Q: What are the new flexible spending account (FSA) limits? And can we offer these accounts only to our exempt employees because we have such high turnover among nonexempt workers?
A: Beginning January 1, 2013, FSA contributions for medical expenses will be limited to $2,500 per year, but cost-of-living adjustments will be made annually after that. Excluding nonexempt employees is likely to create plan discrimination in favor of ‘highly compensated’ employees. A safer solution would be to have a minimum service requirement for participation. Remember, though, that too long a requirement might also violate nondiscrimination requirements.

Q: What are the rules for ‘management carveouts’ in the healthcare law?
A: For all plan years on or after September 23, 2010, antidiscrimination rules that applied only to self-insured plans will also apply to fully insured plans, although not to grandfathered plans. A plan does not discriminate if it benefits 70 percent or more of all employees or 80 percent or more of all employees who are eligible to participate if at least 70 percent of all employees are eligible to participate. The only employees that may be excluded are those with less than 3 years’ service, those younger than 25, part-time or seasonal workers, and union workers whose collective bargaining agreements do not cover accident and health benefits.

Q: We have only 9 out of 36 employees classified as exempt; they are full-time and salaried. As a lawn and landscape services company, we don’t cover any workers except those 9 under our healthcare plan. If we lose our grandfathered status, must we cover as many as want to participate?
A: The answer will probably end up depending on whether all 27 of your other employees are considered part-time or seasonal. If some are not, and they are not offered coverage under the plan, you could be subject to a $100 per day excise tax under the Internal Revenue Code. Currently, though, small employers are exempt from this tax. If you provide health insurance coverage solely through a contract with an insurer and employ no more than 50 workers, you are still covered by the bar on discrimination but you may not be subject to a penalty for noncompliance. But that might be an oversight that will be corrected.

Q: I know that beginning in 2011, we need to include on employees’ W-2s the amount we have paid for their health benefits. Does this affect whether we’re allowed to deduct healthcare premiums before taxes?
A: Effective for tax years beginning after December 31, 2010, employers must report on Form W-2 the total cost of employer-provided group health coverage that is excluded from each employee’s gross income. The amount to be reported does not include funds excluded from income through an Archer MSA, a health spending account, or employee salary reductions to a flexible spending arrangement. This part of the law has no effect on pretaxing health insurance premiums.

IRS update: IRS Releases Draft W-2 Form for 2011, Relief for Employers

For more information about healthcare reform, visit Healthcare Reform: A Resource Center for Employers.