4 Retirement Mistakes 30-Somethings Make -- And How They Can Avoid Them in 2014
Originally posted by Nancy Anderson on https://www.forbes.com
Any wise financial planner knows to get a second opinion on her own retirement plan. So I wasn’t surprised when a 30-year-old colleague asked me to be her second look, and I gave her my opinion freely.
As you’d expect from a Certified Financial Planner ™ professional, she had her basics down. She had an emergency fund with six months of her net income, no credit card debt, and she was on track to replace her income in retirement. In fact, at the rate she is going, she will replace over 100% of her income in retirement. When I reflected on our meeting later, I wondered why more 30-year-olds aren’t as prepared as she is.
But then I realized that she is in the industry, and is not making a lot of false assumptions that other younger people make. Decisions based on the wrong information can lead to costly mistakes, and the results could be as serious as having to delay retirement or living on a reduced income later.
Here are four false assumptions that a lot of people in their 30s make—and ways to help them to stay on the right track for retirement.
1. They assume it will be easier to save in the future. The truth is that your 30s can be an expensive decade. Many people are establishing a household, having children and buying a home, along with all the furnishings that go in it. So it may actually be more difficult to save in your 30s than in your 20s. My colleague started saving the absolute maximum she could in her late 20s, knowing that she wanted a house and family someday. She figured, correctly, that even though her income might grow exponentially in her 30s, her expenses might surpass her income.
Tip for 30-somethings: Seriously consider maximizing retirement savings earlier in your career, knowing that you may have gaps in savings in the future.
2. They don’t verify that they are on track for their retirement goals. My colleague runs her own retirement calculations all the time. She wanted a second set of eyes to see what she might be missing, as well as some high-level strategies. According to recent research from BlackRock BLK +1%, more than 4 in 10 people surveyed weren’t saving because they hadn’t run retirement calculations and didn’t know how much they needed to save. But almost 8 in 10 said they would start saving or increase their contributions if they knew how much they needed to save. Since the new model of retirement planning consists of employees managing their own retirement with a defined contribution plan, it’s important to be proactive.
Tip for 30-somethings: At a minimum, run a retirement calculation. Some calculators to get you started and here and here. Meeting with a Certified Financial Planner ™ professional can be one way to get started on your financial plan. Some resources that can help include Let’s Make a Plan andLearnVest (use discount code Retire50).
3. They assume the 401(k) is the “be all, end all.” There are major benefits to investing in an employer’s retirement plan. First of all, you can never underestimate the value of automatically deducting funds from a checking account. When funds are invested before ever hitting your bank account, you simply can’t spend that money. And company-matching contributions are obviously a significant benefit. Employees who receive a company match should invest at least up to the matching contributions in their 401(k).
But don’t ignore the Roth IRA. The tax-free retirement benefit of the Roth is well known, but many folks may not realize how much flexibility the Roth has. The principal amount can be withdrawn for any reason and at any time, without a tax penalty. This serves as a back-up emergency fund, but also gives an investor flexibility to reinvest the principal into something else, such as a down payment on a primary residence or on an investment property. For someone in his or her 30s, a Roth IRA can be the best of both worlds: Investing for retirement and having some flexibility to withdraw the principal without hefty taxes. (A Roth investment is post-tax; meanwhile, a 401(k) carries a 10% early withdrawal penalty.)
Tip for 30-somethings: It can be wise to invest in the 401(k) up to the amount matched by your company. Over and above the company match, consider investing in a Roth IRA.
4. They assume all funds are created equal. Albert Einstein is rumored to have said that compound interest is the most powerful force in the universe. Compounding fees, on the other hand, are another story. When you pay high annual fees on the funds in your retirement accounts, the compounding works against you. For example, an investor with a $50,000 balance who pays 1.5% in annual investment fees on an account that earns 7% annually would pay about $138,000 in total expenses over 30 years, including opportunity costs. Everything else being equal, that same investment with fees at 0.5% would only incur about $53,000 in total expenses and opportunity costs. Something as seemingly insignificant as a 1% difference in annual fees can add up to an $85,000 difference over time.
Tip for 30-somethings: Think about investing in low-fee mutual funds or index funds in your 401(k). See your fund’s prospectus for full disclosure on fees. Click here to see how expenses impact mutual fund returns, as calculated by calcxml.com.
Albert Einstein also said that anyone who has never made a mistake has never tried anything new. But frankly, in terms of retirement planning, it’s better to start off strong by not making mistakes in the first place. If you really want to try something new, there’s always hang gliding.
Another PPACA deadline delayed
Originally posted December 12, 2013 by Allison Bell on https://www.benefitspro.com
The Obama administration has issued new regs that public exchanges – and participating carriers – can use to cope with startup problems. Most importantly, it pushes the selection and payment deadline for Jan.1 plan coverage to Dec. 23.
The Centers for Medicare & Medicaid Services has given the batch of “interim final regulations” the title “Maximizing January 1, 2014, Coverage Opportunities” and is preparing to publish the regs in the Federal Register next week.
The Dec. 23 deadline applies to all sorts of exchange plans, including Small Business Health Options Program QHPs, multi-state plans and standalone dental pans, officials said. The original deadline was Dec. 15.
Insurers selling commercial plans through the exchanges with coverage dates starting Jan. 1 now must accept premium payments as late as Dec. 31.
State-based exchanges can set later deadlines for either individual or SHOP coverage.
Managers of state-based exchanges who want to offer more flexibility can push the payment deadline for coverage that starts Jan. 1 back to Jan. 31, “if a QHP issuer is willing to accept such enrollments,” officials said.
Officials also included rules for provider directories.
If a QHP issuer has trouble keeping its provider directory up to date, it should add consumer safeguards, such as using the version of a provider directory available to consumers in a given month to determine whether care from a provider will be classified as in-network care, officials said.
It was the second PPACA-related delay a day after HHS Secretary Kathleen Sebelius testified before Congress.
Ohio State Minimum Wage Requirement
Can you believe it’s nearly 2014? This is just a friendly reminder that with the new year comes a new minimum wage requirement for employees in the state of Ohio. On January 1, 2014, the state minimum wage will increase to $7.95 per hour for non-tipped employees and $3.98 per hour (plus tips) for tipped employees. This increase only applies to employers with annual gross receipts of more than $292,000. The federal minimum wage of $7.25 per hour still applies to companies with annual gross receipts of less than $292,000 after January 1, 2014.
In addition to increasing the hourly rate of any employee who is currently making less than the new state minimum wage, you must also update your Ohio Minimum Wage poster. The poster must be displayed in a conspicuous place, to which all employees have regular access. For your convenience, here is a link to the updated poster: https://www.com.ohio.gov/documents/dico_2014Minimumwageposter.pdf
Need help making sure you’re compliant with wage and hour laws? Give us a call or send us an email! We’re here to help!
Employers can help in cancer prevention, treatment
Originally posted November 20, 2013 by Andy Stonehouse on https://ebn.benefitnews.com
A cancer diagnosis is not just a life-changing event for an employee and his or her family, it’s also increasingly become a gigantic consideration in the overall costs of employer-sponsored insurance plans.
Learning to cope with treatment – or even the time or alternative work arrangements required for an employee helping a loved one dealing with cancer – can be a challenge for any HR professional, but a new guide hopes to provide better understanding and also offer some broader cancer prevention suggestions for America’s workers.
The National Business Group on Health’s An Employer’s Guide to Cancer Treatment and Prevention, released Nov. 20, represents three years of work with the National Comprehensive Cancer Network on strategies and standards to help cope with the ever-increasing social and financial cost of cancer treatment.
NBGH notes that cancer treatment, one of the top three conditions dealt with on a national level, ends up consuming approximately 12% of total medical expenses, across the board; as well, nearly a quarter of employees end up taking time in a caregiving role to family members dealing with cancer treatment of their own.
In practical terms, NBGH’s new guide can help employers set up, implement and then measure the success of a variety of cancer-related strategies.
Lynn Zonakis, managing director of health strategy and resources at Delta Air Lines, Inc., says her company has taken similar efforts to more effectively address the reality of cancer issues in the workplace – an important venue for discussing a disease with such a broad impact.
“Employers can play a major role in keeping workers healthy and also supporting cancer patients during treatment and return to work,” Zonakis says. “Large employers, especially, have the ability to specifically design health benefits to their workforce. This three-year project has certainly helped shape Delta’s approach and commitment to addressing cancer in the workplace.”
For Delta, that’s included initiatives such as full coverage for recommended cancer screenings, a Centers of Excellence program and even Delta Health Direct, a specialized concierge service which provides confidential access to coaching, a nurse line, disease support and even suggestions on treatment decision-making.
The Employer’s Guide offers six tools that have been developed based on recommendations from the NCCN’s Clinical Practice Guidelines in Oncology, each coinciding with the entire planning and rollout of a full employer benefit program: plan design, enrollment, plan administration and evaluation.
The guide also offers insight on the broader issues in cancer care, ranging from medical, pharmacy and behavioral benefits to the best utilization of short-term disability, family medical leave and employee assistance programs.
“With significant gains in cancer survival rates and most cancer survivors staying at work during their treatment or returning to work after their treatment, employers need a comprehensive benefits plan to ensure that their current strategies to address cancer in the workplace complement the needs of their employees,” says Helen Darling, president and CEO of the NBGH.
The 9 Essential Skills of Human Resources Management – How Many Do You Have?
Originally posted by Stephen Bruce on https://hrdailyadvisor.blr.com
By Jay Schleifer and Steve Bruce
When we interview a potential new hire, HR professionals assess the candidate against a list of key skills and personal characteristics needed for the job. Let’s turn the tables and see what that list of key attributes would look like for an HR professional.
In no way is our list authoritative, but it is the opinion of people, including BLR® Founder Bob Brady, who’ve spent decades meeting with HR professionals, supporting their goals, and reporting their achievements.
You may agree or not with our assessments, but either way, we’d like to hear about it via the “Share Your Comments” link at the end of the article.
That said, here goes:
HR Management Key Skill #1: Organization
HR management requires an orderly approach. Organized files, strong time management skills, and personal efficiency are key to HR effectiveness. You’re dealing with people’s lives and careers here, and when a manager requests help with a termination or a compensation recommendation or recognition program, it won’t do to say, “I’ll try to get to that if I have time.”
HR Management Key Skill #2—Multitasking
On a typical HR day, an HR professional will deal with an employee’s personal issue one minute, an intermittent leave question the next, and a recruiting strategy for a hard-to-fill job the minute after. And that’s to say nothing of social media, wage/hour, engagement, retention, and a whole host of other things, every one critical to someone.
In HR, if it’s not one thing, it’s another. Priorities and business needs move fast and change fast, and manager A who needs someone hired doesn’t much care if you’re already helping manager B who needs someone fired. You need to be able to handle it all, all at once.
HR Management Key Skill #3—Dealing with Grey
A surprisingly large percentage of the issues HR managers face are in “the grey area.” Is it discrimination? Is it harassment? What’s a “reasonable” accommodation? How far over backward do you have to lean to approve intermittent leave? HR managers have to be able to act with incomplete and “best available” information, and they have to know when to seek the professional help of colleagues, attorneys, and other experts.
HR Management Key Skill #4—Negotiation
Along with grey comes the need to negotiate—there are often two or more opposing views, and the successful HR pro can find an acceptable middle ground. Remember, the goal of negotiation is to end up with two parties that are satisfied with the outcome, and that’s not often easy to achieve.
HR Management Key Skill #5—Communication
HR professionals have to communicate up to management, over to managers, out to potential employees, and down to all levels of current employees. And they have to do it in writing, while speaking to large and small groups and, increasingly, through social media. They have to be convincing, caring, and believable.
HR Management Key Skill #6—Discrete and Ethical
HR professionals are the conscience of the company, as well as the keepers of confidential information. As you serve the needs of top management, you also monitor their actions toward employees to be sure that policies and regulations are followed. You need to be able to push back when they aren’t in order to keep the firm on the straight and narrow. Not an easy responsibility!
Of course, you always handle confidential information appropriately, and never divulge it to any unauthorized person.
HR Management Key Skill #7—Dual Focus
Employees expect human resources professionals to advocate for their concerns, yet you must also enforce top management’s policies. The HR professional who can pull off this delicate balancing act wins trust from all concerned.
There are times you must make decisions to protect the individual and other times when you protect the organization, its culture, and values. These decisions may be misunderstood by some, and you may catch flak because of it, but you know that explaining your choices might compromise confidential information. That’s something you would never do.
HR Management Key Skill #8—Conflict Management and Problem Solving
News flash! Everyone doesn’t always get along with everyone else. High productivity demands that people work together at least civilly. HR has to find ways to allow that to happen. And that’s to say nothing of the myriad other problems that hit HR’s in-box—you can’t be effective without problem-solving ability.
HR Management Key Skill #9—Change Management
Most companies today are in a constant state of flux. Task forces, matrices, and teams spring into being, do their jobs, and disband as others form. Hierarchies have been squashed, and companies have four or five generations working side by side. A lot of people are freaked out by what’s going on. HR has to help everyone cope with the constant changes.
Nine Skills, But Also One Caveat
“HR is a creature of, and serves, the business strategy,” Brady says. “It’s important for HR people to know what that strategy is and what makes the business tick so the approach to HR can be tailored accordingly.
“Never think of HR in isolation,” he advises. “Because if HR professionals think of themselves as ‘just HR,’ that’s what the rest of the organization will think, too.”
Did We Get It Right?
How about our 9 skills? Do you have a different list? Please share it in the comments below. (This article was updated Thursday, August 22, 2013 9:40 AM).
Gen Xers post biggest gap in life insurance coverage
Originally posted September 23, 2013 by Margarida Correia on https://ebn.benefitnews.com
What people say doesn’t always align with what they do. Such is the case with life insurance, a study commissioned by New York Life finds.
According to the study, most Americans don’t buy enough life insurance to secure the level of protection they say they would want for their families if they were to die. The average American registered an insurance shortfall of $320,000.
Generation Xers posted the biggest gap of any age group. Although average Gen Xers said they would want their life insurance policies to cover $708,996, they purchased only $260,000 in coverage, creating a coverage gap to $448,996. Millennials and baby boomers, in contrast, had gaps of $370,744 and $267,016, respectively.
The gap has widened substantially for Gen Xers since the financial crisis. From 2008 to 2013, the amount of life insurance coverage they have in place fell 35% to $260,000 from $400,000. The gap impacts more than half (56%) of Gen Xers, according to the study.
“Gen Xers have been severely impacted by the economic downturn and the gap is a clear indication of what is at risk. Gen Xers, who may be focused on financial obligations that have to do with their children, their home, planning for retirement and maybe even taking care of their elderly parents, are lacking a foundation of financial protection that life insurance provides,” says Chris Blunt, president of the Insurance Group at New York Life.
The study is based on two separate surveys, both of which polled 1,000 Americans age 25 and over with dependents and annual household incomes of at least $50,000. One survey was conducted online by The Futures Company from April 24 – May 1, 2013. The other was conducted by Greenwald & Associates via telephone in May 2008.
’Tis the Season for a Slice of Wellness Training
Originally posted November 29, 2013 by Chris Kilbourne on https://safetydailyadvisor.blr.com
At the beginning of this year's holiday season, take a moment to remind your employees that good nutrition is important to good health. Use the video in today's Advisor as a concise and fun way to drop nutrition reminders in among the holiday festivities.
In order to get the nutrition they need every day to stay healthy, employees must develop and maintain healthy eating habits. Here's a video that takes a light-hearted approach toward providing facts about nutrition and the important employee wellness topic of having healthy eating habits.
https://www.youtube.com/watch?v=Hv66ItR_F24&feature=player_embedded
I'm sure you’ve heard that good nutrition is important to good health. But how?
Well, good nutrition helps you in many important ways. For example, eating healthy food helps to prevent diseases like heart disease, diabetes, and high blood pressure and maintain a healthy weight.
In order to get the nutrition you need every day to stay healthy, you must develop and maintain healthy eating habits. Unfortunately, many Americans have very unhealthy eating habits.
Healthy eating means eating three nutritious meals a day, consuming reasonable portion sizes, limiting intake of fat, sugar, and salt, snacking sensibly between meals, avoiding fad diets, and balancing calorie intake with physical activity.
Proper nutrition depends on a well-balanced diet that includes carbohydrates, fiber, protein, and some unsaturated fat. Carbohydrates give your body the energy it needs to function effectively all day. Carbohydrates are found in fruits, vegetables, bread, cereal, pasta, rice, and milk and milk products. In fact, 45 percent to 65 percent of your daily calorie intake should come from carbohydrates. You also need about 14 grams of dietary fiber for every 1,000 calories you eat. Protein is another essential nutrient, and you should get 10 percent to 35 percent of daily calories from proteins.
Most Americans eat more protein than they really need to stay healthy. Protein is found in meat, poultry, fish, eggs, nuts, milk and milk products, grains, and some vegetables and fruits.
Some protein-rich foods such as meat are also high in fat and cholesterol. To keep healthy, you should consume less than 10 percent of your daily calorie intake as fat. Most of your fat intake should be unsaturated, as opposed to saturated, fat. Saturated fat is found in foods such as high-fat cheese, high-fat meat, butter, and ice cream.
Nuts, vegetable oil, and fish are good sources of poly- and monounsaturated fats.
Health experts also say you should consume less than 300 milligrams of cholesterol a day. Cholesterol is a fatty substance found in animal-based foods such as meat, eggs, and whole milk.
Sugar is found naturally in foods such as fruits, vegetables, and milk and milk products. Some foods include added sugar, and these foods are less nutritious than foods containing only natural sugar. To keep healthy, try to avoid added sugar, which provides no nutritional value and also contributes to tooth decay.
Also, remember that fluids, vitamins, and minerals are part of good nutrition, too. You need about eight glasses of water or other low-sugar fluids a day.
Finally, even though you've got a lot of great choices here in your fridge, I'm sure you eat out sometimes. When you do, remember to make healthy choices. Restaurant or takeout food can be high in fat, sugar, and salt, and low in required nutrients. When you eat food prepared outside your home, try to pick lower-fat foods, choose smaller portions, go broiled or baked instead of fried, order a vegetables or salad, and skip dessert.
For more information on nutrition, visit www.blr.com. Here you’ll find lots of information on wellness. BLR® specializes in employee training, so be sure to check out all of their employee wellness training resources as well as other training topics.
Why It Matters
- Giving your employees nutrition information can help keep them healthy and on the job.
- Healthy employees will cut down on your sick leave costs and your healthcare insurance expenses.
- Healthy employees who are eating the right balance of nutritious foods are more likely to be more productive as well.
- The bottom line is that a healthy amount of wellness training can provide a healthy return on investment for your organization.
Employers pushing hard for lower 401(k) fees
Originally posted December 05, 2013 by Dan Cook on https://www.benefitspro.com
Just as they are combing through health plans looking for cost-cutting opportunities, so are employers trimming the fat off employee 401(k) plans. However, in general, they are attempting to do so without sacrificing investment quality. Plans with lower fees have become popular, as have those that offer participants more options, some of which combine lower fees with solid returns.
All of these observations come to us fresh from an Aon Hewitt survey of 400 defined contribution plan sponsors. Their plans cover more than 10 million employees with a total of $500 billion in retirement assets. These sponsors were asked about their retirement benefits strategies, plan designs and investment structures.
When last asked about such matters in 2007, just more than half of the respondents said they were working to reduce fund or plan expenses. This time around, more than three-quarters said they looking for ways to cut such costs.
The most common methods for doing so were switching share classes to less costly alternatives (62 percent) and swapping out funds for lower-cost alternatives (50 percent).
The survey identified lower fees are the No. 1 reason for choosing fund options. Other top factors included historical investment performance and fund investment process. Once powerful factors such as name recognition and availability in public sources were no longer seen as priorities.
“One of the most direct ways to increase participant balances is to increase their returns, which can be done effectively by decreasing investment fees without sacrificing investment quality,” said Rob Austin, director of Retirement Research at Aon Hewitt. “Even small changes in 401(k) fees can have a significant impact on employees’ nest eggs over time. For example, decreasing fees from 1 percent to 0.75 percent per year has the same effect on a typical participant as contributing an additional 0.50 percent of pay. This ultimately translates into thousands of dollars more in retirement savings.”
Other highlights from the Aon survey:
More than 90 percent of employers offered non-mutual fund alternatives — such as collective trusts and separate accounts — in their 401(k) menus, compared to 59 percent in 2007.
44 percent chose these alternatives as their primary fund options in 2013, compared to just 19 percent in 2007.
30 percent offered plan participants emerging market funds this year, compared to 15 percent in 2007.
14 percent offers participants short-term bond funds, compared to 8 percent in 2007.
Another trend spotted by the survey: Large increases in the index approach were found in mid-cap equity (59 percent in 2013 vs. 42 percent in 2011), intermediate bond (53 percent in 2013 vs. 42 percent in 2011), and international equity (50 percent in 2013 compared to 31 percent in 2011).
Nuts for longevity: Daily handful is linked to longer life
Originally published November 21, 2013 by Allison Aubrey on https://www.npr.org
Nuts might be loaded with fat but evidence suggests they could help you live longer. A diet study found earlier this year that a diet with daily portions of nuts and olive oil reduced the risks of heart attacks and strokes. Recent evidence found that nuts can help control appetite, which could reduce weight gain.
Americans have not always been in love with nuts.
Think about it: They're loaded with calories and fat. Plus, they can be expensive.
But Americans' views — and eating habits — when it comes to nuts are changing. Fast.
There's a growing body of scientific evidence that's putting a health halo over supermarkets' expanding nut aisles.
Earlier this year, a large diet study concluded that people who eat a Mediterranean-style diet supplemented with daily portions of nuts and olive oil have significantly lower risks of heart attacks and strokes.
And just last month, more evidence emerged that snacking on nuts helps control our appetites, which may stave off weight gain.
Now, a new study published in the New England Journal of Medicine finds that people in the habit of eating a daily handful (a 1-ounce serving) of nuts are more likely to live longer compared with people who rarely consume nuts.
"The preponderance of evidence suggests a health benefit [from eating nuts]," says researcher Charles Fuchs of the Dana-Farber Cancer Institute and Harvard Medical School.
To isolate the association between nut consumption and lifespan, Fuchs and his colleagues combined data from two long-term studies that include about 76,000 women and 42,000 men.
The participants in the study completed food frequency surveys every two to four years over several decades. They answered all kinds of questions about dozens of different kinds of foods, including how many servings of nuts they consumed.
"What we find is that regular nut consumers have about a 20 percent reduction in all-cause mortality" over the course of the study, Fuchs says. This includes lower death rates from heart disease and cancer.
Now, since death is inevitable for all of us, here's another way to think about the findings: Men and women who were regularly munching on peanuts or tree nuts like almonds, pecans and walnuts in their 30s and 40s when the study began were significantly more likely to reach their 70s, compared with folks who didn't eat nuts.
So how could a daily handful of nuts possibly be so beneficial? Fuchs says it's not entirely clear.
"What we think nuts do is that they affect metabolism," he explains. Prior research has shown that nuts help us feel fuller, faster. And nuts also help control blood sugar.
Fuchs says if nuts lead to a sense of satiety and help people eat less, many of the other benefits may follow. This could "reduce the risk of diabetes and also reduce the risk of cardiovascular disease," he says.
Of course, this study does not prove a cause and effect between eating nuts and living longer. The design of this type of long-term, observational study only enables researchers to establish an association — a link.
Going forward, researchers want to try to better understand what might explain this link. They want to know more about how the combination of beneficial plant compounds and minerals — such as magnesium, fiber and protein — found in nuts may be influencing the body.
With all the good news about nuts in the news, experts who track food trends say more Americans are eating them.
"Nuts are in the perfect spot right now," says John Frank of Mintel. The market research firm estimates that sales of nuts and dried fruit in the U.S. will grow from about $7 billion in annual sales in 2012 to over $9 billion by 2017.
Nuts check a lot of boxes that young adults are looking for: They're high in protein, they're easy to grab and eat on the go, and they're a natural, plant-based food.
"I'm a vegetarian, so nuts are an important part of my diet, for added protein," shopper Emily Williams told me as she added nuts to her shopping cart at a Trader Joe's in Washington, D.C.
Many grocery stores' expanding nut aisles now include lots of variety — everything from dark-chocolate-covered almonds to spicy, Asian-flavor-infused nuts.
And Frank says millennials love the variety. Young adults aren't just snacking on nuts — increasingly, they're tossing them in salads and sprinkling them in yogurt and cereal.
One note about the NEJM study on nuts: The major part of the study was funded by the National Institutes of Health. The researchers also accepted a grant from the International Tree Nut Council Nutrition Research and Education Foundation to cover the cost of analyzing the data.
"The [nut] council approved the grant without any knowledge of the results," says Fuchs. And there was an agreement that the researchers would have reported the findings no matter what the results showed.
IRS Finalizes Rules on Additional Medicare Tax
Originally posted December 02, 2013 by Michael Cohn on https://www.accountingtoday.com
The Internal Revenue Service has released the final regulations for the 0.9 percent Additional Medicare Tax that was imposed as part of the Affordable Care Act.
The final regulations that were released last week more or less adhere to the proposed regulations that were released last year for the Additional Hospital Insurance Tax on income above threshold amounts, usually referred to as the Additional Medicare Tax (see Tax Strategy: Proposed Guidance on Medicare Contribution Taxes). The tax took effect on January 1 of this year and applies to wages, compensation, and self-employment income above a threshold amount received in taxable years beginning after Dec. 31, 2012. The threshold amounts are $200,000 for single taxpayers and $250,000 for married filing jointly (or $125,000 for married filing separately) taxpayers.
The IRS also released final regulations last week on another tax that was included in the Affordable Care Act, the 3.8 percent Net Investment Income Tax (see IRS Releases Final Rules for Net Investment Income Tax).
The 0.9 percent Additional Medicare Tax applies to wages, railroad retirement compensation, and self-employment income over certain thresholds. Employers are responsible for withholding the tax on wages and Railroad Retirement Tax Act compensation in certain circumstances.
The only major change from the proposed regulations that were issued last December is that the proposed regulations had provided that if the employer deducts less than the correct amount of Additional Medicare Tax, it is nonetheless liable for the correct amount of tax that it was required to withhold, unless the employee pays the tax. The proposed regulations also provided that if an employee subsequently pays the tax that the employer failed to deduct, the tax would not be collected from the employer.
The final regulations, however, further say that an employer is not relieved of its liability for payment of any Additional Medicare Tax that is required to be withheld unless it can show that the tax has been paid by the employee. Employers will use Form 4669, “Statement of Payments Received,” and Form 4670, “Request for Relief from Payment of Income Tax Withholding,” the same forms used for requesting federal income tax withholding relief, to request relief from paying Additional Medicare Tax that has already been paid by the employee.
The final regulations also amend the proposed regulations to comply with the formatting requirements of the Office of the Federal Register.
However, the IRS rejected a number of requests from various people who had commented on the proposed regulations. One commenter had expressed concern about the impact of the regulations on the small business and individual taxpayer community. The commenter disagreed with the IRS’s conclusion in the proposed regulations that no regulatory assessment or regulatory flexibility analysis were required because the rulemaking was not a significant regulatory action and would not have a significant economic impact on a substantial number of small entities.
A 1993 executive order requires agencies to prepare a regulatory assessment for "significant regulatory actions" and economically significant regulations, that is, regulatory actions that are likely to have an annual effect on the economy of $100 million or more. The commenter contended that the skills equivalent to a junior associate accountant would be needed to comply with the regulations. The commentator further argued that, assuming a junior associate reasonably bills for services at the rate of $100 per hour, and using the estimated annual reporting or recordkeeping burden for these regulations of 1.9 million hours, the estimated annual effect on the economy would $190 million.
However, The Treasury Department and the IRS said they did “not agree with the commenter’s assertion that all individuals and entities subject to the regulations will require the services of an accountant. Many employers utilize payroll service providers that are equipped to comply with these regulations and that will include Additional Medicare Tax as part of the payroll services they provide. Other employers and individuals will be able to comply with these regulations without assistance by following the instructions that accompany tax forms and by utilizing other information provided by the IRS. Therefore, neither the proposed regulations, nor these final regulations, are significant regulatory actions within the meaning of E.O. 12866, and a regulatory assessment is not required.”