SECURE Act Legislation Update

February 27, 2020

Some interesting developments recently took place in the world of cafeteria plans and ancillary benefits as the Further Consolidated Appropriations Act 2020 (FCAA) was signed into law by the President. This law, including the Setting Every Community Up for Retirement Enhancement (SECURE) Act, contained comprehensive retirement-related provisions, but also included some implications for health and welfare benefits. Most of these changes went into effect January 1, 2020, but some will impact future tax years.

The most recognized impact of the SECURE Act is the repeal of the excise tax on high-cost employer medical plans, commonly known as the “Cadillac Tax.” The Cadillac Tax was originally intended to curb the preferred treatment of employer-sponsored health plans, reduce excess health spending, and raise revenue for administration of the Affordable Care Act. It imposed a 40 percent tax on the cost of employer-provided health benefits exceeding $11,200 for single coverage and $30,150 for family coverage. The tax would have applied to both employer and employee share of the cost of health coverage, as well as to contributions to HRAs, FSAs, and HSAs. The tax was set to take effect in 2022.

Additional aspects of the SECURE Act include:

  • Repeal of the annual market-share fee for health insurance companies, effective for 2021 and later taxable years
  • Continued extension of Appropriations to the Patient-Centered Outcomes Research Trust Fund (PCORI) fees, continuing through plan years ending before October 2029
  • Reduction in the Medical Expenses Deduction Floor, maintaining a lower threshold for deductible medical expenses at 7.5% of Adjusted Gross Income, effective for taxable years 2019 and 2020

Another part of the sweeping legislation is the FCAA, which serves to repeal Internal Revenue Code Section 512(a)(7) retroactively as if it were never enacted. The provision, which implemented a “parking tax” as part of the Tax Cuts and Jobs Act (TCJA) passed in late 2017, caused tax-exempt entities to treat the cost of providing parking to their employees as Unrelated Business Taxable Income and to pay federal tax on those benefits. While there is no impact on for-profit entities, the repeal of this tax for non-for-profit organizations on expenses incurred for qualified transportation benefits will make this benefit more attractive to tax-exempt organizations. As a result we may expect renewed interest from our not-for-profit clients in Qualified Transportation Fringe Benefits.

The repeal of the Qualified Transportation Fringe Benefit is retroactively effective for tax years beginning after December 31, 2017, however we have not seen taxes repealed retroactively in the past. The FCAA is silent on whether a tax return can be amended to claim a credit for the tax paid in 2018. An organization filing an amended tax return to claim a credit for the UBTI paid in 2018, in addition to following the ordinary instructions provided for Form 990-T, should follow a couple of suggestions:

  • Write “Amended return – Section 512 (a)(7) repeal” at the top of the form
  • Revise the form to not include any amount attributable to Section 512 (a)(7)
  • Attach a statement indicating the line numbers that have changed from the original form and clearly mark the reason for the changes
  • Any claims for credit must be filed within three years of the original form

Further guidance on FCAA and the SECURE Act from the federal government is still necessary. Reach out to a professional accountant or tax attorneys for more information about any tax-specific questions regarding this legislation.