Treasury Official Says No Postponement Of Individual Mandate Needed, Explains New FSA Carryover Rule

In contrast to the need to postpone the employer reporting requirements and employer responsibility payments within the Patient Protection and Affordable Care Act (ACA), a similar case for a postponement of individual responsibility payments (the individual mandate) cannot be made, according to Mark Iwry, senior advisor to the secretary of the Treasury and deputy assistant secretary (Retirement and Heath Policy) on November 5. Speaking at the AICPA National Tax Conference in National Harbor, Md., Iwry’s presentation covered aspects of employer and individual responsibility compliance, as well as recent guidance on flexible spending accounts (FSAs).

Employer reporting and payments. The Treasury and Internal Revenue Service are working on releasing final regulations on both employer reporting and employer responsibility payments under the ACA, Iwry reported. Both the employer reporting and employer responsibility rules had been postponed earlier in 2013 until Jan. 1, 2015. Iwry emphasized that the employer responsibility proposed regulations had been issued as reliance regulations after five rounds of public comments. The reporting regulations, on the other hand, were issued as nonreliance proposed regulations with the expectation that considerably more input would go into changes to be made before the final regulations are adopted in order to further simplify and streamline. Reporting was postponed to allow stakeholders the time they requested to get systems in order. Delaying the employer responsibility payments became a necessary step because of the reporting delay, Iwry explained.

Individual mandate. The individual mandate, in contrast to the employer responsibility mandate, does not have the same ramp up systems needs, according to Iwry. He added that, unlike the employer mandate, the individual mandate already has a gradual transition period built into the law, with the full 2 1/2-percent penalty taking until 2016 to phase in. Further, he reported that Form 1040 will provide a clear opportunity for individuals to indicate any exemption from the individual mandate and that only a small percentage of individuals—in the single digits, based upon a Congressional Budget Office report—would be subject to a penalty payment.

Iwry also argued that, unlike the employer responsibility timetable, “there is good reason to proceed with individual responsibility” because the individual mandate is integral to making the rest of the ACA work to the benefit of individuals as a whole. “The system of insurance reforms designed to protect individuals…depends upon individual responsibility and coverage being broad,” Iwry stated.

On the enforcement side, Iwry reported that “we’ve heard that the IRS is well-positioned to carry out their role [in connection with the individual mandate]; their systems and operational arrangements are in place and ready to go…we are confident.” He emphasized that the IRS’s focus is on taxpayer education; “the IRS wants this to work; we are not looking to raise revenues based on penalties, either individual or employer.”

New FSA option. Commenting on Notice 2013-71 involving the new up-to-$500 carryover option for health FSAs, Iwry emphasized the new relief provided to the “use-or-lose-it” rule will be particularly valuable in light of the ACA’s $2,500 annual cap on contributions starting in 2013. For nearly three decades, most Americans with FSAs have lived with the use-or-lose-it rule. Although about 14 million families now participate in FSAs, Iwry reported that employers had indicated that participation would be much greater if employee concerns over overestimating qualifying expenses were addressed. In over 1,000 comments received by the Treasury, “virtually all urged us to modify use-or-lose by allowing a carry forward of a substantial amount of dollars,” according to Iwry. As an additional reason for the new option, Iwry pointed to the “unnecessary and wasteful” year-end health care spending by individuals who need to spend down FSA account balances. In response to questions from the audience, Iwry emphasized that the up-to-$500 carryover is not cumulative each year, and that amendment of an FSA plan to include the new carryover option is entirely at the employer’s discretion.

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