New IRS Guideline on the HEART Act Benefits Military Reservists
2008-12-03 22:58:03 -
It"s always good news when something is done to help make life a little easier for the brave men and women serving in the military. Earlier this summer, Congress did exactly that by passing the HEART Act (Or as it"s officially called: Section 114 of the Heroes Earnings Assistance and Relief Tax Act of 2008).
The law, which took effect June 18, 2008, enables employers to modify their health care flexible spending account (FSA) plan to assist employees who are also active military reservists. Under the Act, qualified reservists can make a request to cash out any remaining funds in their FSA as of June 18, 2008. While the cash disbursements will be taxed as income, the accountholders will be able to use the monies for whatever expenses and purposes they choose.
While the Act was passed over the summer, it wasn"t until late September that the IRS issued guidance (Notice 2008-82) clarifying how the law should be applied.
The new guidance defines the qualified as any reservist whose unit has been called or ordered to active duty for a period of 180 days or longer. While the Act stipulates a 180 day call-up to qualify, the reservist does not need to serve the entire time to receive payment. Conversely, if an order or call-up is for less than six months and the reservist actually serves the 180 days or more, that employee is also qualified to request the cash payment. In all cases, each request must be made after the order has been given and before the end of the plan year, which includes the end of the grace period for plans that utilize them.
For employers to take advantage of the Act, they must first amend their plan design to accommodate cash disbursement requests. Employers can amend the plan to disburse cash in one of three ways: One, make all funds elected available, minus any reimbursement claims submitted as of the request date; Two, make only the employee"s to-date contributions available, minus claims submitted; or Three, choose a percentage of the remaining funds (minus reimbursements). In the case of the latter two options, the employer can also decide if they want to terminate the plan after the disbursement of funds. And however they choose to amend the plan, all payments must be made within 60 days of each request.
"This is a great opportunity for employers with FSA plans to help their employees serving in the reserves," said Joe Jackson, CEO at WageWorks, a San Mateo, CA-based administrator of tax-advantaged health, wellness, child care, commuting, and education benefits. "We hope other administrators join us in doing everything possible to make it easy for both business and eligible reservists to take full advantage of it."
For more information on the Act, see the Important Facts listed below or visit (benefitslink.com/IRS/notice2008-82.pdf).
Important HEART Act Facts:
- Only reservists who are ordered or have served 180 days or more are eligible to request disbursements
- Distribution of health care FSA funds can only be made from balances in existence on or after June 18, 2008
- Employers can choose from three plan design options for distributing funds
- Disbursed funds are taxable
- Payments must be made within 60 days of the request
- Requests can be retroactive as long as the plan is amended prior to January 1, 2010
About WageWorks
Founded in 2000, WageWorks helps employers support consumer directed pre-tax benefit programs, including health care (FSA, HSA, HRA), wellness programs, child and elder care, commuting services, education benefits, and employee sponsored programs, such as gym reimbursement. Wage Works also offers retiree health care and COBRA Services. More than 100 of America's Fortune 500 employers and millions of their benefits-eligible employees use WageWorks' programs. As the cost of living continues to rise and more health care costs are pushed to employees, WageWorks seeks to eliminate barriers to benefit participation so families and individuals can save money and improve their overall well-being.
WageWorks provides easy-to-use benefits programs that help save time, and educational tools and resources to increase employees' knowledge and understanding of their family's health care and financial needs.
WageWorks is headquartered in San Mateo, CA, with offices in New York, Tempe, AZ., Mequon, WI, Kansas City, KS, Lombard, IL, Troy, MI and now Vista, CA. For more information, please visit www.wageworks.com.
Hill & Knowlton
Eric Glass, 415-281-7139 (Media)
eric.glass@hillandknowlton.com
