On November 25, 2020, the IRS updated several FAQs to assist employers in assessing the health plan expenses eligible for a tax credit under the FFCRA. The guidance includes instructions for both insured and self-insured plans.
Under the FFCRA, covered employers are required to provide emergency paid sick leave and expanded FMLA leave to eligible employees who are unable to work or telework due to certain COVID-19-related reasons. The employers are eligible for a payroll tax credit for the amount of the qualified leave wages and the qualified health plan expenses allocable to those wages.
Qualified health plan expenses are amounts paid or incurred by the employer to provide and maintain a group health plan. According to the IRS, these expenses are properly allocated to the leave wages if the allocation is made on a pro rata basis among covered employees and then pro rata on the basis of the time periods of leave coverage.
The FAQs explain that the qualified health expenses generally include both the portion of the cost paid by the employer and the portion paid by the employee on a pre-tax basis. However, employee after-tax contributions are excluded.
The expenses are determined separately for each plan and allocated amongst that plan’s participants. If an employee participates in more than one plan, the allocated expenses of each are combined for that employee.
Employers who sponsor group health plans may use any reasonable method to determine and allocate the plan expenses. For insured plans, these methods may include the COBRA applicable premium for the employee, one average premium rate for all employees, or a substantially similar method that takes into account the average premium rate determined separately for employees with self-only and other than self-only coverage. For self-insured plans, these methods may also include the COBRA applicable premium for the employee or any reasonable actuarial method to determine the estimated annual plan expenses.
The FAQs include instructions and an example for determining the allocable expense amount per day for a covered employee under an insured plan. However, the guidance explains that the calculation would be similar for a self-insured plan using a reasonable actuarial method to assess plan expenses.
Contributions to an HRA (including an individual coverage HRA) or a health FSA may be included in qualified health plan expenses. To allocate contributions to an HRA or a health FSA, employers should use the amount of contributions made on behalf of the particular employee. Qualified health plan expenses do not include contributions to HSAs or QSEHRAs.
Employers may find this IRS guidance helpful in determining the FFCRA qualified health plan expenses eligible for a tax credit.
IRS FAQS on Determining the Applicable Amount of Allocable Qualified Health Plan Expenses »