Are You COBRA Compliant?

Does your company sponsor a group health plan? If it does, you are probably at least somewhat familiar with COBRA,* the federal law that gives individuals covered by an employer’s group health plan the right to continue their coverage for a period of time, at their own expense, in certain situations. COBRA generally applies to employers with 20 or more employees. However, many states extend certain COBRA rights to workers at companies with fewer than 20 employees.

IRS Audit Guide

Since penalties for noncompliance can be steep, it’s smart to make sure your company’s COBRA practices are in order.

COBRA Triggers

An employee’s, spouse’s, or dependent’s right to temporarily continue group health plan benefits under COBRA is triggered by a qualifying event, and the coverage must last a minimum period. The most common qualifying events and the generally required coverage periods are:

  • Employee is voluntarily or involuntarily laid off or terminated (unless the reason is gross misconduct) — 18 months
  • Employee’s work hours are reduced below plan eligibility requirements — 18 months
  • Employee dies — 36 months
  • Employee becomes eligible for Medicare — 36 months
  • Spouse is no longer eligible for plan coverage because of a divorce or legal separation — 36 months
  • Dependent is no longer eligible for coverage — 36 months

The availability of COBRA coverage generally begins on the date of the qualifying event that causes the loss of coverage. The coverage period can end early if premium payments aren’t made on time (generally within 30 days of the due date) or in certain other limited circumstances. Coverage periods vary under state programs.

Premium Payments

Employees who elect COBRA coverage are responsible for paying the full cost of their health insurance premiums. You can add 2% to the premium charge to cover administrative costs.

Potential Penalties

The tax law imposes a penalty of $100 per person (maximum penalty of $200 per family) for each day the COBRA requirements are violated, referred to as the “noncompliance period.” This period can start on the date coverage is denied, a required notice is not sent out, or on some other required date and extend until the compliance failure is corrected. The noncompliance period for a particular person ends on the date six months after the last date on which continuation coverage would have been required, regardless of whether the failure is corrected.

Example: Terminated employee X wasn’t notified of her COBRA election rights until 20 days after the notification should have been given. The penalty for failure to timely notify X would be $2,000 (i.e., 20 days × $100).

Generally, the employer is liable for the noncompliance penalty. Certain penalty limits may be applicable where a COBRA failure is unintentional and due to reasonable cause and not willful neglect. In certain circumstances, a minimum penalty can apply.

Update Your Procedures

You’ll want to be sure you have good procedures in place to ensure that your health insurer(s) or plan administrator is informed of qualifying events in a timely manner and that employees and beneficiaries receive the proper COBRA notices when they should. The updated IRS audit manual suggests that examiners ask employers for a copy of their health care continuation coverage procedures manual — if you don’t have a manual, you should put one together. Having standard form letters that you can send out to COBRA-eligible individuals also can help streamline compliance.

For more tips on how to keep business best practices front and center for your company, give us a call today. We can’t wait to hear from you.

* COBRA is an acronym for the Consolidated Omnibus Budget Reconciliation Act of 1985.

 

…from the Team of Professional at RE-MMAP We are just a click or call away. www.re-mmap.com and phone # (561-623-0241).

Will You have to Pay Taxes on Your Annuities?

Typically, at least a portion of an annuity payment is taxable.* Taxpayers should be careful to distinguish between the portion that represents a nontaxable return of the amount paid for the annuity and the taxable portion.

 

General Rule

 

To do this, the taxpayer generally divides the original, after-tax contribution by the expected return on the date the annuity begins. The cost/payout ratio, or “exclusion ratio,” is then multiplied by each installment payment to determine the nontaxable amount.

 

Example. Mary paid $10,800 for an annuity that will pay her $100 per month for 20 years. Mary’s expected return is $24,000. The exclusion ratio is 45% ($10,800/$24,000). For each $100 installment, $45 will be nontaxable, and the remaining $55 will be taxable.

 

Note that the expected returns on annuities may vary with the amount and the measuring term. Where the measuring term is someone’s lifetime or joint lifetimes, the IRS has tables for determining the expected return.

 

With variable annuities, the payout may vary based on such things as investment performance or changes in a particular index. Generally, the exclusion ratio is calculated by dividing the cost of the annuity contract by the total number of anticipated payments. However, if the nontaxable portion exceeds the actual payment, the taxpayer may elect to recompute the exclusion ratio for later years.

 

“Qualified” Annuities

 

Individuals sometimes receive all or a portion of the money in their qualified retirement plan accounts as an annuity. Such annuities are referred to as “qualified” annuities, and the method for calculating the exclusion ratio is similar to those described above. Note, however, that if the account assets consist entirely of pretax salary contributions (and earnings on those contributions), the exclusion ratio will be zero, and each installment will be fully taxable.

 

For more information about investments and taxes, give our tax professional a call today.

 

* Different rules apply to withdrawals, dividends, and loans from annuity contracts.

 

…from the Team of Professional at RE-MMAP We are just a click or call away. www.re-mmap.com and phone # (561-623-0241).

Are Annuity Payments Taxable?

Typically, at least a portion of an annuity payment is taxable.* Taxpayers should be careful to distinguish between the portion that represents a nontaxable return of the amount paid for the annuity and the taxable portion.

If you need a clear report detailing your full domestic and international tax position, help with your mortgage, or any advise on how to manage your taxes, you need to hire yacht crew tax return for the best service.

General Rule

To do this, the taxpayer generally divides the original, after-tax contribution by the expected return on the date the annuity begins. The cost/payout ratio, or “exclusion ratio,” is then multiplied by each installment payment to determine the nontaxable amount.

Example. Mary paid $10,800 for an annuity that will pay her $100 per month for 20 years. Mary’s expected return is $24,000. The exclusion ratio is 45% ($10,800/$24,000). For each $100 installment, $45 will be nontaxable, and the remaining $55 will be taxable.

Note that the expected returns on annuities may vary with the amount and the measuring term. Where the measuring term is someone’s lifetime or joint lifetimes, the IRS has tables for determining the expected return.

With variable annuities, the payout may vary based on such things as investment performance or changes in a particular index. Generally, the exclusion ratio is calculated by dividing the cost of the annuity contract by the total number of anticipated payments. However, if the nontaxable portion exceeds the actual payment, the taxpayer may elect to recompute the exclusion ratio for later years.

 

“Qualified” Annuities

Individuals sometimes receive all or a portion of the money in their qualified retirement plan accounts as an annuity. Such annuities are referred to as “qualified” annuities, and the method for calculating the exclusion ratio is similar to those described above. Note, however, that if the account assets consist entirely of pretax salary contributions (and earnings on those contributions), the exclusion ratio will be zero, and each installment will be fully taxable.

For more information about investments and taxes, give our tax professional a call today.

* Different rules apply to withdrawals, dividends, and loans deposits from annuity contracts.

 

…from the Team of Professional at RE-MMAP We are just a click or call away. www.re-mmap.com and phone # (561-623-0241).

Using Stocks that Have Lost Their Value to Offset Stock Gains

With year-end just around the corner, you may be thinking of ways to reduce your taxes. If you own stocks (or mutual funds) that have declined in value, selling shares could produce a capital loss that you can use to offset gains on stock sales earlier this year.

However, suppose you still believe a particular stock has potential for future growth. Couldn’t you sell the stock and then immediately repurchase shares in the same company while the price is still low? That way, you could claim the capital loss on your tax return and still own the stock.

Unfortunately, the IRS limits the use of this strategy. The tax law’s “wash-sale rule” prevents you from claiming a capital loss on a securities sale if you buy “substantially identical” securities within 30 days before or after the sale. To claim the loss, you’d have to wait more than 30 days after your sale to repurchase stock in the company.

To learn more about stock strategies and how they affects your taxes, give us a call today. Our staff of professionals are always happy to help.

…from the Team of Professional at RE-MMAP We are just a click or call away. www.re-mmap.com and phone # (561-623-0241).