Health Care Reform Legislation Requires that W-2s Show Value of Health Coverage

Thanks to the health care reform legislation, employers are required to report the value of the health insurance coverage they provide on each employee’s annual Form W-2 beginning in tax year 2011.

This reporting is for informational purposes only, to show employees the value of their health care benefits so they can be more informed consumers, according to the IRS.

There has been considerable confusion generated concerning the reporting of the value of health insurance coverage—with rumors spread that the amount is taxable for income tax purposes. To be clear, the amount reported does not affect tax liability, as the value of the employer contribution to health coverage continues to be excludible from an employee's income and it is not taxable. For more information: http://www.irs.gov/newsroom/article/0,,id=220809,00.html?portlet=6

It might appear that this additional reporting requirement does not impact nonprofits until January 2012 when the 2011 Form W-2s must be filed. However, departing workers can ask for a W-2 within 30 days of the final paycheck or the date the request is made, whichever is later. Even though few people do this, charities will need to be ready in early 2011. The calculation of the health plan’s value is the same as the value used to figure the allowable premium for COBRA coverage.

Preparedness to comply with these new government regulations is the key.

The Hidden Costs to Charities Just Keep Rising

A recent study commissioned by the National Business Travel Association says that travelers pay up to $101 in sales, hotel, rental car and other extra taxes aimed at them on an average three-day domestic trip.

Since many nonprofits have significant travel budgets, taxes that target travelers are understandably concerning.

The study found that a typical business traveler pays $101.27 in taxes on average for hotel, rental car and meals during a three-day, two-night stay in Chicago—more than in any other city. And travelers pay more than $85 in similar taxes during the same length of stay in Seattle, Minneapolis, New York and Boston.

As states and local municipalities continue to struggle to balance budgets, taxes on travelers will undoubtedly continue to rise—impacting nonprofit and other travelers.

Preparing for the Government’s Impact on Flexible Spending Accounts

Many churches and charities provide flexible spending accounts (FSAs). Using an FSA is often good stewardship. The new health care reform law requires certain changes to FSAs:

• In 2011, employees will no longer be able to receive pre-tax reimbursements from their FSA for non-prescribed over-the-counter medications. Thus, the cost of over-the-counter medicine (other than insulin or doctor prescribed medicine) cannot be reimbursed on a tax-free basis through an FSA. FSA plans should be modified to exclude these reimbursements.
  
• In 2013, employee contributions to FSAs will be capped at $2,500 annually, with the cap adjusted annually to the Consumer Price Index. FSA plans should be modified in accordance with the new cap, plus annual adjustments.

Planning opportunity: Most charities do not have a properly established plan to reimburse out-of-pocket medical expenses. Even though FSAs will be capped at $2,500 annually in 2013, the benefit of offering an FSA to all staff members on a salary reduction basis is significant. For example, a staff member with marginal (the tax rate on his or her last dollars of income) state and federal tax rates, including social security, of 40% could save $1,000 if they have $2,500 of out-of-pocket medical expenses that are covered by an FSA.

Like someone once said: “You save $1,000 here and another $1,000 there and after a while you are talking about some real money.”

The Government’s Vanishing Charitable Deduction?

Several states are considering capping charitable deductions—New York is the latest. The Administration proposed capping charitable deductions (and other itemized deductions) to fund health care proposals and has stated an intention to include such a proposal in the 2011 budget.

A bipartisan proposal introduced by Senators Wyden (D-OR) and Gregg (R-NH) bears watching. Under their tax reform bill (S. 3018), standard deductions would soar: $30,000 for those married filing jointly, $15,000 for singles and $22,500 for heads of households. Such a change would effectively eliminate the charitable deduction (and other itemized deductions) for most taxpayers other than high-income individuals.

And, the chorus of those opposed to the charitable deductions is also rising. Just one example is found in Edward Kleinbard’s blog.

What does the future hold for the charitable deduction? While it is unclear, it appears there will be increasing pressure to reduce the value of the deduction or eliminate it all together.

Churches and other Christ-centered nonprofits have always relied on committed givers. The commitment level may be raised in the future—giving without respect to a tax deduction.

In searching the Scriptures, I find no requirement to obtain a tax deduction before we give. No, giving is a spiritual issue of the heart. It is an act of obedient worship.

Fraud … and Lessons in the Lack of Accountability

The August 16, 2010 edition of The Wall Street Journal featured two poignant articles on fraud. While the examples in the articles are from the for-profit world, this is a teachable moment on accountability for the Christian nonprofit arena as well.

There were other issues than money involved in the departure of Mark Hurd as Hewlett-Packard’s CEO. But apparently, it was something as simple as inaccurate expense reporting that tripped him up.

In another story, the founder of Courette Building Systems, Salem, VA, tells how he placed one employee in charge of both receipts and disbursements. Among other fraudulent acts, the employee pocketed over $300,000 he was supposed to send to the IRS to cover payroll taxes.

At Interactive Solutions, Memphis, TN, the founder and CEO took some occasional days off while mourning the death of his brother. His bookkeeper had been referred by an attorney and someone that had sung with her in the church choir. After reading an article about fraud, something clicked with the CEO and he said to himself, “That could happen to me.” He began looking and quickly discovered thefts in the form of bogus bonuses and commissions by the dozens.

In both instances, the guilty parties are serving time in prison but the losses were mostly unrecovered and the fraud nearly devastated the two organizations.

According to the Association of Certified Fraud Examiners, 31 percent of all business frauds nationally were within companies of fewer than 100 employees. Only 21 percent were committed in companies with over 10,000 employees. So most fraud happens in small organizations. It can happen to you!

While it is not practical to illuminate all fraud, it is possible to minimize the risk of fraud. See http://www.ecfa.org/Fraud.aspx.

The challenge is to respond but not over-react when fraud is discovered. Determine where your organization is most at risk and investigate those risks. Modify procedures to reduce risks. But the mission of the nonprofit must go on—and your nonprofit organization can be stronger because of the painful fraud that you experienced.

Your mission is still the main thing. Don’t take your eye off the ball.

Preparing for the Impact of the Government’s Health Care Reform

No matter what you think about health care reform, one expectation is clear: health insurance costs are going up soon. Based on a recent Mercer study, employers expect health insurance costs to jump as early as the 2011 plan year. [1]

The Mercer study also revealed health care reform provisions that concern employers the most. Here are a couple of the areas of concern:

• Dependent care coverage. Beginning September 23, 2010, all organizations must extend dependent coverage to all dependent children—even married ones—up to, and including, age 26. Most employers will need to change their dependent eligibility rules to comply with the reform law.

• Providing coverage to more part-time workers. The reform law will require employers to offer “affordable” health care coverage to all employees who average 30 hours per week or more in a month—starting in 2014. This provision will especially impact organizations that heavily rely on part-time labor at the 30 or more hours a week level.

Making appropriate plans to meet the health care reform laws are very important (adherence to laws is required by ECFA’s Standard 4) but it will not be easy. The temptation will be to simply offset increased health insurance by decreasing benefits to staff. But should staff shoulder the burden of increased health care cost? The issue is more complex.

Most surveys of workers show that benefits are second in importance only to job security. The importance of compensation usually ranks last or nearly so.

So, if benefits are so important, why do employers considering cutting benefits as one of the first cost-saving options? As long as employer-provided health insurance is tax-free, why not maximize the tax-free benefit and make other adjustments to balance the budget!

Consider offsetting the coming increases in health care costs with employee engagement, motivation and efficiency. Even after making recession-related adjustments, most organizations have many ways to increase efficiencies and reduce costs by focusing on issues that are really important.

[1] http://www.mercer.com/summary.htm?idContent=1380755

Billionaires Pledge to Give—But to Whom?

Bill Gates and Warren Buffet are lining up the billionaires to give to charity. The gifts will be significant—and undoubtedly will help humankind.

But which charities will receive these new-found billions of gifts? Christ-centered charities? Most of the gifts will go to education, the arts, and so on. While some of the new giving will find its way to the Christ-centered word, it will remain the responsibility of believers to give generously to causes to fulfill the Great Commission.

In Bob Buford’s last newsletter, he shares good news about giving. His encouragement is “mirrored by Pamela Hawley, a bright young person who is Founder and CEO of Universal Giving, who said, ‘I can see the fear if I want to. And yet, I am resolutely encouraged.

'Giving is being pushed down. It is no longer about the 50-year old who has it made and wants to give back. Giving is taking place at the age of 10. College students are using their spring vacation to build homes. Media stations are using their news stations to get people involved.

'Good people, good things, good partnerships are transpiring. Find them, see them, stoke them, cherish them. And goodness will begin to explode across the world in the most wonderful way. It already is.’”