notice does not extend the deadline for adopting retroactive amendments reflecting the CARES Act’s optional coronavirus-related distribution and loan relief—that deadline remains the last day of the first plan year beginning in 2022 (2024 for governmental plans). Keep in mind that, unlike the original deadline, which was determined with reference to the plan year, the extended deadline for most plans is a specific date, so non-calendar year plans receive less time than the general three-year extension. (Governmental plan deadlines are generally based on legislative sessions.)
The IRS has announced a midyear increase in the standard mileage rates for business and medical use of an automobile, and for deducting moving expenses. For travel on or after July 1, 2022, the business standard mileage rate is 62.5 cents per mile (up from the original 2022 rate of 58.5 cents per mile). The rate when an automobile is used to obtain medical care is 22 cents per mile for travel on or after July 1, 2022 (up from 18 cents per mile). The rate for deducting automobile expenses that are moving expenses will also increase from 18 to 22 cents per mile for travel on or after July 1, 2022. For taxable years beginning after 2018 and before 2026, however, the moving expense deduction is available only for certain moves by members of the Armed Forces on active duty. The rate for charitable use of an automobile will remain unchanged at 14 cents per mile.
Standard mileage rates can be used instead of calculating the actual expenses that are deductible. For example, the business standard mileage rate can be used instead of determining the amount of fixed expenses (e.g., depreciation, lease payments, and license and registration fees) and variable expenses (e.g., gas and oil) that are deductible as business expenses. Only variable expenses are deductible as medical or moving expenses, so the medical and moving rate is lower. (Parking fees and tolls related to use of an automobile for medical or moving expense purposes may be deductible as separate items.)
EBIA Comment: Ordinarily, the IRS updates mileage rates only once a year, but occasionally it makes interim adjustments like this one, which reflects recent gasoline price increases. Transportation expenses that are deductible medical expenses generally can be reimbursed on a tax-free basis by a health FSA, HRA, or HSA. (To simplify administration, some employers’ health FSAs or HRAs exclude medical transportation expenses from the list of reimbursable items.)
Section 2102 of the Taxpayer First Act (TFA) requires the IRS to develop an internet portal by January 1, 2023 that will allow taxpayers to electronically file 1099 forms. The portal is to be modeled after the Social Security Administration’s (SSA’s) Business Services Online (BSO) system that allows employers to electronically file W-2 forms. The new website will provide taxpayers with IRS resources and guidance, and allow them to prepare, file and distribute 1099 forms, and create and maintain tax records.
While no details were released, the IRS has discussed the plans of the 1099 filing portal which includes retiring legacy systems, like FIRE system though no termination has been announced. The new system is expected to accept all 1099 forms, including Form 1099-NEC (Nonemployee Compensation) and will permit users to key in or upload information. The system will also be compatible with the Combined Federal/State Filing (CFSF) program.
This week, the IRS released 2023 cost-of-living adjusted limits for health savings accounts (HSAs), high-deductible health plans (HDHPs), and excepted benefit health reimbursement arrangements (EBHRAs). All of these limits have increased from 2022. Everything you need to know about each limit increase is stated in our press release, which is down below.
