By: HUB’s EB Compliance Team

Employers looking to take advantage of the tax credits for emergency paid sick and emergency family and medical leave under the Families First Coronavirus Response Act should pay attention to these IRS FAQs on how to treat health expenses (among other expenses that may also be included). The FAQs provide some helpful clarifications on how to determine the amount of the credit for health expenses, such as:

  • It includes group health plan expenses that are excludable from an employee’s taxable income. This generally includes, for example, major medical plans, dental, vision, pharmacy, health reimbursement arrangements, and health flexible spending arrangements.
  • It includes both the employer and employee cost, if the employee cost is paid on a pre-tax basis.
  • The costs are generally determined by plan (e.g. HMO vs. PPO) and then allocated to the employees who participate in that plan.
    • If the plan is fully insured, the cost can be determined using any reasonable method, including:
      • The COBRA premium for the employee;
      • One average premium rate for all employees (with an example in FAQ 33); or
      • A substantially similar method that takes into account the average premium rate separately for employee-only coverage from other levels of coverage.
    • If the plan is self-funded, the cost can be determined any reasonable method, including:
      • The COBRA premium for the employee; or
      • Any reasonable actuarial method to determine the estimated annual expenses of the plan.
    • If an employee on emergency paid sick leave or emergency family and medical leave participates in more than one plan, the daily cost for each plan should be calculated and then aggregated in determining the total health care cost the employer can claim for that employee.
    • Contributions to health reimbursement arrangements (HRAs) and health flexible spending arrangements (health FSAs) may be included based on the amount allocated to a particularly employee.
    • However, contributions to health savings accounts (HSAs), Archer medical savings accounts (Archer MSAs), and qualified small employer health reimbursement arrangements (QSEHRAs) do not count.

Next Steps

Employers should work with their payroll provider and tax advisors on the best way to calculate this credit (for both health expenses and otherwise). They should also review the IRS FAQs closely to figure out the most efficient way to calculate their credit.

More information on the paid sick and family leave rules and other COVID-19 resources are available on HUB’s Coronavirus Resource Center. If you have any questions regarding your insurance, please contact your HUB Advisor. You can also view more compliance articles in our Compliance Directory.

NOTICE OF DISCLAIMER

The information herein is intended to be educational only and is based on information that is generally available. HUB International makes no representation or warranty as to its accuracy and is not obligated to update the information should it change in the future. The information is not intended to be legal or tax advice. Consult your attorney and/or professional advisor as to your organization’s specific circumstances and legal, tax or other requirements.