On Jan. 2, 2018, the Department of Labor (DOL) issued a final rule that increases the civil penalty amounts that may be imposed on employers under various federal laws. The final rule increases the civil penalty amounts associated with:
- Failing to file an annual Form 5500 under the Employee Retirement Income Security Act (ERISA);
- Repeated or willful violations of minimum wage or overtime requirements under the Fair Labor Standards Act (FLSA);
- Willful violations of the poster requirement under the Family and Medical Leave Act (FMLA); and
- Violations of the poster requirement under the Occupational Safety and Health Act (OSH Act).
The increased amounts apply to civil penalties that are assessed after Jan. 2, 2018.
Employers should become familiar with the new penalty amounts and review their pay practices, benefit plan administration and safety protocols to ensure compliance with federal requirements.
The 2015 Inflation Adjustment Act (Act) includes provisions to strengthen civil monetary penalties under various federal laws in order to maintain their deterrent effect. The Act required federal agencies, including the DOL, to adjust the civil monetary penalties with an initial “catch-up” adjustment. The DOL made this initial adjustment in July 2016. Federal agencies are also required to make subsequent annual adjustments for inflation, no later than Jan. 15 of each year.
The DOL’s final rule implements the 2018 annual adjustments for civil penalties assessed or enforced by the DOL, including penalties under the FLSA, FMLA, OSH Act and ERISA. The increased penalty amounts became effective on Jan. 2, 2018, and may apply for any violations occurring after Nov. 2, 2015.
The updated maximum penalty amounts are shown in the table below.
|Wage and Hour
|Repeated or willful violations of minimum wage or overtime requirements (FLSA)
||Up to $1,925 for each violation
||Up to $1,964 for each violation
|Violations of child labor laws
||Up to $12,278 for each employee subject to the violation
||Up to $12,529 for each employee subject to the violation
|Violations of child labor laws that cause death or serious injury to an employee under age 18
||Up to $55,808 for each violation (doubled to $111,616 if the violation is repeated or willful)
||Up to $56,947 for each violation (doubled to $113,894 if the violation is repeated or willful)
|Willful failure to post FMLA general notice
||Up to $166 for each separate offense
||Up to $169 for each separate offense
|Violations of the Employee Polygraph Protection Act (EPPA)
||Up to $20,111 for each violation
||Up to $20,521 for each violation
|Failure to file an annual report (Form 5500) with the DOL (unless a filing exemption applies)
||Up to $2,097 per day
||Up to $2,140 per day
|Failure of a multiple employer welfare arrangement (MEWA) to file an annual report (Form M-1) with the DOL
||Up to $1,527 per day
||Up to $1,558 per day
|Failure to furnish plan-related information requested by the DOL
*Under ERISA, administrators of employee benefit plans must furnish to the DOL, upon request, any documents relating to the employee benefit plan.
|Up to $149 per day, but not to exceed $1,496 per request
||Up to $152 per day, but not to exceed $1,527 per request
|Failing to provide the annual notice regarding CHIP coverage opportunities
*This notice applies to employers with group health plans that cover residents of states that provide a premium assistance subsidy under a Medicaid or CHIP program.
|Up to $112 per day for each failure (each employee is a separate violation)
||Up to $114 per day for each failure (each employee is a separate violation)
|For 401(k) plans, failure to provide blackout notice or notice of right to divest employer securities
||Up to $133 per day
||Up to $136 per day
|Failure to provide Summary of Benefits and Coverage (SBC)
||Up to $1,105 per failure
||Up to $1,128 per failure
|Employee Safety – OSH Act
|Violation of posting requirement
||Up to $12,675 for each violation
||Up to $12,934 for each violation
||Up to $12,675 per violation
||Up to $12,934 for each violation
||Up to $12,675 for each violation
||Up to $12,934 for each violation
||Between $9,054 and $126,749 per violation
||Between $9,239 and $129,336 per violation
||Up to $12,675 per day until the violation is corrected
||Up to $12,934 per day until the violation is corrected
On Dec. 22, 2017, President Donald Trump signed into law the Tax Cuts and Jobs Act (Act). The Act makes significant changes to the federal Internal Revenue Code (Code), including changes that impact employee benefits. Effective for 2018:
- Employers cannot deduct expenses associated with qualified transportation fringe benefit programs;
- Employees cannot exclude bicycle commuting reimbursements from their gross income; and
- Moving expense reimbursements are not deductible for employers and cannot be excluded from employees’ gross income.
In addition, effective for 2018 and 2019, the Act creates a federal tax credit for employers that provide paid family and medical leave.
Because most of the Act’s provisions became effective on Jan. 1, 2018, employers should start working with their tax advisors to determine how the tax changes will impact their businesses.
Qualified Transportation Fringe Benefits
Code Section 132 allows employers to provide certain transportation benefits to employees on a tax-free basis. These benefits include qualified parking, transit passes, and transportation to and from work in a commuter highway vehicle (“vanpooling”). Prior to 2018, bicycle commuting reimbursements also qualified for this tax exclusion.
Qualified transportation expenses paid by either the employer or employee can be excluded from an employee’s gross income, up to certain limits. For 2018, the tax exclusion limits are $260 per month for qualified parking expenses and $260 per month for transit passes and vanpooling expenses, combined.
Beginning in 2018, the Act eliminates the employer deduction for expenses associated with a qualified transportation fringe benefit program. The Act also eliminates the deduction for any expenses incurred in connection with providing transportation to an employee in connection with travel between the employee’s residence and place of employment, except as necessary for ensuring the employee’s safety.
However, with the exception of bicycling commuting expenses, the tax exclusion for employees has not changed—qualified transportation benefits are still excludable from employees’ gross income. The tax exclusion for bicycling commuting benefits is suspended for tax years beginning after Dec. 31, 2017, and before Jan. 1, 2026.
Qualified Moving Expense Reimbursements
Before 2018, employers could pay or reimburse an employee’s eligible moving expenses related to starting employment at a new principal place of work on a tax-free basis. The Act suspends this income exclusion from 2018 through 2025 tax years.
It also suspends the employer deduction for qualified moving expense reimbursements for the same period of time. However, the income exclusion and deduction still apply in the case of a member of the U.S. armed forces on active duty who moves pursuant to a military order and incident to a permanent change of station.
Employer Credit for Paid Family and Medical Leave
The Act creates a new temporary tax credit for employers that provide paid family and medical leave to their employees. The tax credit, which applies to wages paid in 2018 and 2019, is equal to a percentage of wages paid to employees who are on family and medical leave. Paid leave that is provided as vacation leave, personal leave, sick leave, or required by state or local law is not taken into consideration.
To qualify for the tax credit, an employer must have a written policy in place that provides at least two weeks of paid family and medical leave for full-time employees (proportionally adjusted for part-time employees) and a rate of payment that is at least 50 percent of an employee’s normal pay rate.
On Dec. 22, 2017, President Donald Trump signed into law the tax reform bill, called the Tax Cuts and Jobs Act, after it passed both the U.S. Senate and the U.S. House of Representatives.
This tax reform bill makes significant changes to the federal tax code. The bill does not impact the majority of the Affordable Care Act (ACA) tax provisions. However, it does reduce the ACA’s individual shared responsibility (or individual mandate) penalty to zero, effective beginning in 2019.
As a result, beginning in 2019, individuals will no longer be penalized for failing to obtain acceptable health insurance coverage.
Although the tax reform bill eliminates the ACA’s individual mandate penalty, this repeal does not become effective until 2019.
As a result, individuals continue to be required to comply with the mandate (or pay a penalty) for 2017 and 2018. A failure to obtain acceptable health insurance coverage for these years may still result in a penalty for the individual.
The Individual Mandate
The ACA’s individual mandate, which took effect in 2014, requires most individuals to obtain acceptable health insurance coverage for themselves and their family members or pay a penalty. The mandate is enforced each year on individual federal tax returns. Starting in 2015, individuals filing a tax return for the previous tax year indicate, by checking a box on their returns, which members of their family (including themselves) had health insurance coverage for the year (or qualified for an exemption from the individual mandate). Based on this information, the IRS then assesses a penalty for each nonexempt family member without coverage.
Effect of the Tax Reform Bill
The tax reform bill will reduce the ACA’s individual mandate penalty to zero, effective beginning with the 2019 tax year. This effectively eliminates the individual mandate penalty for the 2019 tax year and beyond. As a result, beginning with the 2019 tax year, individuals will no longer be penalized for failing to obtain acceptable health insurance coverage for themselves and their family members.
Impact on Years Prior to 2019
Although the tax reform bill eliminates the ACA’s individual mandate penalty, this repeal does not take effect until 2019. As a result, individuals continue to be required to comply with the mandate (or pay a penalty) for 2017 and 2018. A failure to obtain acceptable health insurance coverage for these years may still result in a penalty for the individual.
Therefore, nonexempt individuals should continue to maintain acceptable health coverage in 2017 and 2018, and should indicate on their 2017 and 2018 tax returns whether they (and everyone in their family):
- Had health coverage for the year;
- Qualified for an exemption from the individual mandate; or
- Will pay an individual mandate penalty.
In addition, keep in mind that individuals who are liable for a penalty for failing to obtain acceptable health coverage in 2018 will be required to pay that penalty when they file their federal income taxes in 2019. As a result, some individuals may be required to pay the individual mandate penalty in early 2019, based on their noncompliance for the 2018 tax year.
Effect on Other ACA Provisions
Despite the repeal of the individual mandate penalty, employers and individuals must continue to comply with all other ACA provisions. The tax reform bill does not impact any other ACA provisions, including the Cadillac tax on high-cost group health coverage, the PCORI fees and the health insurance providers fee. In addition, the employer shared responsibility (pay or play) rules and related Section 6055 and Section 6056 reporting requirements are still in place.