The IRS has issued specific guidance for the tax treatment of a leave-sharing arrangement that permits employees to donate PTO/ leave/vacation time in an employer-sponsored leave bank for use by other employees adversely affected by an event declared a major disaster or emergency by the President.  See IRS Notice 2006-59.

TAX TREATMENT OF DONATING EMPLOYEE

General Tax Rule

Generally, the employee who donates PTO/leave/vacation time will be treated as having W-2 compensation for the donated time (based on his or her rate of pay at the time of the donation).  This rule is based on the long-standing “assignment of income” tax law doctrine.

IRS Exceptions

The IRS has created several limited exceptions to the general rule:

  1. Medical leave-sharing plans.  See IRS Revenue Ruling 90-29.
  2. Major disaster leave-sharing plans.  See IRS Notice 2006-59.
  3. Leave-based donations of cash to charitable organizations in the case of qualified disasters, including:

Exception for Major Disaster Leave-Sharing Arrangement [IRS Notice 2006-59]

If an employer sponsors a “major disaster leave-sharing plan” that meets the requirements listed below:

  • Employees who donate leave will NOT be taxed on the donated leave time.
  • Employees who use donated leave will be taxed on the donated leave time used — e.g., the donated leave time used is treated as W-2 wages for all income and employment tax withholding purposes.

“Major Disaster Leave-Sharing Plan” Requirements

A “major disaster leave-sharing plan” is a written plan that meets these requirements:

  • The plan allows a leave donor to donate accrued leave to an employer-sponsored leave bank for use by other employees adversely affected by a major disaster or emergency (as declared by the President).  An employee is considered “adversely affected” by a major disaster if it has caused severe hardship to the employee or a family member of the employee that requires the employee to be absent from work.
  • The plan does not allow a leave donor to donate leave to a specific leave recipient.
  • The amount of leave that a leave donor may donate in any year generally may not exceed the maximum amount of leave that he or she normally accrues during the year.
  • A leave recipient may receive paid leave (at his or her normal rate of compensation) from the donated leave bank.  Each leave recipient must use this leave for purposes related to the major disaster.
  • The plan adopts a reasonable limit, based on the severity of the disaster, on the period of time after the major disaster occurs during which a leave donor may donate, and a leave recipient must use, the donated leave.
  • A leave recipient may not convert leave received under the plan into cash in lieu of using the leave.

However, a leave recipient may use leave received under the plan to eliminate a negative leave balance that arose from leave advanced to the leave recipient because of the effects of the major disaster.  A leave recipient also may substitute leave received under the plan for leave without pay used because of the major disaster.

  • The employer must make a reasonable determination, based on need, as to how much leave each approved leave recipient may receive under the plan.
  • Leave donated due to one major disaster may be used only for employees affected by that disaster.

Except for an amount so small as to make accounting for it unreasonable or administratively impracticable, any leave donated under a major disaster leave-sharing plan not used by leave recipients by the end of the period specified in the plan must be returned within a reasonable period of time to the leave donors (or, at the employer’s option, to those leave donors still employed by the employer) so the donor can use the leave.

  • The leave returned to each leave donor must be in the same proportion as (1) the leave donated by each leave donor bears to (2) the total leave donated because of that major disaster.

If a leave-sharing arrangement does not meet these specific requirements, then the donating employee MUST be treated as having W-2 compensation for the donated time (based on his or her rate of pay at the time of the donation).  See, IRS Letter Ruling 200720017.

TAX TREATMENT OF EMPLOYEE RECEIVING DONATED PTO/LEAVE/VACATION TIME

Any payments received by an employee using donated PTO/leave/vacation time under the program must be treated as W-2 wages for all income and employment tax withholding purposes.

WHAT AN EMPLOYER HAS TO DO

  • In order to use either of the two tax exceptions described above, the employer must have a formal written leave-sharing program.
  • The IRS does NOT require an employer to obtain any pre-approval of a leave-sharing program nor does the IRS require an employer to file any subsequent reports about the program.  Also, since a leave-sharing plan is NOT subject to ERISA, there are no filings or other actions required by the DOL   In short, the only employer reporting obligation is to properly report W-2 wages and withhold taxes.

CASH PAYMENTS TO AFFECTED EMPLOYEES

Note that separate from a major disaster leave-sharing program, Section 139 of the Internal Revenue Code provides that a tax-free disaster relief payment can be made in cash to any individual if the payment is a “qualified disaster relief payment.”  Both the Congressional report for Section 139 and the IRS have made clear that the requirements for making tax-free disaster relief payments are very simple and easy to meet.

The Congressional report and Section 139 specifically provide that qualified disaster relief payments are excluded from gross income and from wages and compensation for employment taxes.  As a result, an employer can make tax-free disaster relief payments to its employees.

  • Section 139 applies only to the federal tax treatment of the payments.  State tax laws may or may not be the same.

Note that an employee who donates cash to another employee can make the donation only out of after-tax income.

Jackson Lewis can help you with your leave sharing/donation plan.

Like many other areas, employers are grappling with issues in response to the pandemic growth of the 2019 Novel Coronavirus (aka, “COVID-19”) in the workplace.  One newer topic has been related to the desire to ensure employees and their families are proactively being diagnosed once symptoms present, to ensure proper care management for the employee but also to assist in preventing the spread of the virus.

The immediate concern is that employees are less likely to seek early diagnosis and treatment when enrolled in a high deductible health plan (HDHP) because they are personally responsible for the full cost of claims and expenses for treatment if they have not yet met their annual deductible.  One approach suggested by the insurance carrier and consulting community, which is also supported by the Trump Administration, is to amend the plan to allow the costs of being tested and treated for COVID-19 to be covered without being subject to deductibles and other cost-sharing arrangements.  The challenge has been that existing IRS guidance was unclear whether such cost-sharing arrangements could be deemed preventive care which would exempt tests and treatment of COVID-19 claims from the standard definition of a “high deductible health plan” under Internal Revenue Code Section 223(c)(2)(A), but not jeopardize contribution eligibility for any amounts contributed to a health savings account (HSA) by the employee and/or employer for such “first dollar coverage” under the plan.

Fortunately, the Internal Revenue Service (“IRS”) just issued Notice 2020-15 to confirm that until further guidance is issued, an HDHP plan still complies with HSA contribution guidelines if it provides health benefits associated with testing for and treatment of COVID-19 without a participant first satisfying the deductible.  The payment for such tests and treatment of COVID-19 under the HDHP can be considered “preventive care.”

By allowing this assistance without jeopardizing the status of an HDHP, individuals who participate in an HDHP are still eligible to contribute to their tax-favored HSA while also allowing the Plan to provide additional financial assistance to offset at least a portion of the cost of claims related to COVID-19.  This is welcomed news, but still more questions remain.  For example, what costs can actually be considered a “treatment” of COVID-19?  If an individual goes to urgent care, a primary care doctor, or even consults with a telehealth medical professional and then the individual tests negative for COVID-19 but positive for influenza A or B, does that individual have to pay the applicable cost of that medical treatment even though they may have been symptomatic to COVID-19 initially?

Today’s guidance possibly opens more questions than answers on those topics, particularly since this latest guidance makes no other modification to prior guidance on HDHP compliance issues; vaccines and other preventive care under the Safe Harbor in §223(c)(2)(C) remain unchanged.  Employers with fully insured health plans will have some of these issues resolved by their insurance carrier, who will be separately announcing changes to existing insurance policies and coverages offered in order to be in compliance with state and federal laws.  However, other questions will remain about HSA compliance issues.  Likewise, employers with self-insured plans have more discretion, and more scrutiny, over the changes made to the health plan in response to COVID-19.

Please contact your Jackson Lewis attorney for additional assistance or if you have other questions.

As the confirmed cases of Coronavirus (COVID-19) rises in the U.S., more states are issuing directives regarding employee cost-sharing for screening and testing for the virus. Testing for COVID-19 is free if performed by the Centers for Disease Control and Prevention, however, the testing is expected to be offered more broadly by commercial labs.   Read the California Workplace Law Blog here.

March 31st Deadline for 403(b) Plan Sponsors

If your organization sponsors a 403(b) plan for employees and has not adopted an up-to-date written plan document that complies with the applicable regulations, you have until March 31, 2020 to do so.  Failure to do could cause substantial negative tax consequences for employees (and the organization) or cause the organization to incur substantial penalties to avoid those consequences.

Under regulations and subsequent guidance issued over a decade ago, 403(b) plan sponsors were required to adopt written plan documents that complied with the regulation’s form requirements by January 1, 2010.  Among other things, the plan document had to contain all of the material terms and conditions for eligibility, benefits, limitations, available annuity and/or custodial contracts, distributions, and other permitted features the plan sponsor provides under the plan.

Plan sponsors that adopted written plan documents after the final regulations were issued generally did their best to ensure compliance with the form requirements, but the only government-provided model language was for schools.  Finally, in 2017, the Internal Revenue Service started issuing approval letters for pre-approved 403(b) plan documents.  This gave plan sponsors who already had adopted individually-designed 403(b) plan documents an opportunity to restate their plans using documents that have the IRS’ blessing as to form compliance.

For plan sponsors that still are using individually-designed plan documents (not blessed by the IRS) which may contain one or more form defects (and plan sponsors that have not timely adopted amendments to reflect changes in the law or regulations), the IRS has provided a rather lengthy remedial amendment period within which to cure such defects.  Generally, March 31, 2020 marks the end of that remedial amendment period.  Until then, your plan still can be amended or restated on an up-to-date pre-approved plan document to correct any form defect retroactively to January 1, 2010 (or the plan’s original effective date, if later).

For form defects arising after March 31, 2020 (like a failure to timely amend the plan document to reflect new changes in the law or regulations), there will be other remedial amendment periods, as described in IRS guidance issued in September last year.  That guidance also provides for a limited extension of the March 31st deadline for defects related to discretionary amendments arising before March 31st.  In its guidance, the IRS also promised that it would issue annual required amendments lists to reflect 403(b) plan changes in the law and regulations for each year.

Once the applicable remedial amendment period ends, generally, the only way to correct form defects will be through the IRS’ voluntary correction program which requires payment of a fee and formal submission to the IRS.  Remember that, generally, operational failures cannot be corrected by adopting an amendment or restatement, even during a remedial amendment period.  Instead, failing to operate a plan in conformance with its terms must be corrected using the IRS’ voluntary correction program.

If you have questions about your 403(b) plan’s compliance or want to adopt a pre-approved plan, Jackson Lewis can help.

In a closely watched decision, Intel Corporation Investment Policy Committee v. Sulyma, Slip Op. No. 18-1116 (U.S. S. Ct., Feb. 26, 2020), construing ERISA’s three-year statute of limitations, see ERISA § 413(2), 29 U.S.C. § 1113(2), the Supreme Court held unanimously (J. Alito) that “actual knowledge” means “. . . when a plaintiff actually is aware of the relevant facts, not when he should be.”

ERISA contains a two-part statute of limitations provision for breach of fiduciary duty claims.  There is a six-year statute of repose, ERISA § 413(1), 29 U.S.C. § 1113(1); also, a matter is time-barred: “three years after the earliest date on which the plaintiff had actual knowledge of the breach or violation.”  ERISA § 413(2) (emphasis added).  The meaning of “actual knowledge” was the point of this case.

Like most plan sponsors, Intel distributed e-mails describing the Intel 401(k) Plan’s investment options.  These e-mails directed plaintiff to “fund fact sheets” describing the characteristics (risk, fees, etc.) of plan investment options.  The Summary Plan Description explained that plan funds included alternative options and directed plaintiff to the fund fact sheets that explained these assets included hedge funds, private equity, and commodities investments.  Annual disclosures identified all fund investments, respective asset performance, and relevant fees.

Plaintiff sued over three years, but less than six years after receiving plan disclosure information.  Plaintiff alleged that the plan’s alternative investments – hedge funds, private equity, and commodities investments – were imprudent because they performed below market and carried higher fees.  In motion practice, Defendants urged that plaintiff’s claims were time-barred because he filed over three years after receiving disclosures about asset performance and fees.  Defendant’s motion was converted to one for summary judgment, and limited discovery occurred.  While discovery showed that plaintiff visited the in-house benefits intranet site, he testified that he was unaware that plan monies were invested in hedge funds or private equity.

The district court granted Intel’s motion for summary judgment holding it was improper for plaintiff’s claims to survive merely because he did not look into the disclosures available to him.  The Ninth Circuit reversed and held that “actual knowledge” means knowledge that is actual, not merely a possible inference from ambiguous circumstances.

Agreeing with the Ninth Circuit, the Supreme Court held that “actual knowledge” means knowledge that is actual.  To have “actual knowledge” of a piece of information, plaintiff must in fact be aware of it.  The Court distinguished between “actual knowledge” versus hypothetical knowledge a reasonably diligent plaintiff would know from reading the plan sponsor’s disclosures.  The Court held that “actual knowledge” requires more than disclosing all relevant information to plaintiff; plaintiff must in fact have become aware of that information.

The Court did caution that the opinion did not foreclose defendants from contending that evidence of willful blindness supports a finding of “actual knowledge.”  The Court suggested that evidence of disclosure remains relevant to showing “actual knowledge,” as would a showing that Plaintiff viewed electronic records and took action in response to such information.

Conclusion

The plaintiff bar will hail this decision as a victory, but the result is more subtle with a major impact in class certification.  First, defendants will conduct discovery as to “actual knowledge.”  What did each class member actually know from the routine distributions sent by plan sponsors?  Second, the Court’s invocation of the willful blindness standard is significant.  In other cases, the Court has held that willful blindness includes scenarios where a plaintiff purposely closes his eyes to avoid what is taking place around him.  See Global-Tech Appliances, Inc. v. SEB S.A., 563 U. S. 754, 769 (2011).  Discovery as to whether class members purposely close their eyes to information contained in plan disclosures will demonstrate individualized conduct inconsistent among all class members.  Discovery as to these aspects of the three-year statute of limitations defense should trigger disparities among class members, a significant weapon in opposing class certification.

Employers that sponsor group health plans (medical, dental, vision, HFSA) are used to negotiating detailed administrative services agreements with vendors that provide services to those plans. Many also are familiar with “business associate agreements” required under HIPAA that must be in place with certain vendors, such as third-party claims administrators (TPAs), wellness program vendors, benefits brokers, etc. However, many plan sponsors may not be aware of a contract requirement with respect to the confidentiality of patient records relating to a substance use disorder (SUD).  If applicable, these contract provisions must be in place by February 2, 2020.

Federal regulations (42 C.F.R. Part 2) provide specific protections for SUD patient records. In general, these are records held by certain SUD treatment programs, those that receive federal funding. The arm of the Department of Health and Human Services that regulates SUD programs, Substance Abuse and Mental Health Services Administration (“SAMHSA”), issued final regulations in 2018 concerning the confidentiality of SUD patient records. In a number of respects, these rules strengthen protections already in place under the HIPAA privacy and security rules.

How do the new SUD regulations affect contracts with health plan vendors?

Under Section 2.33 of the regulations, when a patient consents to a disclosure of their SUD patient records for payment and/or health care operations activities, the records may wind up with a “lawful holder” of those records (a plan sponsor, for example), and then on to the lawful holder’s third-party vendors to carry out the payment and/or health care operations on behalf of such lawful holder.  When this happens, lawful holders must have in place a written contract with the third party obligating the third party to be bound by 42 C.F.R. Part 2.

The contract should require the third-party recipients of these records to implement appropriate safeguards to prevent unauthorized uses and disclosures, and to report any unauthorized uses, disclosures, or breaches. The contract also should prohibit the third party from re-disclosing the records unless the disclosure is to a contracted agent of the third party that is helping the third party provide services described in the contract, and any further disclosures are back to the third party or the lawful holder (plan sponsor).

In addition to the contract requirement, lawful holders must provide to such third parties a statement in connection with the disclosure, which may be as simple as “42 CFR Part 2 prohibits unauthorized disclosure of these records.”

What to do next?

Plan sponsors receiving SUD patient records in connection with their group health plan and sharing that information with a third-party service provider, or where the service provider is receiving such information on behalf of the plan sponsor, should review the provisions of their services agreements and, if applicable, business associate agreements. For plan sponsors not currently receiving SUD patient records, it may make sense to update these third-party contracts in the event such records are received. While updating these agreements, it may also be a good time to revisit other provisions to ensure strong contractual protections such as adding specificity on response to data incident, indemnification, limitation of liability, and other contractual protections.

Northrop Grumman has agreed to pay $12,375,000 to settle a class action brought under the Employee Retirement Income Security Act (“ERISA”) by participants in its 401(k) plan. The parties reached the initial terms of this settlement last year minutes before the start of the trial.

The plaintiffs alleged in their complaint that the company’s administration of the 401(k) plan harmed the plan’s participants by using a costly management strategy for a risky investment fund and by using plan assets to overpay for administrative services.

Please find the rest of this article on our California Workplace Law Blog.

As published by Law360 (January 13, 2020, 5:43 PM EST) —

Following oral arguments that were held in February 2018, in a long-anticipated decision in the National Retirement Fund v. Metz Culinary Management Inc., the U.S. Court of Appeals for the Second Circuit held that a multiemployer pension fund’s use of a lower interest rate that was adopted after the statutory withdrawal liability measurement date violated the Employee Retirement Income Security Act. The decision will greatly benefit certain employers who (as Metz did) withdrew from the National Retirement Fund, or NRF, during 2014 and may also impact other employers and funds.

Under the withdrawal liability rules set forth in ERISA as amended by the Multiemployer Pension Plan Amendments Act, or MPPAA, an employer who withdraws from a multiemployer pension fund is responsible for its allocable share of the fund’s unfunded vested benefits. At issue in Metz was the interest rate that was used to calculate the fund’s unfunded vested benefits and therefore Metz’s withdrawal liability.

According to court documents, Metz withdrew from the NRF in 2014. Under the MPPAA, withdrawal liability is calculated as of the last day of the plan year preceding the plan year of the withdrawal. Since the NRF operates on a calendar-year basis, the applicable measurement date for calculating Metz’s (and all other employers who withdrew from the NRF in 2014) withdrawal liability was Dec. 31, 2013.

In October 2013, the NRF replaced Buck Consultants LLC, who had been the NRF’s actuary for many years. Buck had used an interest rate assumption of 7.25% for withdrawal liability purposes for many years prior to its ouster. In June 2014, the NRF’s new actuary announced to the NRF trustees that the interest rate assumption was being changed from the prior 7.25% rate to a floating rate based on interest rates published by the Pension Benefit Guaranty Corp., or PBGC.

As of Dec. 31, 2013, that PBGC rate was 3%. Since future liabilities are discounted back to present value to calculate unfunded vested benefits, the interest rate assumption bears an inverse relationship to withdrawal liability; that is, a lower interest rate will result in higher withdrawal liability, and vice versa. Accordingly, the interest rate assumption change had a dramatic effect on Metz’s (and others’) withdrawal liability, increasing it from approximately $254,000 (at Buck’s prior 7.25% rate) to nearly $1 million (using the revised 3% rate).

The NRF issued a demand for the higher withdrawal liability amount, and Metz challenged NRF’s demand under the MPPAA’s mandatory arbitration regime. Metz argued in arbitration that the retroactive application of the lower interest rate assumption (adopted in 2014 and applied as of the Dec. 31, 2013, measurement date) violated the MPPAA.

The arbitrator decided in favor of Metz, finding that “there is no dispute that [the new actuary] did not adopt the PBGC rates as the interest rate assumption for withdrawal liability purposes until some time in 2014” and that the NRF’s decision to apply this rate “retroactively so as to increase the withdrawal liability assessed to Metz and other employers who withdrew from the Fund after December 31, 2013, was violative of MPPAA.”

The NRF appealed the arbitral holding to the U.S. District Court for the Southern District of New York and the district court reversed, vacating the arbitral award. The district court held that ERISA does not require actuaries to calculate withdrawal liability based on interest rate assumptions used prior to the statutory measurement date.

The district court further held that the withdrawal liability interest rate assumption must be affirmatively decided each year and that (contrary to the arbitrator’s finding) the rate in effect during the prior year does not remain in effect unless changed, holding that MPPAA “does not allow stale assumptions from the preceding plan year to roll over automatically.”

On appeal, after noting that the parties had used “copious amounts of ink in argument” over the applicable standard of review and other minutia, the Second Circuit succinctly stated the legal issue as “whether, under the MPPAA, a fund may select an interest rate assumption after the Measurement Date and retroactively apply that assumption to withdrawal liability calculations.”

The court first noted that the MPPAA (specifically, ERISA Section 4213) is silent as to whether the interest rate assumptions must be affirmatively elected, or whether the rate in effect during a given year automatically remains in effect for the next year absent an affirmative change.

As noted, the district court had held that Section 4213 does not allow assumptions from the prior year to roll over. The Second Circuit expressly rejected this finding, concluding that “there is no statutory or caselaw support for that proposition, and we do not agree with it.”

The Second Circuit then turned to Section 4214 of ERISA, which requires multiemployer plans to provide notice to employers prior to implementing any withdrawal liability plan rule or amendment. Citing legislative history, the Second Circuit concluded that Section 4214 was intended to protect employers from the retroactive application of rules relating to the calculation of withdrawal liability.

The Second Circuit found that the retroactive selection of interest rate assumptions for withdrawal liability purposes (the position advocated by the district court) was inconsistent with Congress’ stated intent, concluding that withdrawal liability interest rate assumptions do not “remain open forever and subject to retroactive changes in later years.”

In reaching its decision, the Second Circuit correctly recognized the “significant opportunity for manipulation and bias” that would result if funds were allowed unfettered discretion in retroactively selecting interest rate assumptions after the measurement date. The court feared that under such a rule:
Nothing would prevent trustees from attempting to pressure actuaries to assess greater withdrawal liability on recently withdrawn employers than would have been the case if the prior assumptions and methods actually in place on the Measurement Date were used.

The Second Circuit then noted that this “opportunity for manipulation and bias [was] particularly great where [as was the case here] the funds use different interest rate assumptions for withdrawal liability than those used for other purposes such as minimum funding.” The Second Circuit concluded that the retroactive application of the interest rate change represented the type of situation that could be attacked as presumptively unreasonable under the U.S. Supreme Court’s decision in Concrete Pipe and Products of California Inc. v. Construction Laborers Pension Trust for Southern California.

In an area where the law is extremely skewed in favor of funds, Metz represents a significant win for employers. Certainly, the numerous employers who withdrew from the NRF in 2014 and are currently contesting their withdrawal liability demands in arbitration will benefit greatly from the decision, since their withdrawal liability should (as the Second Circuit ordered) be recalculated using the higher 7.25% rate that was in effect on the Dec. 31, 2013, measurement date.

While other employers who withdrew from the NRF in 2014 and did not demand arbitration will likely not be benefit in the same way (since withdrawal liability becomes fixed and payable absent an employer timely demanding arbitration), the case serves as a good example of the need for experienced counsel in this area. Metz could also impact other multiemployer plans and employers who have withdrawn from such plans, since NRF is likely not the only plan to have changed the withdrawal liability interest rate assumption in this manner.

 

The IRS has substantially redesigned the Form W-4 to be used beginning in 2020.

New employees first paid wages during 2020 must use the new redesigned Form W-4.  In addition, employees who worked for an employer before 2020 but are rehired during 2020 also must use the redesigned 2020 Form W-4.

Continuing employees who provided a Form W-4 before 2020 do not have to furnish the new Form W-4.  However, if a continuing employee who wants to adjust his/her withholding must use the redesigned Form.

IRS FAQs for Employers

The IRS has issued the following FAQs for employers about the redesigned 2020 Form W-4:

  • Are all employees required to furnish a new Form W-4?

No, employees who have furnished Form W-4 in any year before 2020 do not have to furnish a new form merely because of the redesign. Employers will continue to compute withholding based on the information from the employee’s most recently furnished Form W-4.

  • Are new employees first paid after 2019 required to use the redesigned form?

Yes, all new employees first paid after 2019 must use the redesigned form. Similarly, any other employee who wishes to adjust their withholding must use the redesigned form.

  • How do I treat new employees first paid after 2019 who do not furnish a Form W-4?

New employees first paid after 2019 who fail to furnish a Form W-4 will be treated as a single filer with no other adjustments.  This means that a single filer’s standard deduction with no other entries will be taken into account in determining withholding.  This treatment also generally applies to employees who previously worked for you who were rehired in 2020 and did not furnish a new Form W-4.

  • What about employees paid before 2020 who want to adjust withholding from their pay dated January 1, 2020, or later?

Employees must use the redesigned form.

  • May I ask all of my employees paid before 2020 to furnish new Forms W-4 using the redesigned version of the form?

Yes, you may ask, but as part of the request you should explain:

 »   they do not have to furnish a new Form W-4, and

 »   if they do not furnish a new Form W-4, withholding will continue based on a valid form previously furnished.

For those employees who furnished forms before 2020 and who do not furnish a new one after 2019, you must continue to withhold based on the forms previously furnished.  You may not treat employees as failing to furnish Forms W-4 if they don’t furnish a new Form W-4. Note that special rules apply to Forms W-4 claiming exemption from withholding.

  • Will there still be an adjustment for nonresident aliens?

Yes, the IRS will provide instructions in the 2020 Publication 15-T, Federal Income Tax Withholding Methods, on the additional amounts that should be added to wages to determine withholding for nonresident aliens. And nonresident alien employees should continue to follow the special instructions in Notice 1392 when completing their Forms W-4.

  • When can we start using the new 2020 Form W-4?

The new 2020 Form W-4 can be used with respect to wages to be paid in 2020.

Additional Information

This Publication includes the income tax withholding tables to be used by automated and manual payroll systems beginning in 2020 regarding both (i) Forms W-4 from 2019 or earlier AND (ii) Forms W-4 from 2020 or later.

  • IRS FAQs on the 2020 Form W-4

On December 19, 2019, the Senate passed, as part of the Further Consolidated Appropriations Act 2020 (Public Law No. 116-94), the Setting Every Community Up for Retirement Enhancement (SECURE) Act (Division O pg. H.R. 1865-604).  It is touted as the most significant retirement act since the Pension Protection Act of 2006.  President Trump signed the bill December 20, 2019.

The SECURE Act implements several key changes to the retirement landscape, including, but not limited to:

  • Tax credits for employers starting employer-sponsored retirement plans and incentives for auto-enrolling employees;
  • Simplification of the rules and notice requirements related to qualified nonelective contributions in safe harbor 401(k) plans;
  • Allows unrelated businesses to join together to create multi-employer 401(k) plans (also called pooled employer plans), reducing the costs and administrative duties that each individual employer would otherwise bear alone;
  • Allows retirees to delay taking required minimum distributions until age 72 (up from age 70 ½);
  • Requires that employers include long-term part-time workers as participants in defined-contribution plans (eligible part-time employees must work 500 hours per year for three consecutive years and be age 21 years or older);
  • Requires that plan sponsors annually disclose on 401(k) statements an estimate of the monthly payments the participants would receive if their total account balance were used to purchase an annuity for the participant and the participant’s surviving spouse;
  • Imposes a 10-year distribution limit for most non-spouse beneficiaries to spend down inherited IRAs and defined contribution plans;
  • Increases IRS penalties for failing to submit or untimely submitting forms and notices; and
  • Provides penalty-free withdrawals from retirement plans of up to $5,000 within a year of a birth or adoption.

Importantly, the SECURE Act provides for an extended remedial amendment period. Although plans must comply with the SECURE Act’s provisions in operation starting with the effective dates, the “plan documents can be updated to incorporate the required plan provisions by a later date—the last day of the first plan year beginning on or after Jan. 1, 2022, unless the Secretary of Treasury provides an extension.”

The SECURE Act would implement numerous additional changes and alterations to the retirement landscape.  Many employer-sponsored 401(k) plans will require an update or amendment within the required deadlines.  For more information on the SECURE Act, please contact a Jackson Lewis attorney.