Non Traditional Employment Benefits

June 10, 2024

3637 / How can a client use a qualified longevity annuity contract in conjunction with his or her Social Security planning?

<div class="Section1"> As most clients know, waiting past the normal retirement age to begin collecting Social Security allows the client to earn delayed retirement credits, which increase the eventual benefit by 8 percent for each year in which benefits are delayed. Because of this special treatment, most advisors counsel clients to delay claiming benefits for as long as possible in order to ensure the maximum monthly benefit level. Clients who do not wish to follow this advice, and who choose to instead claim Social Security early, can potentially benefit from using a qualified longevity annuity contract (QLAC) in their Social Security planning. A QLAC is an annuity contract that is purchased within a traditional retirement plan, under which the annuity payments are deferred until the client reaches old age (they must begin by the month following the month in which the client reaches age 85) in order to provide retirement income security late in life. The value of the QLAC is excluded from the retirement account value when calculating the client’s required minimum distributions (RMDs) once the client reaches age 70½, though the client is limited to purchasing a QLAC with an annuity premium value equal to the lesser of 25 percent of the account value or $130,000. The introduction of QLACs can now allow clients who have saved for retirement to avoid delaying Social Security benefits entirely-and, because of volatility in the Social Security system and the uncertainty of a client’s lifespan generally, many clients are receptive to this idea because they are reluctant to delay in the first place. For most clients, delaying Social Security benefits past retirement age means that withdrawals from tax-preferred accounts must increase during the deferral period in order to ensure sufficient income while maximizing the benefit level for a later time. However, this means that tax-preferred accounts are depleted at a much more rapid rate early in the client’s retirement-leaving a lower account value to grow over subsequent years. By purchasing a QLAC within the retirement account, the client can reduce his or her account distributions and eliminate the associated income tax liability, yet still secure a higher level of guaranteed income to supplement Social Security later in retirement. If the client claims Social Security benefits early in retirement, the amount that must be withdrawn from tax-preferred accounts is reduced and a larger portion of his or her retirement savings can be left intact to grow-generating a higher account balance in the long run. With the QLAC, the client still has a guaranteed source of income late in life-regardless of poor market performance or unforeseen circumstances-to supplement the lower Social Security benefit level that reduced the need for high withdrawals early in retirement. </div>

March 13, 2024

3625 / What are the income tax consequences of an employer-sponsored dependent care assistance program?

<div class="Section1">Editor’s Note: The American Rescue Plan Act (ARPA) allowed employers to increase contribution limits for dependent care assistance programs (DCAPs) or dependent care FSAs to $10,500 for 2021. The 2021 CAA also allowed participants to carry over unused DCAP benefits from 2020 or 2021 into the following plan year. Initially, there was some confusion over the tax consequences if a participant took advantage of both the increased contribution limit and carryover relief. Notice 2021-26 clarified the issue by providing that participants could take advantage of both (1) tax-free reimbursements of contributions made during the 2021 plan year up to the maximum $10,500 limit and (2) tax-free reimbursements of amounts carried over from the prior year. In other words, a participant with a $5,000 carryover amount from 2020 and a $10,500 contribution in 2021 could take tax-free distributions up to $15,500 in 2021 if that participant incurred enough qualifying expenses during the 2021 plan year.<div class="Section1"> A dependent care assistance program (DCAP) is a separate written plan of an employer for the exclusive benefit of providing employees with payment for or the provision of services that, if paid for by the employee, would be considered employment-related expenses under IRC Section 21(b)(2).<a href="#_ftn1" name="_ftnref1">1</a> Employment-related expenses are amounts incurred to permit the taxpayer to be gainfully employed while he or she has one or more dependents under age 13 (for whom he or she is entitled to a personal exemption deduction under IRC Section 151(c) (note, however, that the exemption was suspended for 2018-2025)) or a dependent or spouse who cannot care for themselves. The expenses may be for household services or for the care of the dependents.<a href="#_ftn2" name="_ftnref2">2</a> The plan is not required to be funded.<a href="#_ftn3" name="_ftnref3">3</a> Nonhighly compensated employees may exclude from income a limited amount for services paid or incurred by the employer under such a program provided during a taxable year.<a href="#_ftn4" name="_ftnref4">4</a> For highly compensated employees to enjoy the same income tax exclusion, the program must meet the following additional requirements: <blockquote>(1)   Plan contributions or benefits must not discriminate in favor of highly compensated employees (as defined in IRC Section 414(q) ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="3930">3930</a>)) or their dependents. (2)   The program must benefit employees in a classification that does not discriminate in favor of highly compensated employees or their dependents. (3)   No more than 25 percent of the amounts paid by the employer for dependent care assistance may be provided for the class of shareholders and owners each of whom owns more than 5 percent of the stock or of the capital or profits interest in the employer (certain attribution rules under IRC Section 1563 apply). (4)   Reasonable notification of the availability and terms of the program must be provided to eligible employees. (5)   The plan must provide each employee, on or before January 31, with a written statement of the expenses or amounts paid by the employer in providing such employee with dependent care assistance during the previous calendar year. (6)   The average benefits provided to nonhighly compensated employees under all plans of the employer must equal at least 55 percent of the average benefits provided to the highly compensated employees under all plans of the employer.<a href="#_ftn5" name="_ftnref5">5</a></blockquote> If benefits are provided through a salary reduction agreement, the plan may disregard any employee with compensation less than $25,000 for purposes of the 55 percent test.<a href="#_ftn6" name="_ftnref6">6</a> For this purpose, compensation is defined in IRC Section 414(q)(4), but regulations may permit an employer to elect to determine compensation on any other nondiscriminatory basis.<a href="#_ftn7" name="_ftnref7">7</a> For purposes of the eligibility and benefits requirements (items (2) and (6) above), the employer may exclude from consideration (1) employees who have not attained age 21 and completed one year of service (provided all such employees are excluded), and (2) employees covered by a collective bargaining agreement (provided there is evidence of good faith bargaining regarding dependent care assistance).<a href="#_ftn8" name="_ftnref8">8</a> A program will not fail to meet the requirements above, other than the 25 percent test applicable to more than 5 percent shareholders, or the 55 percent test applicable to benefits, merely because of the utilization rates for different types of assistance available under the program. The 55 percent test may be applied on a separate line of business basis.<a href="#_ftn9" name="_ftnref9">9</a> Grace Period An employer may, at the employer’s option, amend its plan document to include a grace period, which must not extend beyond the 15th day of the third calendar month after the end of the immediately preceding plan year to which it relates (i.e., the “2½ month rule”). If a plan document is amended to include a grace period, a participant who has unused benefits or contributions relating to a particular qualified benefit from the immediately preceding plan year, and who incurs expenses for that same qualified benefit during the grace period, may be paid or reimbursed for those expenses from the unused benefits or contributions as if the expenses had been incurred in the immediately preceding plan year. The effect of the grace period is that the participant may have as long as 14 months and 15 days (i.e., the twelve months in the current plan year plus the grace period to March 15) to use the benefits or contributions for a plan year before those amounts are “forfeited” under the “use-it-or-lose-it” rule.<a href="#_ftn10" name="_ftnref10">10</a> (For the clarified Form W-2 reporting requirements, which apply when an employer has amended a cafeteria plan document to provide a grace period for qualified dependent care assistance immediately following the end of a cafeteria plan year, see Notice 2005-61.)<a href="#_ftn11" name="_ftnref11">11</a> Coordination with Dependent Care Credit The amount of employment-related expenses available in calculating the dependent care credit of IRC Section 21 is reduced by the amount excludable from gross income under IRC Section 129.<a href="#_ftn12" name="_ftnref12">12</a> Employer’s Deduction The employer’s expenses incurred in providing benefits under a dependent care assistance program generally are deductible by the employer as ordinary and necessary business expenses under IRC Section 162. Sole Proprietors and Partners An individual who owns the entire interest in an unincorporated trade or business is treated as his or her own employer. A partnership is treated as the employer of each partner who is an employee under the plan.<a href="#_ftn13" name="_ftnref13">13</a> A self-employed individual (within the meaning of 401(c)(1)) is considered an employee.<a href="#_ftn14" name="_ftnref14">14</a> </div><div class="refs"> <hr align="left" size="1" width="33%"> <a href="#_ftnref1" name="_ftn1">1</a>.   IRC §§ 129(d)(1), 129(e)(1). <a href="#_ftnref2" name="_ftn2">2</a>.   IRC § 21(b)(2). <a href="#_ftnref3" name="_ftn3">3</a>.   IRS § 129(d)(5). <a href="#_ftnref4" name="_ftn4">4</a>.   IRC § 129(d)(1). <a href="#_ftnref5" name="_ftn5">5</a>.   IRC § 129(d). <a href="#_ftnref6" name="_ftn6">6</a>.   IRC § 129(d)(8)(B). <a href="#_ftnref7" name="_ftn7">7</a>.   IRC § 129(d)(8)(B). <a href="#_ftnref8" name="_ftn8">8</a>.   IRC § 129(d)(9). <a href="#_ftnref9" name="_ftn9">9</a>.   IRC § 414(r). <a href="#_ftnref10" name="_ftn10">10</a>.   Notice 2005-42, 2005-23 IRB 1204. <a href="#_ftnref11" name="_ftn11">11</a>.   2005-39 IRB 607, amplifying, Notice 89-11, 1989-2 CB 449. <a href="#_ftnref12" name="_ftn12">12</a>.   IRC § 21(c). <a href="#_ftnref13" name="_ftn13">13</a>.   IRC § 129(e)(4). <a href="#_ftnref14" name="_ftn14">14</a>.   IRC § 129(e)(3). </div></div>

March 13, 2024

3626 / What exclusion is available for employee participants in an employer-sponsored dependent care assistance program?

<div class="Section1">Editor’s Note: For 2021, employers had the option of amending DCAPs to offer up to $10,500 in tax-preferred benefits ($5,250 for married individuals who file separate returns).</div> <div class="Section1"> An employee may exclude up to $5,000 paid or incurred by the employer for dependent care assistance provided during a tax year.<a href="#_ftn1" name="_ftnref1">1</a> For a married individual filing separately, the excludable amount is limited to $2,500. Furthermore, the amount excluded cannot exceed the earned income of an unmarried employee or the lesser of the earned income of a married employee or the earned income of the employee’s spouse.<a href="#_ftn2" name="_ftnref2">2</a> An employee cannot exclude from gross income any amount paid to an individual with respect to whom the employee or the employee’s spouse was entitled to take a personal exemption deduction under IRC Section 151(c) (prior to the suspension of the personal exemption from 2018-2025) or who is a child of the employee under 19 years of age at the close of the taxable year.<a href="#_ftn3" name="_ftnref3">3</a> Additionally, the employee cannot reimburse the child's other parent for child care provided to their qualifying child. With respect to on-site facilities, the amount of dependent care assistance excluded is based on utilization by a dependent and the value of the services provided with respect to that dependent.<a href="#_ftn4" name="_ftnref4">4</a> </div> <div class="refs"> <hr align="left" size="1" width="33%" /> <a href="#_ftnref1" name="_ftn1">1</a>. IRC § 129(a). The dependent care maximum limit is set by federal statute. It is not subject to inflation-related adjustments as many other benefits. The limits have not been raised in several years. <a href="#_ftnref2" name="_ftn2">2</a>. IRC § 129(b). <a href="#_ftnref3" name="_ftn3">3</a>. IRC § 129(c). <a href="#_ftnref4" name="_ftn4">4</a>. IRC § 129(e)(8). </div>

September 23, 2022

3640.04 / What options do employers have when determining whether to grant a remote employee’s request for FMLA leave?

<div class="Section1">Determining whether to grant FMLA leave can be complicated given the uncertainties generated by remote work arrangements. Employers do, however, have options.</div> <div class="Section1"> To determine whether a remote worker is legally entitled to FLMA leave, the employer will have to conduct a case-by-case analysis to determine whether the employee’s worksite is located for FMLA purposes. The company must examine their physical worksite, reporting site and the site from which assignments come. If the employer does not have at least 50 employees within 75 miles of any of those locations, the employer would have a strong argument that the employee is not entitled to FMLA leave. Other employers may wish to grant FMLA leave to employees who meet the hours-of-service and employment length requirements regardless of their remote location. While this approach can help employers avoid litigation, it can also provide employees with benefits to which they are not legally entitled (depending on the facts). Employers may also be able to assign a reporting worksite and an assignment site to each remote employee when agreeing to continue a remote working arrangement. The employer could then examine the facts to determine whether they have at least 50 employees within 75 miles of those reporting/assigning worksites. </div>

September 23, 2022

3640.03 / Are remote workers eligible for leave under the Family and Medical Leave Act (FMLA)?

<div class="Section1">Editor’s Note: The DOL has released a bulletin clarifying its position on employer obligations when determining whether a remote employee is eligible for FMLA leave. Employers must generally provide FMLA leave if they employ at least 50 employees within a 75-mile radius. When employees work from home, the worksite for FMLA eligibility purposes is the office to which they report or from which their assignments are generated. So, if at least 50 employees (including remote workers) are employed within 75 miles of the office to which the employee reports or from which assignments are generated, the remote employee is eligible for FMLA leave (even if no other employees are employed within 75 miles of the employee’s remote office).<a href="#_ftn1" name="_ftnref1">1</a></div> <div class="Section1"> The Family Medical Leave Act (FMLA) is a federal law that gives covered employees the right to 12 weeks of unpaid leave each year for any covered reason. While it may seem that employees who are not required to report to a physical location would be less likely to need time off to handle family and medical issues, the reality is that many are equally unable to work while a covered reason is ongoing. Employers with remote workers should be aware that they may be required to grant an employee’s request for unpaid time off even if the employee does not report to a physical worksite. Covered reasons under the FMLA include: <blockquote>For the birth and care of the newborn child of an employee, For placement with the employee of a child for adoption or foster care, To care for an immediate family member (spouse, child, or parent) with a serious health condition, or For medical leave if the employee is unable to work because of a serious health condition.</blockquote> Not all employees are eligible for unpaid FLMA leave and not all employers are subject to the law. Employees are eligible for FMLA leave if they: <blockquote>Have worked for their employer at least 12 months, Have worked at least 1,250 hours over the 12 months preceding the request for FMLA leave, and Work at a location where the company employs 50 or more employees within a 75-miles radius.<a href="#_ftn2" name="_ftnref2">2</a></blockquote> This law may create unanticipated complications for employers who permit employees to work on a remote basis. In some cases, remote workers report to an office that is in their same geographic location. However, it is becoming more common for workers to report to managers and supervisors who are also working remotely from different locations. When a remote employee requests FMLA leave, questions involving whether the employee is entitled to the FMLA leave often arise. The issue in these cases is whether the employer has at least 50 employees within a 75-mile radius of the remote employee’s workplace. <hr /> Planning Point: Employers who continue to permit remote work should be aware that existing and evolving state and local paid leave laws may apply. For example, Illinois has enacted a new paid bereavement act that became effective January 1, 2023. Under the law, the same requirements that apply in determining FMLA eligibility apply. An employee is eligible to take leave if the employee has worked for a covered employer for at least 1,250 hours within the previous 12 months, and also works at a location where the employer has 50 or more employees within a 75-mile radius.<a href="#_ftn3" name="_ftnref3">3</a> The Healthy Delaware Families Act provides up to 12 weeks of paid family and medical leave beginning in 2026 (employers will be required to begin implementing payroll deductions as of January 1, 2025). The law is similar to the federal FMLA, but applies to smaller employers, so that any employer with 10 or more employees who report to a Delaware worksite will be required to comply. It remains to be seen whether the law will apply to employers with ten or more employees who work remotely from Delaware.<a href="#_ftn4" name="_ftnref4">4</a> <hr /> A Texas court<a href="#_ftn5" name="_ftnref5">5</a> recently refused to grant a motion to dismiss a case where a company denied an employee’s request for FMLA leave. The company claimed they did not have 50 employees within a 75-mile radius in Texas. The employer’s headquarters was in Ohio, yet the employee was working remotely from Texas (the employee’s supervisor was also working remotely from Texas). The employee claimed that her “worksite” for FMLA purposes was Ohio, where the company was headquartered. To have won summary judgement, the court found the company must establish that Ohio was not: <blockquote>The employee’s “home base”, The site that assigns the employee’s work, or The site to which the employee reports</blockquote> The court found that the term “worksite” had to be a location where the employee was physically present and that it referred not to the physical base of the employer’s operations, but to the physical base of the employee. The employee in this case was never physically present in Ohio, so she could not prove Ohio was her home base. However, the court found an issue of fact with respect to where the employee’s assignments were created and originated. The court found that this location is the site from which the employee’s day-to-day instructions were provided and that there was an issue of fact as to whether the assignments originated at the Ohio headquarters. The Texas case settled privately before the court provided a final resolution of the issues. The case does, however, point to the fact-intensive nature of the inquiry as to whether any given remote employee may be eligible for FMLA leave. Employers should be aware that is possible that they may be required to provide FMLA leave even if they do not have 50 employees within a 75-mile radius of the remote employee’s physical location. That may be the case if the employee can establish that assignments were created or originated from the employer’s central location or if the employee sends assignments to a central location where they are evaluated (i.e., if the employee’s reporting worksite is where the employer has at least 50 employees). </div> <div class="refs"> <hr align="left" size="1" width="33%" /> <a href="#_ftnref1" name="_ftn1">1</a>. See https://www.dol.gov/sites/dolgov/files/WHD/fab/2023-1.pdf <a href="#_ftnref2" name="_ftn2">2</a>. More information on the Family and Medical Leave Act requirements can be found at <a href="https://www.dol.gov/agencies/whd/fmla">https://www.dol.gov/agencies/whd/fmla</a>. <a href="#_ftnref3" name="_ftn3">3</a>. See Family Bereavement Leave Act (FBLA), available at <a href="https://www.ilga.gov/legislation/102/SB/PDF/10200SB3120lv.pdf">https://www.ilga.gov/legislation/102/SB/PDF/10200SB3120lv.pdf</a>. <a href="#_ftnref4" name="_ftn4">4</a>. Available at <a href="https://legis.delaware.gov/json/BillDetail/GenerateHtmlDocumentEngrossment?engrossmentId=25023&docTypeId=6">https://legis.delaware.gov/json/BillDetail/GenerateHtmlDocumentEngrossment?engrossmentId=25023&docTypeId=6</a> <a href="#_ftnref5" name="_ftn5">5</a>. Landgrave v. Fortec Medical, Inc., 1-20-CV-968-RP (U.S. District Ct., W.D. Austin, Tx. 2022). </div>

September 23, 2022

3640.01 / What factors should an employer consider when determining whether to permit ongoing remote work arrangements?

<div class="Section1">Editor’s Note: While remote work arrangements are not entirely new, employers should be aware that issues involving remote work are newly in the spotlight for state governments. Because of this, issues involving remote work arrangements are continuing to evolve. Employers who are contemplating a remote work arrangement should be advised of this, and of the need to comply with state-level laws in all states where their employees reside and work—regardless of where the employer is physically located. Failure to comply could subject to the employer to fines, penalties and litigation in the state of the employee’s residence.</div> <div class="Section1"> Many employers and employees have become accustomed to work-from-home arrangements and determined that in-person reporting to a physical office is no longer necessary. However, those employers who continue to permit remote work arrangements should know that most of the temporary relief that was put into place during the pandemic has expired. Now, employers will be required to comply with state-level laws and should consider implementing policies and procedures to ensure that remote work arrangements proceed smoothly. When making decisions to permit remote work arrangements, employers must consider all relevant nondiscrimination laws, including the Age Discrimination in Employment Act, the Americans with Disabilities Act and Title VII of the Civil Rights Act of 1964. Decisions to permit remote work must be made in a nondiscriminatory manner to avoid potential lawsuits under these laws and state-level equivalents. Employers must also consider state-level wage and hour laws. They should consider developing programs to track employees’ work time, ensure that employees are paid for all hours worked (including overtime requirements) and to ensure that employees are provided with any legally required break time during their workday. For many employers, confidentiality and data security are also an issue. These employers should take steps to protect customer information and other confidential information in the employee’s remote work environment (for example, by requiring data protection software). Employers should implement clear policies and procedures that will be followed in determining when to permit remote work arrangements. They should also develop detailed procedures that will govern various aspects of the remote work arrangement. Those policies should address timekeeping requirements, expense reimbursement issues, any in-person reporting requirements, who is responsible for the employee’s work equipment and care, network security requirements and how equipment and documents will be returned to the employer upon termination of the working relationship. </div>

September 23, 2022

3640.05 / Can an employer require a remote worker to sign a noncompete or non-solicitation agreement?

<div class="Section1">Editor’s Note: In April of 2023, the Federal Trade Commission issued a final rule banning nearly all non-compete agreements nationwide. On August 20, 2024, the district court for the Northern District of Texas<a href="#_ftn2" name="_ftnref2">1</a> held that the rule was unconstitutional as it violated the Administrative Procedure Act, and thus issued a nationwide ban on enforcement of the FTC ban. The FTC has appealed a similar decision issued by the Middle District of Florida, but has yet to file an appeal in the Fifth Circuit.</div> <div class="Section1"> Non-compete agreements are often included in employment contracts to prevent employees from accepting employment in the same line of work as the employer or from opening their own competing businesses. Whether these agreements are enforceable varies from state to state. Employers with a remote workforce will be required to consider state and local laws governing the enforceability of noncompetition or non-solicitation and other employment agreements. Those laws have been evolving rapidly in recent years, so that a non-compete agreement that is enforceable in one state may not be enforceable in the state where the remote employee is situated. Employers who permit employees to work remotely from other states will be responsible for monitoring these developing laws. As recently as March of 2022, the California Attorney General issued an alert<a href="#_ftn1" name="_ftnref1">1</a> reminding employers that non-compete agreements are not enforceable in the state of California. Under California law, non-compete agreements are specifically non-enforceable with respect to California residents even if the company operates in another state that does recognize non-compete covenants as enforceable. In New York state, non-compete agreements are only enforceable if (1) the agreement is necessary to protect the employer’s legitimate interests, (2) it does not impose an undue hardship on the employee, (3) the agreement does not harm the public, (4) the agreement is reasonable in time period and geographic scope.<a href="#_ftn2" name="_ftnref2">2</a> Other states have developed new and detailed laws governing the enforceability of non-compete agreements. For example, Colorado<a href="#_ftn3" name="_ftnref3">3</a> has revised its laws on noncompetition and non-solicitation covenants effective August 10, 2022. Under the new law, noncompete agreements are enforceable when they are used to protect trade secrets. However, these covenants must be no broader than reasonably necessary to protect a legitimate interest in protecting the trade secrets in question. Even these non-compete covenants are only enforceable if the employee earns enough income to be classified as a highly-compensated employee when the agreement is entered into and when the company attempts to enforce the agreement (in Colorado, the “highly compensated” limit is $101,250 in 2022, $112,500 in 2023 and $123,750 in 2024, to be indexed to inflation in later years).<a href="#_ftn4" name="_ftnref4">4</a> Non-solicitation covenants are only enforceable against employees earning at least 60% of the highly-compensated employee threshold. Employers will also have to provide the employee with advance notice and give them time to review and agree to the covenant. In Washington D.C., non-competes are enforceable only against employees who earn at least $150,000 per year ($250,000 for medical specialists). While a new law initially banned most non-competes, effective October 1, 2022, the law on non-competes was amended to provide that employers can ban employees from using and disclosing confidential and proprietary information (i.e., trade secrets) during and after the employee’s employment.<a href="#_ftn5" name="_ftnref5">5</a> Employers with a remote workforce will be required to conduct a state-by-state analysis to determine the rules for enforcing non-compete and non-solicitation agreements going forward. </div> <div class="refs"> <hr align="left" size="1" width="33%" /> <a href="#_ftnref1" name="_ftn1">1</a>. Ryan LLC v. Federal Trade Commission, Civil Action No. 3:24-CV-00986-E. <a href="#_ftnref2" name="_ftn2">2</a>. Available at <a href="https://oag.ca.gov/news/press-releases/attorney-general-bonta-reminds-employers-and-workers-noncompete-agreements-are">https://oag.ca.gov/news/press-releases/attorney-general-bonta-reminds-employers-and-workers-noncompete-agreements-are</a> 3. See <a href="https://ag.ny.gov/sites/default/files/non-competes.pdf">https://ag.ny.gov/sites/default/files/non-competes.pdf</a> <a href="#_ftnref3" name="_ftn3">4</a>. Available at <a href="https://leg.colorado.gov/sites/default/files/2022a_1317_signed.pdf">https://leg.colorado.gov/sites/default/files/2022a_1317_signed.pdf</a> <a href="#_ftnref4" name="_ftn4">5</a>. <a href="https://leg.colorado.gov/sites/default/files/2022a_1317_signed.pdf">https://leg.colorado.gov/sites/default/files/2022a_1317_signed.pdf</a> <a href="#_ftnref5" name="_ftn5">6</a>. D.C. Act 24-526. </div>

September 23, 2022

3640.02 / What issues should employers that choose to allow remote work arrangements consider with respect to employer-sponsored health insurance coverage and reporting?

<div class="Section1">Under the Affordable Care Act, employers who have 50 or more full-time employees are required to provide affordable health coverage to employees. That law applies at the federal level to all employers, regardless of where they are situated (see Q <a href="javascript:void(0)" class="accordion-cross-reference" id="8858">8858</a>- Q <a href="javascript:void(0)" class="accordion-cross-reference" id="8886">8886</a> for more information on the employer mandate).<div class="Section1"> However, many states have also implemented their own ACA-like laws that govern health coverage requirements within the state (i.e., New Jersey, the District of Columbia, Massachusetts, Rhode Island and California have their own health coverage laws in place). Because of that, it is also possible that employers could be subject to penalties for failure to provide affordable coverage at the state level. Those employers will also be subject to state-level reporting requirements if they permit an employee to work remotely from a state that has health coverage laws in effect. Some state laws mirror the federal ACA reporting requirements. However, Massachusetts has developed its own Forms 1099-HC<a href="#_ftn1" name="_ftnref1">1</a> that differ from the federal Forms 1095-C. Employers who permit employees to work remotely from Massachusetts must send Forms 1099-HC to employees within the state. Employers who fail to send the forms can be subject to a penalty of up to $50 per individual (up to a cap of $50,000).<a href="#_ftn2" name="_ftnref2">2</a> The forms must be submitted electronically.<a href="#_ftn3" name="_ftnref3">3</a> The existing state-level reporting requirements for employers are detailed and vary from state to state. Employers who permit employees to work remotely in states other than where the employer is physically located will be required to comply with a variety of state-level laws or risk becoming subject to penalties for noncompliance. </div><div class="refs"> <hr align="left" size="1" width="33%"> <a href="#_ftnref1" name="_ftn1">1</a>.   <a href="https://www.mass.gov/service-details/1095-b-and-1099-hc-tax-form">https://www.mass.gov/service-details/1095-b-and-1099-hc-tax-form</a> <a href="#_ftnref2" name="_ftn2">2</a>.   MGL c. 62C, § 8B. <a href="#_ftnref3" name="_ftn3">3</a>.   <a href="https://www.mass.gov/info-details/health-care-frequently-asked-questions-for-employers">https://www.mass.gov/info-details/health-care-frequently-asked-questions-for-employers</a> </div></div>