TAX UPDATE: Updated IRS Publication 560 Now Available; What Employees Need to Do With Form 1095-C
Publication Discusses Retirement Plans
The Internal Revenue Service (IRS) has released an updated Publication 560, Retirement Plans for Small Business for use in preparing 2016 returns.
Background
Publication 560 discusses retirement plans that employers can set up and maintain for themselves and their employees. The publication covers the following types of retirement plans:
- SEP (simplified employee pension) plans;
- SIMPLE (savings incentive match plan for employees) plans; and
- Qualified plans (also called H.R. 10 plans or Keogh plans when covering self-employed individuals), including 401(k) plans.
Updated Publication 560
Highlights of the updated publication include the following:
- Compensation limits for 2016 and 2017. For 2016, the maximum compensation used for figuring contributions and benefits is $265,000. This limit increases to $270,000 for 2017.
- Elective deferral limit for 2016 and 2017. The limit on elective deferrals (other than catch-up contributions) is $18,000 for 2016 and 2017. These limits apply for participants in SARSEPs, 401(k) plans (excluding SIMPLE plans), section 403(b) plans, and section 457(b) plans.
- Defined contribution limits for 2016 and 2017. The limit on contributions (other than catch-up contributions) for a participant in a defined contribution plan is $53,000 for 2016, and increases to $54,000 for 2017.
- SIMPLE plan salary reduction contribution limit for 2016 and 2017. The limit on salary reduction contributions (other than catch-up contributions) is $12,500 for 2016 and 2017.
- Catch-up contribution limits for 2016 and 2017. A plan can permit participants who are age 50 or over at the end of the calendar year to make catch-up contributions in addition to elective deferrals and SIMPLE plan salary reduction contributions. The catch-up contribution limitation for defined contribution plans other than SIMPLE plans is $6,000 for 2016 and 2017. The catch-up contribution limitation for SIMPLE plans is $3,000 for 2016 and 2017.
- Mid-year changes to safe harbor plans and notices. Guidance has been issued regarding permissible mid-year changes to safe harbor 401(k) and 401(m) plans and notices.
- Tax relief for victims of Hurricane Matthew. New rules provide for loans and hardship distributions from certain retirement plans to victims of Hurricane Matthew and members of their families. To qualify for this relief, loans and hardship withdrawals must be made by March 15, 2017. For more information, see IRS Announcement 2016-39.
Note: All section references are to the Internal Revenue Code (unless otherwise stated).
Click here to read the text of IRS Publication 560. An HTML version is also available.
3 Questions Employers May Be Asked
As part of the new information reporting provisions of the Affordable Care Act, applicable large employers (ALEs)—generally those with 50 or more full-time employees, including full-time equivalent employees—are required to furnish a Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, to their employees by March 2nd.
General Furnishing Requirements
For ALEs with fully-insured plans, the Form 1095-C must be furnished to each employee who was a full-time employee for any month of the calendar year. For ALEs with self-insured plans, the Form 1095-C must be furnished to any employee who enrolls in the health coverage.
Employee Q&As
The IRS is providing the following information that can help employers deal with any questions their employees may ask about Form 1095-C:
- Which employees will get a Form 1095-C?
- Employees will receive a Form 1095-C if they were a full-time employee working for an ALE last year. Even if an employee was not a full-time employee, he or she will receive Form 1095-C if his or her employer offered self-insured coverage and the employee or a family member enrolled in that coverage.
- The employee might get more than one Form 1095-C if he or she worked for more than one ALE last year.
- How do employees use the information on Form 1095-C?
- This form provides employees with information about the health coverage offered by their employers and, in some cases, about whether the employee enrolled in this coverage.
- If an employee enrolled in a health plan through a Health Insurance Marketplace, the information in Part II of Form 1095-C could help determine if he or she is eligible for the premium tax credit (if an employee did not enroll in a health plan through a Health Insurance Marketplace, this information is not relevant).
- If there is information in Part III of Form 1095-C, employees should review this information to determine if there are months when the employee or his or her family members did not have coverage. If there are months they did not have coverage, the employee should determine if they qualify for an exemption from the requirement to have coverage. If not, the employee must make an individual shared responsibility payment.
- Employees are not required to file a tax return solely because they received a Form 1095-C if they are otherwise not required to file a tax return.
- Employees should not attach Form 1095-C to their tax returns. Rather, they should keep it with their tax records.
- What if an employee does not get his or her Form 1095-C?
- Employees might not receive a Form 1095-C by the time they are ready to file their 2016 tax returns, and it is not necessary to wait for it to file. The information on these forms may assist in preparing a return; however, individuals can prepare and file their returns using other information about their health insurance.
- For questions about the Form 1095-C, individuals must contact their employer using the employer contact information on the form, as the IRS does not issue and cannot provide individuals with the Form 1095-C.
Depending upon an employee’s circumstances, he or she may also receive Forms 1095-A and 1095-B. For information on these forms, please review the IRS Questions and Answers about Health Care Information Forms for Individuals.
