For decades, promoters have marketed programs to employers seeking to leverage the favorable tax treatment accorded employer-provided medical benefits. These programs are variously described as “wellness” or “preventive services” arrangements, and they are usually wrapped in or offered with hospital indemnity policies. While varying in their design features and terminology, these programs all hold out the promise of outsized income and/or payroll tax savings. But can these programs deliver on that promise?
In a new article published by the American Staffing Association, McDermott’s Alden J. Bianchi and American Staffing Association Senior Counsel Edward Lenz express their view that any such health program that claims to achieve material payroll tax savings exposes adopting employers to a significant risk of violating federal tax and other laws.
The New Jersey Supreme Court upheld two decisions by lower state courts in May to dismiss litigation challenging Jersey City’s ordinance that taxes city employers’ payroll but exempts residents. The supreme court also agreed with the state appellate division’s decision to remand for discovery one provision of the ordinance regarding the tax treatment of supervisors. Justice Barry T. Albin dissented in part.
In a recent Tax Notes article, McDermott Partner Kathleen Quinn agreed with Albin’s dissent.
In 2019, the Washington State Legislature established the Long-Term Services and Supports Trust Program (LTSS Trust Program) to provide funding for eligible beneficiaries that they can apply to the cost of their long-term care. The program is funded through a 0.58% payroll tax on employee wages and went into effect on January 1, 2022. However, the LTSS Trust Program drew public criticism in recent months and most private long-term care insurance providers pulled out of the state. As a result, the Washington State Legislature recently fast-tracked new legislation to put the program on hold until July 2023.
Employers considering President Trump’s plan to allow deferred payment of payroll taxes face a series of costs, uncertainties and headaches. The president wants employers to stop collecting the 6.2% levy that is the employee share of Social Security taxes for many workers, starting September 1 and going through the end of the year. The president’s plan doesn’t change how much tax employees and employers actually owe. Only Congress can do that.
In a recent article by The Wall Street Journal, David Fuller, a tax lawyer at McDermott in Washington, DC, said, “We’re looking at a crystal ball not knowing what we’re going to see.”
Tax-exempt employers face a matrix of tax and disclosure issues in designing an appropriate supplement retirement program. This resource intends to examine the income tax, payroll tax and Form 990 reporting aspects of the major plans currently available to tax-exempt employers, and review those major plans from the reference point of several major design considerations.
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