IRS Releases 2018 Health FSA Contribution Maximum, ACA 2017 Forms, and Updated PCORI Fees

 October 26 2017     Diane Cross

While 2018 may seem at a distance – it is quickly approaching.  For many employers, this means time for open enrollment, as well as upcoming reporting requirements, deadlines, and fee payments under the Affordable Care Act (ACA). Recently, the IRS has released important information for employers including: (1) the 2018 contribution maximum for Health Flexible Spending Accounts (FSAs); (2) final 2017 forms for reporting under IRC Sections 6055 and 6056; and (3) updated Patient-Centered Outcomes Research Institute (PCORI) Fee for plan years ending on or after October 1, 2017 and before October 1, 2018, with more details on each below.  

Health FSA Contribution Maximum for 2018

The IRS increased the maximum employee contribution for 2018 FSAs to $2,650 (up $50 from 2017) for plan years beginning on or after January 1, 2018, due to cost-of-living adjustments as announced via Revenue Procedure 2017-58. Employers offering an FSA that wish to increase the employee contribution limit to $2,650 should make sure the limit is reflected in their Section 125 plan documents and communicate the new maximum to employees during open enrollment.  For the employers who have already distributed open enrollment materials, this information should still be shared via a follow-up communication.

Final 2017 Forms for 2017 ACA Reporting

Released earlier this month, the 2017 forms are substantially similar to the 2016 versions (as mentioned in our previous blog post on the subject), with the exception that sections related to the expired Section 4980H Transition Relief were removed. Highlights of the 2017 forms include:

  • Instructions for all forms include updated penalty amounts for failures to file returns and furnish statements in 2017. For reference, the adjusted penalty amount is $260 per violation, with an annual maximum of $3,218,500 (up from $3,193,000 for 2016). 
  • The instructions for Forms 1094-C and 1095-C also clarify that there is no specific code to enter on line 16 to indicate that a full-time employee who was offered coverage either did not enroll or waived the coverage, a common question among employers.
  • The 2017 instructions for Forms 1094-C and 1095-C include additional information for a safe harbor for certain de minimis errors.  Related to incorrect dollar amounts on Line 15, the safe harbor generally applies if no single amount in error differs from the correct amount by more than $100. If the safe harbor applies, employers will not have to correct Form 1095-C to avoid penalties (note that if the recipient elects for the safe harbor not to apply, the employer may have to issue a corrected Form 1095-C to avoid penalties). Notice 2017-9 provides more information, for reference.  

Final Forms and Instructions:

Employer should become familiar with the 2017 forms in preparation for 2018 filing.  As a reminder, Form 1095-C (or 1095-B if applicable) must be delivered to employees by January 31, 2018, and Forms 1094-C and 1095-C (or 1094-B and 1095-B if applicable) due to the IRS by February 28, 2018 if paper filing or April 2, 2018 if electronic filing.  Paper filing is only available for employers with fewer than 250 returns.

Updated PCORI Fee

Also earlier this month, the IRS provided the updated dollar amount to be used to calculate the PCORI fee for health plan years that end on or after October 1, 2017 and before October 1, 2018 (see IRS Notice 2017-61).  For plan years ending on or after October 1, 2016 and before October 1, 2017 the fee is $2.26; for plan years ending on or after October 1, 2017 and before October 1, 2018, the fee is $2.39 per covered life.

As a reminder, under the ACA, all medical plans are responsible for paying the Patient-Centered Outcomes Research Institute (PCORI) fee to the IRS. If the plan is fully-insured, the insurance carrier pays the fee on behalf of the policyholder.  However, for self-funded plans including health reimbursement arrangements, the employer/plan sponsor must file the Form 720 and pay the fee to the IRS directly (unless the plan is considered an excepted benefit). Fees are reported and paid on Form 720, which due on July 31st of the calendar year following the last day of the plan year.  

Please contact your HORAN representative with questions.