Newsletter from Integrated Benefit Solutions
IRS Issues Guidance on Taxability of DCAP Benefits
for 2021 and 2022
On May 10, 2021, the Internal Revenue Service
(IRS) released guidance
on the taxability of dependent care assistance programs (DCAPs)
for 2021 and 2022, clarifying that amounts attributable to
previously issued carryover
and extended grace period relief generally are not taxable.
Specifically, if these dependent care benefits would have been
excluded from income if used during taxable year 2020 (or 2021,
if applicable), these benefits will remain excludible
from gross income and are not considered wages of the employee
for 2021 and 2022. They will also generally not be taken into account
for purposes of applying the exclusion limits of Internal Revenue
Code Section 129.
IRS Notice 2021-26 clarifies the interaction of this standard
with the one-year increase in the exclusion for employer-provided
dependent care benefits from $5,000 to $10,500 for the 2021
taxable year under the American Rescue Plan Act:
Employee elects to contribute $5,000 for DCAP benefits for the
2020 plan year but incurs no dependent care expenses during that
plan year. The employer amends its plan to allow the employee to
carry over the unused $5,000 of DCAP benefits to the 2021 plan
year. The employee elects to contribute $10,500 for DCAP benefits
for the 2021 plan year, incurs $15,500 in dependent care expenses
for that plan year, and is reimbursed $15,500 by the DCAP.
The $15,500 is excluded from the employee’s gross income and
wages because $10,500 is excluded as 2021 benefits and the
remaining $5,000 is attributable to a carryover permitted by the
previously issued coronavirus-related relief.
IRS FAQs on COBRA Subsidies
The Internal Revenue Service (IRS) has published frequently
asked questions (FAQs) on the application of the
American Rescue Plan Act (ARP) subsidies for continuation health
coverage under the Consolidated Omnibus Budget Reconciliation Act
of 1985 (COBRA). The FAQs cover a wide range of topics.
The ARP subsidy covers 100% of COBRA and State mini-COBRA
premiums from April 1–Sept. 30, 2021, for certain Assistance
Eligible Individuals whose work hours were reduced or whose
employment was involuntarily terminated. The subsidy is funded
via a tax credit provided to employers, insurers
or group health plans, according to the terms of the statute.
Among the topics covered are how to calculate and claim the tax
credit, including when a third-party payer is involved. According
to the guidance, employers must document individuals’ eligibility
for COBRA premium assistance in order to
claim the credit. The FAQs further clarify that:
- The subsidy is available for
extended periods of COBRA coverage between April 1 and Sept.
30, 2021, due to a disability, second qualifying event or extension under State
- Involuntary termination
includes constructive discharge and termination for cause,
but not gross misconduct.
- Health reimbursement
arrangements, dental-only plans and vision-only plans are
covered by the subsidy.
Employers should review the IRS FAQs in their entirety to ensure
compliance with the ARP, especially with respect to notice and
Protecting HR Teams from Burnout
Burnout is a commonly discussed issue amid the
COVID-19 pandemic. Oftentimes, it’s HR’s
responsibility to help employees cope with burnout and its
contributing factors. In many cases, that leaves HR teams without
lifelines of their own. However, HR professionals can take steps
to stay afloat when feeling overburdened.
Burnout, in simple terms, is the feeling of mental exhaustion
stemming from workplace duties. According to the World Health
Organization, burnout may be shown through the following
- Fatigue or energy depletion
- Decreased engagement at
work, or feelings of negativism or cynicism related to one's
- Reduced productivity or efficacy
As these examples show, burnout doesn’t
always look the same for everyone. Yet, the impacts of burnout are
typically uniform—lower-quality work and detrimental health
Below are action steps for HR professionals to consider when
dealing with burnout:
- Meet regularly with team
members and peers to gauge their emotional states and discuss
individual work duties as needed.
- Recognize and celebrate
individual and team achievements.
- Train other managers on how
to keep employees engaged and motivated at work, and how to
spot signs of burnout.
- Clearly communicate that employees should reach out if they
are experiencing burnout, and that there will be no
punishment for seeking help.
Consider what actions can help address the unique
needs of your work environment.
Hiring and Managing Seasonal Employees
With the summer hiring season
underway, employers should begin thinking about how best to hire
and manage seasonal employees. Employers who do not dedicate time
to these critical steps risk having to face disgruntled
employees, unhappy customers, and even legal violations. To learn
some best practices for hiring and managing seasonal employees,
please watch the video below.